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In the 2010 Comprehensive Spending Review (CSR) the Coalition Government announced its decision to achieve the internationally agreed target of providing 0.7% of Gross National Income as ODA from 2013. This will involve spending an additional £2.5 billion in 2013-14 to make the total DFID budget £11.3 billion in that year.
There will be a large increase in spending on fragile and conflict-affected states - from £1.8 billion in 2010 to £3.8 billion in 2014-15. It will be difficult to ensure that every pound is well-spent in such war-torn environments. Moreover, the greater focus on fragile states is likely to lead to reduced aid to some countries with good governance where aid may be able to achieve more. We plan to hold an inquiry into fragile states where we will consider these issues in more detail. As part of the greater emphasis on fragile states DFID, the FCO and the MoD will work more closely together. We welcome this, and DFID's inclusion in the National Security Council.
DFID will increase its research budget over the next four years from 2.6% to 3% of a significantly larger budget, to approximately £350 million. DFID should seek to stimulate research in institutions in developing countries, but it must also recognise the expertise in UK universities and ensure that the UK remains an important centre of research into international development. Research commissioned by DFID must be disseminated more widely.
DFID contributes approximately 86% of the UK's total ODA. This share has been relatively stable over time and is to rise to 89% by 2014-15. However, there is concern that the DFID budget might be used for purposes other than ODA. In the current financial year DFID is transferring sums to other departments. Funds are being transferred to the FCO for the British Council. We support the work of the Council and have been assured that the funds will be used to support the ODA elements of the British Council's work, but will be seeking further clarification. Somewhat surprisingly funds have also been transferred to cover some of the costs of the recent papal visit. The Government should explain in its response to this report what the funds transferred to the FCO for the papal visit were spent on and how this was ODA-compliant.
Increasing spending through multilateral organisations would enable DFID to accommodate the large increase in spending in 2013-14 without a major increase in running costs, for example by making additional payments to the World Bank. However, it would make little sense to save on DFID's administration costs by spending money through institutions with higher costs. The case for spending through multilaterals must come from intrinsic advantages such as the quality of the institution's work, economies of scale and lower transaction costs for developing countries. We await the Multilateral Aid Review for an analysis of the costs and benefits of any such decision. We are about to publish a report on the World Bank and will be undertaking an inquiry into EU spending on aid.
At the same time as increasing spending in many areas, the Government is seeking to ensure maximum value for money. The CSR announced reductions in DFID's running costs to 2% of the total budget. If achieved, this would make DFID the most cost-efficient development organisation in the world.
In addition, the Secretary of State has instituted a number of reviews of UK aid programmes. There is to be a 'watchdog', the Independent Commission for Aid Impact (ICAI), to undertake evaluations of DFID's programmes and an Aid Transparency Guarantee to make public information about all DFID's spending over the value of £500 on the departmental website. The information will therefore enable people all over the world, including those who benefit from aid funding, to see how UK aid is spent.
The reduction in running costs as a proportion of total costs is to be achieved by a large reduction in back office administration costs (which excludes front-line staff) of £34 million over the CSR period. We support the proposals to make savings in back office staff, but note that efficiency must not be compromised by an attempt to reduce costs whatever the consequences. We also note that some extra staff traditionally defined as back-office will also be needed, in particular people capable of effectively commissioning work from and managing external suppliers. The use of external suppliers should be determined by assessing the best way to achieve outcomes, not by external constraints on administrative costs or staffing levels. We will monitor these matters carefully through our future inquiries into DFID's Annual Report; DFID should include in next year's report figures for total back-office and frontline staff.
While declining as a share of total costs, running costs will increase in real terms over the next four years because the total budget will rise so much. The increase in running costs, together with the reduction in administration costs, will allow DFID to recruit 300 to 400 more frontline staff. It should recruit staff with the right skills to work in fragile states and with multinational organisations, or capable of working with the FCO and MOD on policy.
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