TBA Global

Hundreds of millions in UK aid returns to Treasury in VAT on asylum hotel bills

In recent years, the cost of accommodating refugees in British hotels has been steadily increasing, and the Treasury has been reclaiming hundreds of millions of pounds of UK aid spending in the form of value-added tax (VAT). The government claims that it has been paying VAT for the expenses of accommodating these refugees in hotels and is counting such expenses towards its overseas development spending target.


However, there are voices of dissent, arguing that the government should not consider payments to British hotels as international aid. They also point out that the UK is facing a mounting backlog of asylum cases, and the high costs associated are unsustainable. Sarah Champion, the Labour chair of the International Development Committee, believes that overseas development aid spending has spiralled out of control, and has not been used for its intended purpose. The actions of the Treasury indicate the lack of a clear objective.

In the past, refugee asylum accounted for a small proportion of the UK’s aid budget. In 2016, refugee asylum spending was £410 million, representing 3.2% of the aid budget. However, since 2017, the number of asylum applications has increased by 160%, and the backlog of unresolved applications has risen by over 400%. Meanwhile, the cost of refugee accommodation has also sharply risen.

Currently, around 37,000 refugees are being accommodated in British hotels, costing approximately £2 billion per year, accounting for 16% of the total aid budget. The committee states that the proportion and amount of the budget taken up by refugee asylum are unprecedented, and if this continues in the long term, the UK government will not be able to sustain it.

However, the Treasury is also attempting to recoup some of the expenses. Currently, hotels charge 20% VAT on rooms in the first 28 days of accommodation, after which the rate is reduced and varies between 4% to 20%, typically around 10%. But due to the lack of detailed lists of hotels, it is not possible to determine the exact percentage of VAT in their bills.

The UK is currently one of the major donor countries globally, with nearly £13 billion spent on aid last year, ranking third in terms of the percentage of national income spent among the G7 nations. The government has also announced that it will allocate an additional £2.5 billion in the autumn statement for special expenses related to refugee asylum.

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