House of Commons - Department for International Development Annual Report & Resource Accounts 2009-10

Department for International Development Annual Report & Resource Accounts 2009-10 - International Development Committee Contents

2 Areas of increased expenditure

The DFID CSR settlement

5. DFID's budget will grow unevenly over the next 4 years: by £1 billion in the two years to 2012-13 and then very rapidly by £2.5 billion in 2013-14 to reach £11.3 billion and £11.5 billion in the 2014-15. In this chapter we look at some of the Coalition Government's new priorities and areas where spending will, or might, increase. We consider:[9]

Fragile and conflict-affected states
Climate change
ODA spending by other Departments
Research
Multilateral institutions.

Fragile and conflict-affected states

6. Government policy towards conflict-affected and fragile countries has two distinct, albeit related strands. First, it is clear that aid and soft diplomacy have a key role in conflict prevention and resolution. Secondly, some of the poorest people in the world live in conflict-affected countries and those where governments are unable or unwilling to deliver basic services.

7. The Secretary of State has said that he wants an international development programme that contributes to national security goals.[10] The Government plans to ensure that DFID works more closely with other Government Departments, in particular the Foreign and Commonwealth Office (FCO) and the Ministry of Defence (MOD). To achieve this, the Government has set up a National Security Council which includes the Secretary of State for International Development. DFID informed us of the advantages of this arrangement:

The production of a national security strategy and the Strategic Defence and Security Review were interesting in the sense that it was the first time that development had a big seat at that table, and I think some of the emphasis in those documents on prevention and taking a long-term view reflects the fact that development had an important seat at that table. I think there was an awareness from many of our colleagues, both in the Ministry of Defence and the intelligence community, that in future it would be much cheaper to prevent Afghanistans rather than to try and fix the problem once it has gone terribly wrong.[11]

The National Security Strategy (NSS), including the work of the National Security Council (NSC), is to be scrutinised by the Joint Committee on the National Security Strategy. We will, however, take a close interest in the development aspects of the NSS and NSC.

8. Another example of joint working between DFID, the FCO and MoD is the Conflict Pool. From 2009 the Africa Conflict Prevention Pool and the Global Conflict Prevention Pool were merged into the Conflict Prevention Pool; and the Stabilisation Aid Fund was created. In 2009 the Conflict Prevention Pool and the Stabilisation Aid Fund were merged to form the Conflict Pool; and responsibility for discretionary peacekeeping costs was moved from the FCO to the Conflict Pool. The Conflict Pool is governed and managed jointly by DFID, the FCO and MoD. It is a source of funding to support the UK Government's aims for preventing and managing international conflict. The cross-Whitehall Conflict Pool helps address global conflict, by bringing together the UK Government's development, diplomatic, and defence interests. In 2009-10 £103.7 million was allocated to the Conflict Pool.[12] We note that closer working between departments should be assisted by the Conflict Pool which brings together the Government's development, diplomatic and defence interests. We trust the Pool will continue to be used for conflict prevention.

9. During a visit to Afghanistan in May 2010 the Secretary of State emphasised the link between development and the UK's national interest, noting that there were few countries where

the combination of our moral commitment to development and safeguarding our national interest is so enmeshed. Building the capacity of the state to guarantee security and stability, deliver development and reduce poverty is central to defeating violent extremism and protecting British streets.[13]

10. A recent Chatham House paper argued that if the UK wanted to deepen its commitment to tackling the challenges posed by fragile states, it needed to remodel DFID extensively with the Department concentrating on developing a coherent, preventative agenda for fragile states.[14] The report also recommended that DFID put more staff in fragile states and concentrate on enhancing its political influence rather than on administering aid budgets.

11. Of the 34 countries furthest from reaching the Millennium Development Goals, 22 are in or emerging from conflict.[15] Moreover, according to DFID, fragile states receive approximately 43% less funding than they should from the international donor community, based on their need and levels of poverty.[16] Although, as the Department recognises, it can be difficult to spend money in more challenging environments,[17] the Department intends to continue to expand its work in them. DFID told us:

The Coalition Government has a different set of priorities from its predecessors—some continuity, but also some very important new themes. It has been clear that we need to do more than we're currently doing in the most fragile, conflict ridden states—those are obviously the hardest operating environments.[18]

12. The NAO has informed us that the CSR

projected a rise in the share of UK ODA supporting fragile and conflict-affected states will increase from 22% in 2010 (the equivalent of £1,800 million) to 30% (around £3,800 million) by 2014-15.[19]

13. However, this spending is difficult to monitor in part because there is no agreed global list of fragile states. It will be necessary to ensure that the increased spending is ODA-compliant and we consider this below.

14. Increasing spending in fragile states will necessarily lead to a relative decrease in spending in more stable developing countries. DFID told us:

Actually, from our point of view, that's kind of a win; the whole goal of our business is to help countries move on and no longer need aid, so we view that mostly as a good thing, but at the margins it is possible that Ministers will face quite tough choices about a bit more investment in a less fragile country, which might have higher returns, as opposed to wanting to do more in a more fragile one, whose returns might be longer in coming through.[20]

15. DFID is placing an increased focus on working in fragile and conflict-affected countries, which are often furthest from achieving the Millennium Development Goals. In its reply to this report the Government should state which countries will be receiving the increased spending. The new focus will produce problems. There will be severe difficulties in ensuring every pound is well-spent in war-torn environments with corrupt and incompetent Governments and the greater focus on fragile states is likely to lead to less assistance to some countries with good governance where aid is likely to be well spent. We are to undertake an inquiry into fragile states in 2011 and will examine these issues in more detail.

16. Closer working between DFID, the FCO and the MoD is welcome, especially in fragile and conflict-affected countries. We do not expect this will lead to the potential militarisation of aid and trust it will not. We also welcome DFID's inclusion in the National Security Council and expect it will lead to a more coherent approach to national security. We support the establishment of the Joint Committee on the National Security Strategy which will scrutinise the National Security Strategy, including the work of the National Security Council. We comment below on the staffing requirements of increasing emphasis on working in fragile states and conflict prevention.

Climate change

17. The Copenhagen Accord, agreed at the United Nations Conference on Climate Change in 2009, included a commitment to provide $30 billion in funding over the three years to 2013 to help developing countries mitigate and adapt to climate change and an agreement to work towards the goal of achieving US$100 billion annual funding for developing countries by 2020.[21] The last Government agreed to play its part in providing funding, as has the coalition Government. The UK is contributing £1.5 billion in Fast Start finance over three years (2010-2012), of which £300 million will be dedicated to helping rainforest nations safeguard their forests.[22] The CSR allocated £2.9 billion to assist developing countries to respond to climate change for the period to 2014-15. DFID assured us that all this funding was "for the purpose of poverty reduction through low-carbon growth, building resilience and adapting to climate change, and also tackling the problem of deforestation."[23] Although DFID has been allocated the majority of this (62%), the Department for Environment, Food and Rural Affairs (DEFRA) and the Department of Energy and Climate Change (DECC) also have shares—3% and 35% respectively. DFID added that there were "some possibilities of intra-departmental flows if we need to adjust during the course of the spending review period"[24]

18. The last Government imposed a 10% limit on the amount of ODA which could be used for helping developing countries to respond to climate change. DFID informed us that the funding allocated over the CSR period was no more than 7.5% of ODA and that "it would not go beyond this in the spending review period." [25] DFID considered that it was important for development and climate change to be tackled together; climate change had become one of the pillars of the Department's Business Plan.[26] We welcome the Government's policy of making climate change an integral part of DFID's programmes and providing £2.9 billion funding up to 2014-15 to help developing countries respond to climate change. In its response to this report the Government should state how much of this money will be ODA-compliant and how DECC is to spend its share of the money. There should be a limit on the amount of ODA spent helping developing countries respond to climate change, and we are reassured that the funding allocated for this purpose in the CSR is less than 10% of ODA.

Development expenditure by other Government Departments

19. At present DFID contributes approximately 86% of the UK's total ODA. This share has been relatively stable over time. It was 84% in 2006.[27] Other Government Departments and public bodies also deliver UK ODA. For example, the FCO's contribution to UK ODA spending is around 2% in 2010/11 and will increase to 2.4% in 2011/12.[28]

20. The Institute of Development Studies (IDS) has argued that if more ODA is used by other Government Departments "it must be shown— and be seen—to have an impact on poverty. If not, DFID's work will lose credibility."[29] We asked the Permanent Secretary whether she expected the proportion of ODA provided by other Departments to increase and how it would be possible to ensure it met with agreed definitions of ODA-eligible expenditure. We were told that:

Other Departments' ODA allocations have been hard-wired in their settlement letters, and the indications that we have are that the proportion spent by DFID will actually increase to 89% by the end of the spending review. So that worry that the money would be spread round actually has not manifested itself. In terms of your question as to whether we have any leverage over it, I think we have three; one is that we're responsible for making sure that all that spend is actually compliant with the OECD definition of aid[....] Secondly, it will also be subject to the transparency agenda, so they will also have to publish in a transparent way how they are spending the aid budget. Thirdly, it will also be subject to the Independent Commission for Aid Impact, so they will be subject to evaluations that are done by the Commissioners.[30]

21. The type of expenditure which can be reported as ODA is determined by the Organisation for Economic Cooperation and Development's (OECD) Development Assistance Committee (DAC). The basic definition of ODA, which has not changed significantly since 1972, refers to:

to financial flows to countries on the DAC list of ODA recipients and to multilateral development institutions which are provided by official agencies or by their executive agencies, and each transaction of which is administered with the promotion of the economic development and welfare of developing countries as its main objective; and is concessional in character and conveys a grant element of at least 25 per cent.[31]

22. Although it might be desirable, the OECD-DAC told us that there were no current plans to revise the definition of ODA. There were clear guidelines about what type of expenditure was eligible to be reported as ODA. For example, 6% of donor contributions for UN Peacekeeping operations are eligible. For bilateral assistance the management of security expenditure can be counted but not counter-terrorism activities or any expenditure on weapons. Police training is eligible as are improving governance and democratisation programmes. Gift Aid through NGOs can also be reported as ODA.[32]

23. All ODA provided by DFID is subject to the International Development Act 2002 which states that the Secretary of State may provide development assistance if he is satisfied that such assistance will contribute to poverty reduction.[33]This is a narrower interpretation of ODA than that used by the OECD, but the Act applies only to ODA provided by DFID, not to ODA provided by other Government Departments.[34] This means that the ODA provided by these Departments need not have poverty reduction as its primary objective.

24. Some of DFID's budget is being transferred to others departments. In the 2010-11 Winter Supplementary Estimate £58.697m is transferred to the FCO for British Council Official Development Assistance (£40m), Conflict Prevention Pool (£16.547m), Papal Visit (£1.85m.), Police Training in Tanzania (£0.2m) and Visas for Chernobyl Victims (£0.18m). £16.033m. is transferred to the Ministry of Defence in respect of the Conflict Prevention Pool.[35] The Secretary of State told us:

When I was in discussions with the Foreign Secretary about the British Council, it was clear that he would not be able to fund that through his budget and I said that we would look at it. I made it clear back in July that, as much of what the British Council does is ODA compliant—the Committee will understand the very good work that the British Council does around the world, particularly on education—I would not want us as a country to lose the ability to fund that. So I made it clear to the Foreign Office that we would take that over, but subject to the fact that it must be good quality spend that the independent evaluation body says is well spent.[36]

DFID subsequently clarified the situation, noting that the Secretary of State had agreed to

release budget to the FCO to remove the [financial pressure] from them. FCO and British Council remain responsible and accountable for the spend, with no DFID involvement on a day to day basis. Of course, as the overall "owner" of UK ODA, DFID has a general interest in ensuring that all reported ODA is well spent. For future years, the recent Spending Review 2010 settlement has ensured that each department has received the appropriate amount of ODA budget.

25. The Permanent Secretary informed us that the share of the UK's ODA which DFID spends will continue to increase. She expects it to be 89% by 2014-15. This ensures that the majority of UK aid is compliant with the International Development Act 2002 and is for the purposes of poverty reduction. Spending by other departments does not necessarily comply with the 2002 Act. DFID is transferring sums to other departments, including somewhat surprisingly funds for the 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.

Research

26. According to the Permanent Secretary DFID will increase its research budget over the CSR period from 2.6% to 3% of a significantly larger budget (ie to c. £350 million). This is based on "analysis of the value for money we get out of research, particularly some of the research in new agricultural technologies and techniques, and medical trials."[37] We asked the Permanent Secretary whether DFID sought to ensure that the UK maintained a strong research base in international development. She told us that all research contracts were competitively tendered for and that there was no particular preference given to UK universities. 44% of DFID's central research funds went to UK institutions in 2009-10.[38]

27. We expressed our concern in the evidence session with the Permanent Secretary that the results of DFID's research were not always readily available and that little effort was made to disseminate them widely. This could be done by making it clear to those receiving research grants that they were expected to submit evidence to relevant Select Committee inquiries. We were assured that these issues would be addressed.[39] DFID has subsequently put forward a number of suggestions for this.[40]

28. Research makes an important contribution both to DFID's work and to international development more widely and it is important that DFID continues to fund high quality independent research. 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. We are concerned that at present UK research institutions are unfairly disadvantaged compared to universities in other donor countries. Research commissioned by DFID must be disseminated more widely. Tenders for research should state that researchers are expected to provide submissions to select committee inquiries into relevant subjects and make their research available to the public at large in order to increase transparency.

Switching aid from bilateral to multilateral institutions

29. DFID provides aid directly to around 90 countries. About 90% of its bilateral aid goes to 22 priority countries.[41] A Bilateral Aid Review of all DFID's country programmes is expected to be completed at the end of February. Announcing the review on 16 June the Secretary of State said:

The review will consider which countries should receive British aid, how much they should receive and which countries should stop receiving British aid. It will also consider which aid instruments are most effective at delivering poverty reduction in different contexts. Any savings generated will be redirected to more effective programmes in other poor countries.[42]

30. DFID has already announced that it will end its aid programme in China and Russia and the funds will be redirected to countries where it can make the most difference.[43] Announcing the closure of these programmes the Secretary of State said that "UK money should be spent helping the poorest people in the poorest countries."[44] This seemed to imply that aid to other middle income countries would also be reduced. The previous International Development Committee had urged DFID to create a coherent strategy for its assistance to middle income countries.[45] This is becoming more important as the number of middle income countries, with significant levels of poverty, is increasing. We are currently engaged in an inquiry into the future of DFID's programme in India, a country which has recently attained lower middle income status.

31. DFID might be able to employ fewer staff and lower its administration costs by concentrating bilateral aid in fewer countries. DFID could also spend its increased budget with little increase in its own administration costs if the share of spending through multilateral institutions increased. In 2009-10 DFID spent £2,436m (37%) of its aid on core funding to multilateral organisations. DFID said that one of the ways it could absorb the big increase in ODA funding in the third year of the settlement (2012-2013) would be to spend it through multilateral channels. The World Bank's International Development Association (IDA) was one of a number of options.[46] However, while it is cheaper for DFID to spend funds through multilateral institutions, these institutions have their own administration costs which are in many cases almost certainly higher than DFID's.

32. DFID added that these decisions would be based on the results of the multilateral and bilateral reviews:

Ministers are in the midst of making decisions such as choosing between multilateral and bilateral and other global issue spend. They have no preconceptions about that. I think the criteria that we will use to decide will be: "Where do we get the most value for money? Which are the institutions, or countries, where we can get the biggest development impacts for our spend?" As yet, there is no decision on that. I think the admin budget settlement ultimately constrains us a bit as to how much we can do bilaterally, but I don't think it constrains Ministers' choices to such a degree that we have to think about all the incremental increase on the programme side going through multilaterals.[47]

33. 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. Moreover it should also be noted that increased spending through multilaterals may reduce the control available to DFID. It can be argued that it also dilutes its influence as a major international donor - a proposal which the Committee will examine further. The case for spending through multilaterals must come from intrinsic advantages such as economies of scale and lower transaction costs for developing countries. DFID has not taken a decision yet and we await the Multilateral Aid Review for an analysis of the costs and benefits.

34. It is also uncertain as yet what decisions will be made in respect of middle income countries following the Bilateral Aid Review. We reiterate our recommendation made in reports in the last Parliament that DFID should have a strategy for its engagement with middle income countries, especially those with large numbers of poor people, indicating the role of bilateral and multilateral aid.

9 In our report on the Millennium Development Goals (MDGs) we examined a number of other Government priorities, namely DFID's commitment to meet the MDGs and its role in improving the lives of girls and women (International Development Committee, Second Report of 2010-12, The 2010 Millennium Development Goals Review Summit). Back

10 http://www.dfid.gov.uk/Media-Room/Speeches-and-articles/2010/Development-in-a-Conflicted-World/ Back

11 Q 66 Back

12 http://www.dfid.gov.uk/About-DFID/Finance-and-performance/Aid-Statistics/Statistic-on-International-Development-2010/SID-2010-Annex-4---Data-Sources/ Back

13 http://www.dfid.gov.uk/Media-Room/News-Stories/2010/Secretaries-of-State-visit-Afghanistan/ Back

14 Organising for influence: UK Foreign Policy in an age of uncertainty, June 2010 Back

15 International Development Committee, Second Report of Session 2010-11, The 2010 Millennium Development Goals Review Summit, HC 534 Back

16 International Development Committee, Fourth Report of Session 2009-10, DFID's Performance in 2008-09 and the 2009 White Paper, HC48 -II, Ev 2 Back

17 Ev 20 Back

18 Q 9 Back

19 NAO, The work of the Department, p 20 Back

20 Q 64 Back