UK aid: allocation of resources Contents

4The direction of UK aid

DFID’s strategic direction

The UK aid strategy

78.The 2015 UK aid strategy refocused UK aid onto “tackling global challenges in the national interest”.161 In line with this, UK aid would now be allocated in line with four strategic objectives: strengthening global peace, security and governance; strengthening resilience and response to crises; promoting global prosperity; and tackling extreme poverty and helping the world’s most vulnerable. We noted in our interim Report that this appeared to relegate poverty reduction to the last of four priorities.162 The Government disagreed in its response, arguing that the strategy “makes clear how reducing poverty and serving Britain’s national interest are inextricably linked—our ODA will achieve both goals together.”163

79.From a communications standpoint, this approach makes some sense in demonstrating one of the many benefits of aid spending. As we have noted in para 8, and as witnesses including Save the Children164 and International Alert165 have stated, poverty reduction is in the UK’s national interest. We have been concerned about retaining the poverty reduction focus in development spending and the risk of this emphasis being lost in the national interest narrative. ODA allocation should not be based primarily upon the national interest—instead it should be based primarily upon poverty reduction—but this is the impression being created. This point came across strongly throughout the written evidence to this inquiry.166 It is a particular risk with increased spending by other government departments which might extrapolate the national interest further than addressing the causes of extreme poverty like fragility and instability. We strongly reiterate our recommendation that poverty reduction should always be the primary purpose of any UK aid spending, and that this should be made explicit in all ODA programming.

DFID’s approach from late 2016

80.We have detected a shift in UK development strategy following the referendum vote to leave the European Union and the appointment of Rt Hon Priti Patel MP as Secretary of State for International Development. In a piece in the Daily Mail the Secretary of State said that aid money was being “stolen” and “wasted on inappropriate projects”.167 When we asked her what she was referring to, she mentioned two projects whose funding she had suspended, one of which involved money “being spent to send activists on conferences around the world” and the other of which was “funding a cult in Malawi”168 (and was uncovered through a BBC investigation).169 Beyond these examples, which represented a small amount of funding, she could not put a figure or a percentage on the amount which she thought was being wasted.170

81.As we have laid out above, 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.171 We would urge the Secretary of State to ensure that assessments of what is and is not wasteful spending are based on evidence and robust reviews.

82.The other aspect of DFID’s strategy which has changed in tone since the EU referendum is the relationship between the aid budget and trade. Shortly after the new Secretary of State’s appointment, media reports claimed that she intended to “leverage” the aid budget to build new trade deals as the UK leaves the European Union.172 In oral evidence to us, she clarified:

The legislation is very clear in terms of trade, but that does not stop us continuing our work across departments in particular. I am very clear that, post the EU referendum, there are new, exciting opportunities and new partnerships that we can develop around the world, basically, which can strengthen further our national interest. Obviously, working with the Department for International Trade we have a global footprint; the Department for International Trade and the Foreign Office also have a global footprint, so it is about how we can bring our two teams together incountry to work much more strategically and look at some of the levers that we have as well, in terms of programmes and projects.173

83.DFID published its new Economic Development Strategy in January 2017.174 In the foreword to the strategy, the Secretary of State said that she is “raising the bar on our approach and ambition.” The strategy states that “Advancing economic development in the poorest countries is a hallmark of building Global Britain” and lays out 11 priorities to “support economic development overseas whilst benefitting the UK at home.” These include “Focusing on trade as an engine for poverty reduction”, “Making it easier for companies—including from the UK—to enter and invest in markets of the future”, and “Working with, and challenging, the City of London to become the ‘development finance hub of choice’”.

84.The UK untied all of its aid in 2001—stopping any aid which was conditional on it being used to procure goods or services from the UK. This was in line with, and even went beyond, a recommendation by the OECD Development Assistance Committee.175 Evidence to our inquiry has welcomed the continued commitment by the UK to untied aid.176 With the focus on national interest, however, there is some concern among witnesses that UK aid could become implicitly tied—aid not given with a formal condition but either structured in such a way that it is inevitable, or with a strong expectation, that it will be used to procure goods or services from the UK. The Scotland Malawi Partnership told us that it fears that the focus on aid for the advancement of UK interests “could become a new form of implicitly tied aid.”177 Development Initiatives urged us to examine closely the use of aid to create opportunities for UK companies, in light of continued commitments from the Government to keep UK aid untied.178 When we asked how it would ensure it kept aid spending untied, DFID told us:

The government will continue to ensure that the primary objective of all ODA spend is the promotion of the economic development and welfare of developing countries, as required by the ODA criteria of the OECD-DAC. The government will also continue to ensure that all development assistance under the International Development Act will contribute to poverty reduction. The government’s 2015 manifesto included a clear commitment to keep aid untied.179

85.We welcome a strong focus on economic development from DFID, which is an important aspect of a comprehensive approach to poverty reduction. While UK aid undoubtedly gives the UK a global leadership role and creates mutually beneficial partnerships which are in the national interest, it is important that UK aid spending continues to be completely untied, whether explicitly or implicitly. While it remains to be seen how it works in practice, language surrounding leveraging aid for trade and creating opportunities for UK companies and the City of London needs to be used cautiously, so as not to create an impression that aid is being given conditionally. We ask that DFID provides us with a full assessment of the current risk of UK aid becoming implicitly tied, and how it is mitigating those risks.

Other issues of strategy

Sustainable Development Goals (SDGs)

86.The SDGs were agreed in 2015 as a new framework for global development, and a set of targets for each country to hit by 2030. In our Report on UK implementation of the Sustainable Development Goals we highlighted the lack of a strategic approach to achievement of the goals, both domestically and abroad. We said:

the publication of DFID’s Single Departmental Plan, and the broader UK Aid Strategy, have provided little clarity on how the Department will support the implementation of the SDG agenda overseas. Although the SDGs (or ‘Global Goals’) are referenced in both documents, no clear link is drawn between specific Goals and the Government or DFID’s policy priorities.180

As we noted earlier in this Report, we consider the omission of the SDGs from the CSPR to also be a serious one. The Secretary of State has asserted to us that the SDGs underpin everything that DFID does and that this does not need restating.181 Despite this, we think that the more explicitly DFID can link its work and priorities to the SDGs, the more strategic and effective its achievement of the Goals will be. We look forward to seeing further the Government’s plans for implementation of the Sustainable Development Goals both domestically and abroad, which should be published well in advance of the next High Level Political Forum in July, and to the recognition of the Goals in the new single departmental plans. We urge DFID to explicitly link its work to achievement of the Goals wherever possible.

Human rights

87.SDG 16 is a new goal, which aims to “promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels”.182 The fragile and conflict-affected states, on which DFID is increasingly focused, tend to have poor human rights records. We were surprised that, despite this, the 2015 UK aid strategy did not mention human rights.183 DFID told us that it “highlights a number of concrete commitments that contribute to the realisation of human rights”,184 although this was not explicit in the strategy. Bond and the UK Aid Network wrote in written evidence that “All ODA spending needs to be bound together by a holistic theory of change for poverty reduction and the realisation of fundamental human rights.”185 The Overseas Development Institute notes that “new thinking is needed on how to engage with the armed forces of governments that do not adhere to human rights standards: a crucial part of any strategy that seeks accountable partners in volatile regions.”186 DFID should be clear in how it aims to address human rights issues through its development work, especially in the difficult context of fragile and conflict-affected states. We urge it to include a greater focus on human rights in future strategy documents.

DFID’s capacity

Operational strategy

88.We have become increasingly concerned about the lack of emphasis on strategy within DFID at an operational level. From May 2016–January 2017 the Independent Commission for Aid Impact (ICAI) produced seven reports scrutinising DFID’s work. All of these highlighted issues with DFID not being strategic:

89.DFID has defended itself against these criticisms, and has argued that strategies can often be unhelpful. In oral evidence on ICAI’s review on cash transfers, Nick Dyer, Director General of Policy and Global Programmes at DFID, told us:

when we write strategies in DFID they get out of date very quickly. When I became the director of policy, back in 2009, DFID had 49 strategies, and no one had read them all; even I had not read them all. No one was reading them because they would get out of date very, very quickly. Policies change, Ministers have different views, and the evidence gets out of date very quickly; my own view is strategies get out of date very quickly. However, what we do need to ensure is that we have good guidance, that we keep that guidance up to date, that we are investing in the evidence that tells us what works and what does not, and we are making that available to the staff who are involved with these schemes, like the community of practice.194

In the context of that review and in response to his comments Dr Alison Evans, Chief Commissioner of ICAI, stated on Twitter that “We are not suggesting lengthy strategy docs but clear direction & expectations for #UKAid financial support for [cash transfers]”.195

90.Taking all the evidence together, we remain concerned about the lack of strategic direction and management within the Department. While DFID is generally doing good work, it is not necessarily doing so in a consistent and coherent manner due to the lack of strategic guidance provided at an operational level. We understand that there is a fine line between prescription and the flexibility which DFID needs to work effectively, but believe that DFID should be doing better in this regard. 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. Such strategies should be short and flexible, to allow teams to adapt them to specific circumstances and to allow them to be easily updated as the evidence evolves, and should be published to allow scrutiny against DFID’s objectives.

Administrative capacity

91.A number of witnesses to this inquiry have raised the issue of DFID’s administrative capacity as a potential cause of some of the other problems which have been highlighted. We are similarly concerned that its 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. In 2009–10, DFID had over 2,500 staff and a budget of £6.7 billion (around £7.34 billion in real terms in 2015–16 prices).196 By 2015–16, this budget had risen to £9.9 billion (a nearly 35% increase), but staff numbers had only risen to an average of 2,852 (a less than 15% increase).197

92.Bond and the UK Aid Network stated that “The drive for efficiency is often at odds with the need for continued and improved accountability, effectiveness and flexibility in managing the scale up.”198 VSO argued that “The increase of expenditure from DFID without a proportionate increase in administrative resources, will most likely result in much larger contracts being dispersed to fewer organisations.”199 International Alert pointed out that “DFID’s justified desire to increasingly fund local CSOs is also at odds with growth in large grants as it would require a higher administrative burden. It is hard to consider how DFID can both increase funds to local civil society organisations (which is welcome), and administer larger grants within its current human resourcing.”200 Coffey International Development, a private sector contractor, similarly said:

DFID’s division of spending between programme costs and administrative/management costs is too skewed towards programme spending. This limits the department’s ability to manage and oversee programmes. It may also prove more costly to DFID, as activities where DFID staff have the comparative advantage are passed onto programmes so that their costs fall within programme (instead of administrative) spending.201

93.Adam Smith International told us:

Another Treasury rule which requires removal or adjustment is the restriction on DFID administration costs which forces DFID to direct such large funds to multilateral bodies with higher administration costs as it cannot employ enough staff to implement its programmes directly. For example in Afghanistan DFID is apparently increasing the already high percentage of funding that goes to multilaterals. This is largely driven by a reduction in UK based staff deployed in Afghanistan, meaning that there are insufficient resources to manage bilateral programmes.202

This is also something we are looking at in our inquiry into DFID’s use of contractors,203 as the lack of DFID capacity to properly administer and oversee its contracts itself could be leading to it relying too much on private contractors to do that work on its behalf.

94.DFID’s administrative capacity appears to have fallen below what is required to manage its increasing budget optimally. The result of this has been that DFID has become more reliant on larger external organisations, including big multilaterals and private contractors, to the exclusion of smaller organisations and DFID being able to properly oversee its own spending. As we noted earlier in this Report, this is also a factor in the pressures related to spending to reach the 0.7% target. DFID would be more effective if it rebalanced its budget more towards administration. This would allow it to better manage its own budget and make better use of small, and often more effective, organisations and programmes. We recommend that DFID spends more of its budget on its own administration and increases its staffing capacity. If this requires a relaxation of Treasury rules, we would strongly urge the Treasury to do so, considering DFID’s unique budgetary position.

Allocation of ODA across Government

95.The allocation of ODA between different departments was done through a competitive process run by the Treasury, as part of the Comprehensive Spending Review. This was the first time that this was done, and was aimed to “ensure ODA spending represents high value for money.” These allocations were done in line with, and to achieve, the four objectives laid out in the UK aid strategy, which itself was a joint Treasury-DFID document. DFID played a quality assurance role in the competitive allocation process in ensuring that proposals from various departments would be ODA-compliant.204

96.Bond and the UK Aid Network told us:

Clarity on strategic planning, reporting and accountability for delivery across government departments is needed. Civil society can support joint working. This will require a culture shift across Whitehall towards more dialogue between departments and joint delivery. This could be undermined if the Treasury continues to run competitive bidding processes for ODA.205

Save the Children similarly commented that “Without [DFID’s] oversight, there is a danger that the market driven bidding process will lead to a disparate approach, not based on agreed strategy.”206

97.The results of the competitive process have not been made clear, beyond general and aggregated amounts of ODA that would not be spent by DFID.207 Details of spend by other government departments are only made clearly available retrospectively, in the Statistics on International Development each year.208 This is in stark contrast to the documents which are made available in DFID’s own competitive processes. We have already mentioned in this Report concerns about the priority which departments other than DFID place on poverty reduction, and this is also a concern within the competitive process. Without clear results from that process, it is difficult to conclude whether there is proper strategic oversight of all UK ODA spending and on whether it is being allocated most effectively.

98.The spending of ODA across government departments needs to be coherent and collaborative, with consistent scrutiny, in order to be effective in achieving their aims. Allocations should be based firstly on effectiveness in reducing poverty, with the objectives in the UK aid strategy forming the secondary considerations. We will be exploring these issues in more detail in our inquiry into UK aid: other government departments, including looking at options for how UK aid could best be allocated between 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.

161 HM Treasury and Department for International Development, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015

162 International Development Committee, Third Report of Session 2015–16, UK aid: allocation of resources: interim report, HC 927, incorporating HC 533, paras 8 and 13

163 International Development Committee, First Special Report of Session 2016–17, UK aid: allocation of resources: interim report: Government Response to the Committee’s Third Report of Session 2015–16, HC 256, p 2

164 Save the Children (ACH20) para 1.4

165 International Alert (ACH23) p 6

166 For example, see Bond and the UK Aid Network (ACH06), Save the Children (ACH20), VSO (ACH32), Development Initiatives (ACH35)

168 Oral evidence taken on 14 September 2016, HC 661, Q1

170 Oral evidence taken on 14 September 2016, HC 661, Qs 3–7

171 National Audit Office, Department for International Development—Investigation into the Department’s approach to tackling fraud, HC 1012

173 Oral evidence taken on 14 September 2016, HC 661, Q16

174 Department for International Development, Economic Development Strategy: prosperity, poverty and meeting global challenges, January 2017

175 OECD, ‘Untied aid’, accessed 10 March 2017

176 For example, see Scotland Malawi Partnership (ACH24) and Development Initiatives (ACH35)

177 Scotland Malawi Partnership (ACH24) p 1

178 Development Initiatives (ACH35) p 2

179 Department for International Development Annex A (ACH38) p 13

180 International Development Committee, First Report of Session 2016–17, UK implementation of the Sustainable Development Goals, HC 103, para 104

181 Q284

182 UN, ‘Sustainable Development Goal 16’, accessed 10 March 2017

183 HM Treasury and Department for International Development, UK aid: tackling global challenges in the national interest, Cm 9163, November 2015

184 Department for International Development Annex A (ACH38) p 6

185 Bond and the UK Aid Network (ACH06) para 37

186 Overseas Development Institute (ACH14) para 20

187 Independent Commission for Aid Impact, DFID’s Efforts to Eliminate Violence Against Women and Girls (May 2016)

188 Independent Commission for Aid Impact, Assessing DFID’s Results in Water, Sanitation and Hygiene (May 2016)

189 Independent Commission for Aid Impact, DFID’s approach to managing fiduciary risk in conflict-affected environments (August 2016)

190 Independent Commission for Aid Impact, UK aid’s contribution to tackling tax avoidance and evasion (September 2016)

193 Independent Commission for Aid Impact, The effects of DFID’s cash transfer programmes on poverty and vulnerability (January 2017)

194 Oral evidence taken before the International Development Committee Sub-Committee on the Work of the Independent Commission for Aid Impact on 22 February 2017, HC 1008, Q33

195 Twitter, ‘Tweet by Alison Evans (@Alison_ICAI) on 22 February 2017’, accessed 10 March 2017

197 Department for International Development, Annual Report and Accounts 2015–16, HC 329

198 Bond and the UK Aid Network (ACH06) para 14

199 VSO (ACH32) para 10

200 International Alert (ACH23) p 2

201 Coffey International Development (ACH26) para 17

202 Adam Smith International (ACH25) para 1.25

203 International Development Committee, ‘DFID’s use of contractors inquiry’, accessed 10 March 2017

204 Independent Commission for Aid Impact, The 2015 ODA allocation process (December 2015), para 3.4

205 Bond and the UK Aid Network (ACH06) para 37

206 Save the Children (ACH20) para 6.5

207 HM Treasury, Spending Review and the Autumn Statement 2015, Cm 9162, November 2015, p 85

208 Department for International Development, ‘Statistics at DFID’, accessed 10 March 2017

27 March 2017