UK aid: allocation of resources: interim report Contents

2The new UK aid strategy

The focus of the new UK aid strategy

Fragile states and regions

6.The new aid strategy includes an increased focus on fragile states and regions, by way of a commitment to “allocate 50% of all DFID’s spending to fragile states and regions”.5 There are a number of reasons given in the aid strategy for this focus. The first is that, in “the future, extreme poverty is likely to be concentrated in fragile countries.” The second is “to address current crises, the root causes of migration, and the threats posed to the UK by the ongoing conflict [in Syria].” The third is as a “major investment in global stability, including in regions of strategic importance to the UK”.6 The Government had already previously committed to spending 30% of total UK ODA, as opposed to just DFID’s budget, to support fragile and conflict-affected states by 2014–15, in the 2010 SDSR.7

7.The general response from witnesses to this inquiry was welcoming of the new aid strategy and its focus on fragile states and regions, due to the high concentrations of extreme poverty and high levels of need in those states.8 Harpinder Collacott, Executive Director of Development Initiatives, told us that:

“It brings together poverty and also other issues around instability and insecurity, which are, from our perspective, great to see. […] It reflects, from our perspective, a continuation, to some degree, of the way that DFID has been leading globally in the role that it has been given, specifically in fragile states.”9

Mark Lowcock, Permanent Secretary of DFID, also told us that this focus is a continuation of what DFID is already doing, “something like 85% of the bilateral programme at the moment is for fragile and conflict-affected states. It will remain at a very high level.” DFID’s approach is therefore to direct more of the multilateral budget towards fragile states and regions, through “a dialogue with the multilateral institutions to try to focus their resources more on countries where there are real problems.”10

8.Despite this, as the aid strategy is framed in terms of benefiting the UK’s national interest, it creates the potential for a reduced focus on poverty reduction. Poverty reduction is a statutory requirement for the spending of development assistance by DFID,11 but not necessarily for the spending of ODA by other government departments, and has traditionally been the first priority of UK aid spending. Its prime importance is also reflected in the Sustainable Development Goals, which the UK took a leading role in negotiating, with the first goal being to “end poverty in all its forms everywhere”.12 However, of the four objectives for UK aid in the new UK aid strategy, tackling extreme poverty is listed as the fourth and final objective, below objectives which are more focused on security, prosperity and the national interest. The short version of DFID’s single departmental plan for 2015–20 is framed around these objectives, in the same order, although it does make heavy reference to poverty reduction throughout.13

9.Girish Menon, CEO of ActionAid UK, told us that there “is a risk of a potential loss of poverty reduction as the overarching agenda for UK aid”.14 BOND and the UK Aid Network emphasised to us that the “UK’s approach to aid must be driven by sustainable development and poverty reduction”,15 and noted that the “increasing emphasis on security and national interest also has the potential to undermine DFID’s leadership in development effectiveness for tackling poverty.”16 Development Initiatives expressed concerns that the “focus on aligning aid spending with ‘the national interest’, national security priorities and the interests of UK companies, could result in UK aid (a scarce and unique resource) being directed to different priorities less focused on meeting the needs of the most vulnerable people.”17

Cross-Government aid spending

10.Another major aspect of the new UK aid strategy is the increased use of other government departments (OGDs) and cross-Government funds for disbursing ODA. Over the last Comprehensive Spending Review (CSR) period (2011–15), DFID spent about 85% of the total ODA budget.18 This is expected to fall to about 72% for this CSR period (2015–20).19 For the first time, ODA spending was allocated across departments through a competitive bidding process, run by the Treasury with assistance from DFID.20

11.The majority of witnesses have welcomed this increased cross-Government working, although many witnesses warned of the risk that this may also reduce the focus of UK aid on poverty reduction. ActionAid UK highlighted the positive possibilities presented by the expansion of cross-Government aid, “The involvement of other departments in international development has the potential to increase the impact of UK aid through better policy coherence across Whitehall.”21 Meanwhile, VSO stated that, “ODA spent through non-DFID departments should have a direct beneficial impact on, and relationship to developing economies. […] All ODA (including non-DFID ODA) should have an explicit focus on poverty reduction”.22 Save the Children similarly argued for all UK ODA to have poverty reduction as its core objective, regardless of department.23

12.The International Development Act 2002 (“the 2002 Act”) provides the legal power for the Secretary of State to provide development assistance, with the requirement that “the provision of the assistance is likely to contribute to a reduction in poverty.”24 This is the only legal power under which DFID can spend ODA, meaning that all DFID ODA is subject to the poverty reduction requirement. Evidence to us has indicated, however, confusion over to what extent this requirement applies to OGDs,25 which may use the 2002 Act but also have other powers under which they could spend ODA.26 We asked Mark Lowcock what percentage of UK ODA fell under the 2002 Act, and therefore the poverty reduction requirement, and he told us, “The vast majority of the total ODA pot is covered by the Act, but one or two departments are still working out the best legislative arrangement for some of the new provisions they have been given in the 2015 spending review.”27

13.We welcome the new UK aid strategy’s focus on fragile states and regions, as these states and regions generally face high levels of extreme poverty. We are concerned, however, by the lack of priority given to poverty reduction within the aid strategy, and the potential implications for UK aid. This is especially a risk with other government departments, which have key aims other than poverty reduction and some of whose spending may not fall under the powers and requirements of the International Development Act 2002. Poverty reduction must be the primary purpose of UK aid spending, with other objectives surrounding security and the national interest flowing from it, rather than the other way round. We are also deeply concerned at the absence of any mention of human rights in the new UK aid strategy.

14.The Government should make reducing poverty a legal obligation for the spending of all ODA, regardless of which department is spending it and which legal power it is being spent under, which should be made explicit in all ODA programming. DFID must re-emphasise in its Single Departmental Plan that the primary objective and requirement for UK aid is the elimination of poverty.

The definition of fragility

15.An important aspect of the fragile states and regions agenda is how fragility is defined, as this in turn affects where DFID focuses its efforts. The Overseas Development Institute (ODI) argued that “DFID should consider adopting a narrower definition of fragile states that focuses on countries with a weak or failing central government.” DFID’s current definition covers the majority of its priority countries, making it unhelpful for making specific allocation decisions. In 2005 DFID defined fragile states as those where the government cannot or will not deliver core functions to the majority of its people, where core functions include service entitlements, justice and security.28 In his evidence to us on 8 December Mark Lowcock acknowledged “it does need reviewing, because the world has changed since 2010.”29 ODI pointed out that “only two of DFID’s current ten largest country programmes (India and Tanzania) do not count as fragile states.”30 Simon Gill, Director of the Budget Strengthening Initiative at ODI, expanded on the reason for adopting a narrower definition to better target resources, as “‘fragile states’ in a very narrow definition […] are the countries that get less aid money per person. If you want to concentrate your financing on those who are most needy, a very narrow definition of fragility is better”.31

16.We have also been told that the definition should take into account the complexities of the causes of fragility. The OECD Development Co-operation Directorate (OECD-DCD) stated that:

“The definition of fragility is complicated because it is political in nature, and because of the evolving nature of fragility. The OECD now recognises that fragility is not black and white, but instead has multiple dimensions, that change over time. Accordingly, the OECD is developing a new fragility framework to replace the ‘Fragile States List’ used over the past 10 years, with a multidimensional model that allows for a more nuanced analysis.”32

17.International Alert echoed this, noting that:

“‘Fragile states’ is a helpful phrase to convey a complex situation to the public. However, it does not help development practitioners to identify where to invest resources. The current international trend is to move away from this categorisation. There are many states that exhibit elements of fragility but that are not considered fragile states as a whole.”33

It therefore called for fragility to be considered as a spectrum, “with states having the ability to move, sometimes invisibly as was the case with the Arab Spring, along the scale in either direction.”34 Similarly, Harpinder Collacott told us that DFID’s definition “has been very narrowly defined up until now”, and that this “is a very good opportunity for DFID to widen that definition in the scope of all the various different causes that contribute to instability and insecurity.”35

18.DFID has recently reworked its definition of fragility. Mark Lowcock told us:

“What we have done is another piece of analytical work on this fragility issue. We identified three criteria. Those states and regions that suffer external and social stresses that are particularly likely to result in violence is the first thing we looked at. We looked secondly at whether the states have the capacity or lack the capacity to manage disagreement and conflict in a way that does not lead to violence. Thirdly, maybe the most important new thing we did was to look as well at neighbouring states that are especially susceptible to instability because of who their neighbours are.”36

As a result, DFID has produced a full list of fragile states and regions based on open-source data, in three categories: (i) Countries on DFID’s Fragile States List; (ii) ODA-eligible countries neighbouring ‘high fragility’ states (excluding China and India); and (iii) Regional programmes in three specifically designated fragile regions.37 These countries will be regularly updated to reflect changes in the data. Despite this, we have received no detail on how the different statistics were weighted or how exactly this list was arrived at from the data.

19.There is a need for a more considered definition of fragility than has been used in the past, taking into account the complex causes of fragility. This, in turn, can help better direct allocation decisions. At first glance, it appears that DFID is taking a more nuanced approach in its definition, but in practice this has actually increased the number of its 28 priority countries classed as fragile states and regions from 21 to 22. Without more specific details about the calculations of fragility that DFID is making, it is difficult to pass judgement on this new definition. It is also currently unclear how the new definition will inform allocation decisions, beyond the broad 50% target.

20.DFID should publish more complete details of its definition of fragility and specific information about how its list of fragile states and regions has been determined, including details of how the different categories of fragility will inform allocation decisions. DFID should consider the OECD’s new multidimensional fragility framework when it is released.

Other issues in the new UK aid strategy

Choice of countries

21.The aid strategy’s focus on fragile states and regions also includes a geographic refocus of the UK’s aid spending, including towards “Syria and other countries in the MENA [Middle East and North Africa] region to address current crises, the root causes of migration, and the threats posed to the UK by the ongoing conflict.”38 The strategy goes on to say, “In allocating aid, the Government will carefully consider the fit with its strategic objectives, the level of need, the ability of partner countries to finance their own development, what support they get from others and their future risks, including humanitarian, economic and climate.”39

22.The written evidence we have received has been generally supportive of these factors identified in the aid strategy, but with the addition of a specific emphasis on poverty reduction, DFID’s added value and the level of need of the recipient countries. Action Against Hunger told us that “DFID decisions on where to work should be balanced between an assessment of where the need is greatest, the outcome of the Bilateral Aid Review, and an analysis of DFID’s own added value.”40 The OECD-DCD said “DFID should consider what is its specific added value (history, influence, capacity to intervene) but should also consider the question of under-aided states”.41 World Vision UK urged “DFID to ensure that poverty and vulnerability are the primary determinants of aid spending.”42 We welcome the Government’s statement of the factors which will influence its choice of countries and allocation decisions as being the right factors. We emphasise again that foremost amongst these should be effectively achieving poverty reduction, and therefore the level of need of recipient countries and where DFID can add value.

The balance between bilateral and multilateral spending

23.The focus on fragile states and regions will also have implications for the balance between bilateral and multilateral spending, as both channels have certain difficulties when operating in fragile states. Currently, 40% of DFID expenditure goes to bilateral programming work in country and 60% to multilateral agencies, of which two-thirds goes on multilateral core funding and one-third on bilateral work carried out by multilateral agencies (“multi-bilateral funding”).43

24.Bond and the UK Aid Network argued that the current balance should not be significantly altered. They acknowledged both that it “can be extremely challenging to deliver effective programmes in fragile states on a bilateral basis”44 and that “there are challenges of channelling aid through multilaterals, including DFID’s limited ability to tailor interventions to the context.”45 Mott MacDonald, a development consultancy firm, expressed its view that “the big multilaterals are less focused on the very poorest countries”46 and that “multilateral spending does not represent anything like the same value for money as the bilateral programme.” It therefore pushed for greater scrutiny of multilateral spending and welcomed an indication that multilateral spending would reduce as a proportion of DFID’s budget.47

25.Mark Lowcock, Permanent Secretary of DFID, told us that decisions as to which channels to use are driven by competition:

“Our strategy to drive value for money is to have competition between the different choices. If we know we want a project to put another million girls in northern Nigeria into education, we get propositions from a variety of service deliverers and choose the one that is going to do it best with the best value for money. With that approach, the outcome of which sort of organisation delivers what for us is driven by value for money and competition, rather than an a priori view. That is the approach that we are keen to sustain.”48

26.This does not, however, accord with ICAI’s findings, when it looked at DFID’s work with multilaterals. ICAI found that “DFID’s choice of multilaterals as a delivery partner is not always evidence based”,49 including that “DFID does not always consider alternatives to multilaterals in-country, making it hard to ensure transparency and value for money.”50 This led ICAI to recommend that “DFID should have a strategy for its engagement with the multilateral system as a whole at the global level” and that it “needs clear objectives for its work with the multilateral system in its country-level strategies.”51 DFID rejected these recommendations on the basis that its strategic approach is set out in the Multilateral Aid Review and its country operational plans.52

27.While it seems to us that the balance between multilateral and bilateral spending is broadly correct, it is still not entirely apparent how DFID determines this balance. It is clear, however, that it will be heavily informed by the results of the Bilateral Aid Review and Multilateral Aid Review, and by the new UK aid strategy. We trust that the Multilateral Aid Review will include analysis of the performance and capacity of multilaterals in-country. The reasoning behind the balance would be more evident if DFID had a published strategy for how it engages with multilaterals. Whether or not the Multilateral Aid Review suffices as a standalone strategy, rather than just an assessment and diagnostic tool, remains to be seen and we intend to return to this topic.

28.DFID should set out clearly what criteria it uses to determine the balance between multilateral and bilateral spending, and how these criteria are then used to decide the balance. DFID should build this into a broader strategy for how it works with multilaterals in the wake of the Multilateral Aid Review.

Traditional budget support

29.The new UK aid strategy includes a commitment to “end all traditional general budget support—so we can better target spending”.53 It states that:

“The Government has reviewed value for money of all existing ODA spend across Government to identify and eliminate poor value spend and re-focus it where it can most effectively deliver UK objectives. As a result of this review a number of programmes that were weak value for money or had a weak fit with the Government’s strategic objectives have been stopped, and resources re-allocated. This includes continuing the move away from traditional general budget support (unearmarked contributions to recipient countries’ budgets) to more targeted forms of financing. DFID will neither start any new, nor restart any previous, traditional general budget support programmes in conventional aid settings.”54

30.Despite this, we have heard many positive things about budget support, including that it gives recipient countries ownership of their development, rewards better-governed countries, and is low-cost and predictable. We understand that there are certain issues such as investment in public health systems which it is very difficult to incentivise donors to engage with, and which need the involvement of the relevant government. ActionAid UK told us that budget support “is the form of aid that most puts developing country governments in the driving seat of their own development strategies, which is known to have positive impacts on effectiveness, accountability and value for money.”55 While expressing concerns about the end of traditional budget support, Save the Children stated that its understanding is that “sector budget support56 will continue.”57

31.Dr Paul Clist said:

“It is a real shame to get rid of general budget support as an instrument. […] First of all, I showed in a 2012 paper that general budget support is given to better-governed countries, so, if you are better governed, within the volume of aid that you will get, you will get a higher percentage of general budget support. […] It is a policy lever that donors can use to influence outcomes in various different ways. The second thing is that, where most other aid is volatile, general budget support is predictable, it has low transaction costs, and it does not take too much time from the Government, so I think it is a real shame that that instrument is not an option, at the very least.”58

This was echoed by Simon Gill, who told us that “It would be a shame if budget support is not a tool that we can use, because in certain situations, if it is well-managed, targeted, and safeguards are built in, it can have a really useful effect”. Brenda Killen, Deputy Director of OECD-DCD, also said that she hopes it will continue to be an option, while acknowledging that there are more concerns about systems in fragile states that may make it inappropriate in some circumstances.59

32.Traditional and sectoral budget support can be useful tools and give recipient countries ownership of their development. A blanket end to traditional general budget support is potentially unhelpful, as there are occasions on which it may be the most appropriate method of financing, subject to ensuring transparency and accountability.

33.DFID should clarify which forms of budget support, if any, will continue, what its evidence base is for deciding to end traditional general budget support, and how it intends to ensure country ownership of development without it. We recommend therefore that consideration then be given as to the case for an option to give general budget support in exceptional circumstances, where systems are in place to effectively monitor transparency and accountability.

5 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, p 4

6 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 1.19

7 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 2.8

8 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 3.8

9 Q59

10 Q43

11 International Development Act 2002, section 1(1)

12 UN Sustainable Development Knowledge Platform, ‘Sustainable Development Goals’, accessed 24 February 2016

13 DFID, ‘Single departmental plan: 2015 to 2020’, accessed 24 February 2016

14 Q84

15 Bond and the UK Aid Network (ACH0006) para 19

16 Bond and the UK Aid Network (ACH0006) para 22

17 Development Initiatives (ACH0035) para 1.3

18 ICAI, The 2015 ODA allocation process (December 2015), para 3.4

19 Oral evidence taken on 23 February 2016, HC (2015–16) 576, Q11

20 ICAI, The 2015 ODA allocation process (December 2015), para 3.4

21 ActionAid UK (ACH0034) para 2

22 VSO (ACH0032) para 7

23 Save the Children (ACH0020) para 6.6

24 International Development Act 2002, section 1(1)

25 For example see Bond and the UK Aid Network (ACH0006) para 37(iii), VSO (ACH0032) para 8, and ActionAid UK (ACH0034) para 20

26 Oral evidence taken on 23 February 2016, HC (2015–16) 576, Q11

27 Oral evidence taken on 23 February 2016, HC (2015–16) 576, Q12

28 International Development Committee, Twelfth Report of Session 2010–12, Working Effectively in Fragile and Conflict-Affected States: DRC and Rwanda, HC 1133, para 28

29 Q41

30 Overseas Development Institute (ACH0014) para 3

31 Q116

32 OECD Development Co-operation Directorate (ACH0031) p 1

33 International Alert (ACH0023) p 1

34 International Alert (ACH0023) p 2

35 Q65

36 Q41

37 Department for International Development (ACH0033) Annex A

38 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 2.8

39 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 2.11

40 Action Against Hunger (ACH0027) para 3.1

41 OECD Development Co-operation Directorate (ACH0031) p 3

42 World Vision UK (ACH0004) para 20

44 Bond and the UK Aid Network (ACH0006) para 8

45 Bond and the UK Aid Network (ACH0006) para 9

46 Mott MacDonald (ACH0017) para 2, and see Q43 [Mark Lowcock]

47 Mott MacDonald (ACH0017) para 11

48 Oral evidence taken on 23 February 2016, HC (2015–16) 576, Q25

53 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, p 4

54 HM Treasury, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015, para 4.4

55 ActionAid UK (ACH0034) para 15

56 Financial aid earmarked to a specific sector, such as health, as opposed to a general contribution to a recipient government’s overall budget.

57 Save the Children (ACH0020) para 5.2

58 Q123

59 Q122 and Q124

© Parliamentary copyright 2015

Prepared 17 March 2016