Q: Apologies if this is a stupid question, but can I backup my external hard drive data onto my icloud?

Can I backup data from an external hard drive onto my iCloud via my iMac?

iCloud Drive is not meant as a regular backup drive, see: iCloud Drive FAQ

iCloud Drive is for keeping documents in sync across all your devices. If you store a document on iCloud Drive, it will be synced to all other Macs and be stored on the Macs as well.

To backup an external drive it would be much better to buy a second drive and clone the drive or include your external drive in your Time Machine backup. This way, you will have the backup available, even when the network is not available, and in the long run it would be less expensive than paying for cloud storage.