UK aid: allocation of resources Contents

Summary

The domestic and global landscapes have shifted dramatically over the last two years. Against this backdrop the Government has been reviewing and altering the make-up of UK aid spending, including carrying out a number of major development reviews to inform future spending decisions. In this inquiry we have looked at how the Department for International Development (DFID) decides where to allocate its resources, including the results of the development reviews. We published an interim Report in March 2016 to deal with a number of issues at the earliest possible opportunity. We follow up on some of these in this Report.

Both major political parties in the UK pledged to hit a target of spending 0.7% of gross national income as official development assistance (ODA) in their 2010 manifestos. The UK achieved this target in 2013, and it was subsequently enshrined into law in 2015. Through our inquiries, we have seen first-hand that ODA spending is in the national interest and is a strong investment contributing to create a more prosperous world, which pays far-reaching dividends including to UK taxpayers at home. We have also seen the great need for development assistance globally and the life changing opportunities it provides, including in a number of ongoing abject humanitarian crises. We agree with our predecessor committee in supporting the 0.7% commitment, as we have no doubt that there is sufficient need in the world for it to be necessary. The examples we have seen of less effective spending do not represent a considerable portion of, nor are they an inevitable consequence of, the 0.7% target. We have not seen evidence that poor or wasteful spending is any more of a problem for DFID than any other government department or other international donors; instead we would assess it to be effective in its spending. The response to many criticisms of aid spending is for DFID to continue to strive to spend better, not for it to spend less. We challenge the Secretary of State to lead the Department in a way which displays the value for money and great impact of good UK aid spending.

DFID was established as a separate department in 1997, with primary responsibility for spending ODA. The Conservative Party manifesto in 2015 included a pledge to maintain it as an independent department, although questions continue to be raised about whether it should be rolled back into the Foreign and Commonwealth Office. Our predecessor Committee looked at the possible models and concluded that DFID should remain an independent department, to avoid “marginalising development” and “losing technical development expertise”. We continue to have concerns about the capacity and capability of departments other than DFID, including the Foreign and Commonwealth Office, to effectively deliver aid, in contrast to a specialised department like DFID, and about the transparency and accountability of those departments. We do not believe that abolishing DFID as an independent department would lead to any improvement in the quality of UK aid spending and therefore strongly welcome the Secretary of State’s commitment to maintaining DFID as an independent department, and expect this to remain so in the long-term future.

In our interim Report, we looked at the issues of the strict rules and targets surrounding budget support, ‘non-fiscal’ spending, and Payment by Results. We conclude that DFID works best when it works flexibly, and these strict rules and targets can be damaging to effective development and can lead to perverse outcomes. While DFID may assess all of these targets and rules to be correct right now, it should keep them under constant review and be willing to relax them when appropriate, in order to have the flexibility required to spend effectively.

DFID is currently operating in an environment of intense media scrutiny and criticism. At times this media scrutiny has been very helpful in uncovering serious issues in UK aid spending, although we have found much of it to be misleading about the nature of aid spending or about the contents of our own Reports. We will continue to fulfil our responsibility for the robust scrutiny of aid and development expenditure, including cases brought to our attention in evidence and media coverage. The media has a responsibility to be accurate and contextual given its role in influencing public understanding and opinion.

We are concerned with DFID’s management of its reputational risk. We note that programmes occasionally appear to be closed based on negative media headlines, despite performing well in DFID’s own assessments, and without a proper review of the programmes being undertaken. While there has been some improvement, we still do not believe that DFID is robust in its communications and managing reputational risk. We urge DFID to continue improving its communications and to be more proactive in publicising when it is doing good work. DFID’s decisions as to the allocation of resources should be based on evidence rather than media coverage. We recommend that DFID produces clear guidance on how to manage reputational risk, the level of its reputational risk appetite, and how to respond to reputational risk issues in the aid budget across the Government.

DFID has conducted a full reviews of its bilateral and multilateral spending through the development reviews, including the Bilateral Development Review (BDR), Multilateral Development Review (MDR), the Civil Society Partnership Review (CSPR), and the Research Review. These were originally due to be published in late 2015 and early 2016, but were heavily delayed and were eventually only published in late 2016. The numerous delays to the development reviews have undoubtedly had grave effects on a number of organisations and, we fear, on the quality of some programming. The low level of detail in the reviews does not justify such substantial delays.

Due to the process of carrying out the development reviews together, they all went through a ‘coherence phase’ centrally in DFID. The purpose of this phase was to reconcile the reviews and DFID’s overarching strategy with the lower-level and more specific assessments which had been made in the reviews. Despite this, we are concerned that, in the development reviews, DFID has not displayed whether it is thinking strategically in terms of allocations between bilateral and multilateral budgets. We strongly reiterate our previous recommendation that we need much more detail from DFID as to how it strategically sets the balance between bilateral and multilateral spending.

As a strategy for its bilateral work, the BDR is largely lacking in detail. Very little of the information in the BDR is new and it gives very little hint of how DFID will be allocating its bilateral resources. The lack of detail in the Bilateral Development Review is disappointing. Even where DFID has committed to specific actions, it is unclear how it plans to take this forward. DFID should publish as many of its new country operational plans, country poverty reduction diagnostics, and inclusive growth diagnostics as possible for its country programmes by the start of the summer parliamentary recess.

While the MDR provides more detail of its methodology and results than the BDR, it still does not provide clear detail of how and why DFID chooses to use multilaterals or what effects the results of the review will have on funding. DFID has indicated that it will increasingly use Performance Agreements with multilaterals to achieve change, improvement and value for money. We welcome the improvements that have been made to the multilateral review process after the 2011 Multilateral Aid Review but are not convinced that DFID is strategic in how it decides which multilaterals to use and how. The use of Performance Agreements has the great potential to drive improvements, but need to be used carefully so as not to impose practices like Payment by Results, which might create perverse outcomes, on multilateral agencies.

The CSPR’s length and its level of detail are both very disappointing, and particularly surprising given the numerous delays to its publication. This has made analysing whether or not its findings and outcomes are positive a challenging task. Some of the statements in the CSPR, especially around supporting smaller CSOs and CSOs based in developing countries, are welcome but need to be turned into practical and detailed proposals. We welcome DFID’s announcement of a Small Charities Challenge Fund, following previous recommendations by this Committee. We were particularly surprised at the lack of any mention of the Sustainable Development Goals in the CSPR; this was a serious omission. It is important for DFID to take the CSPR forward into its day-to-day relationship with civil society and avoid allowing that relationship to become one of a consumer and suppliers.

While not explicitly laid out in the CSPR, one of the largest changes for CSOs coinciding with the review was the abolition of Programme Partnership Arrangements (PPAs), which provided unrestricted core funding to civil society organisations (CSOs) for three years at a time. Despite DFID’s claim that it gave CSOs a lot of notice of this change, there was plenty of uncertainty around the future of PPAs, and whether they would be replaced with a new mechanisms for unrestricted core funding, for some time. We have not been reassured that DFID gave proper support to CSOs during this period of uncertainty nor have we been given a clear rationale for why DFID has chosen to end PPAs. PPAs were strategic, flexible and encouraged innovation; there is plenty of evidence of their effectiveness including a positive ICAI review. The loss of PPAs is likely to stifle innovation and it is of the utmost importance that DFID’s other funding streams, whilst maintaining accountability, are able to cover the sorts of activities which PPAs allowed and encouraged. DFID must provide a clear and detailed explanation of why it feels that unrestricted core funding, and PPAs more specifically, is no longer an effective means of development.

The 2015 UK aid strategy refocused UK aid onto “tackling global challenges in the national interest”. We noted in our interim Report that the strategy appeared to relegate poverty reduction to the last of four priorities. We strongly reiterate our recommendation that poverty reduction should always be the primary purpose of any UK aid spending. We have detected a shift in UK development strategy the appointment of Rt Hon Priti Patel MP as Secretary of State for International Development, with a greater focus on wasteful spending. While we commend and support the Secretary of State’s focus on improving the quality of spending, we think that the level of wasteful spending in the Department is minimal. Following the EU referendum, DFID has changed its tone on the relationship between the aid budget and trade. We welcome a strong focus on economic development from DFID, which is an important aspect of a comprehensive approach to poverty reduction, but it is important that UK aid continues to be completely untied, whether explicitly or implicitly.

We have become increasingly concerned about the lack of emphasis on strategy within DFID at an operational level. We urge DFID to set a clear strategic direction in all of its policy areas based on its evidence on what works and its objectives in that policy area. We are further concerned that DFID’s own capacity could be affecting the effectiveness of UK aid. The number of DFID staff has not kept pace with increases in its budget to achieve the 0.7% target. DFID’s administrative capacity appears to have fallen below what is required to manage its increasing budget optimally, causing it to become more reliant on larger external organisations. DFID would be more effective if it rebalanced its budget more towards administration. We recommend that DFID spends more of its budget on its own administration and increases its staffing capacity. The allocation of ODA between different departments was done through a competitive process run by the Treasury. The results of the competitive process have not been made clear and details of spend by other government departments are only made clearly available retrospectively. It is therefore difficult to conclude whether there is proper strategic oversight of all UK ODA spending and on whether it is being allocated most effectively. We will look at these issues further in our inquiry into UK aid: other government departments. In order to ensure coherence across UK aid spending, and a focus on poverty reduction, DFID should have a formal oversight and coordination role for of all UK aid spending.





27 March 2017