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Effectiveness of UK aid: interim findings Contents

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3Allocation and administration of UK aid

Allocation of UK aid budgets

20.HM Treasury allocates Official Development Assistance (ODA) budgets to each department and cross-government fund in order to meet government priorities and the statutory 0.7% target.51 Allocations are made through Comprehensive Spending Reviews (CSRs) and adjusted as needed through the annual budget process. At the last Spending Review in 2015, which set budgets out to 2019–20, HM Treasury allocated ODA on the basis of bids it received from departments. During this process, departments were asked to consider whether any existing activities could be rebadged as ODA eligible and to identify new areas of ODA expenditure.52

21.The National Audit Office (NAO) has identified a number of risks to value for money created from the wider allocation of ODA budgets.

• Firstly, for non-Department for International Development (DFID) departments and funds, the changed approach to allocating ODA created an opportunity to access new funds at a time when many felt their core funding was under great pressure.53 In written evidence, the Taxpayers’ Alliance stated that this had led to some departments using ODA to supplement day-to-day activities.54 In 2019, for example, the Foreign and Commonwealth Office (FCO) spent £0.68 billon on ODA. This is more than double the £0.3 billion it spent in 2013 and equivalent to 40% of the FCO’s core departmental allocation of £1.7 billion in 2018–19.55 In oral evidence, the FCO told the Committee of Public Accounts last year that it is now incentivised to make sure that as much of its expenditure as possible can be classified as ODA. This includes the funding of front-line diplomatic activity in ODA eligible countries.56
• Secondly, departments might be tempted to seek ODA funds without a full understanding of whether they have the capability to carry out the work.57 HM Treasury did not ask for details of departments’ capacity and capability to manage the increased expenditure or their plans for monitoring and evaluating the projects’ outcomes.58 In its review—How UK Aid Learns—the Independent Commission for Aid Impact (ICAI) recommended that, in the next CSR, the Treasury require departments bidding for ODA to present evidence of their investment in learning and other aid-management capabilities.59 The recommendation was accepted.60

Management and oversight of UK aid

Responsibilities for ODA spending and achieving the 0.7% target

22.HM Treasury is not responsible for monitoring the effectiveness of ODA expenditure by other government departments and cross-government funds.61 Departments are responsible for managing their ODA expenditure with Accounting Officers responsible for the proper stewardship of their ODA budget62

23.DFID acts as ‘spender or saver of last resort’, adjusting its own ODA spending at the end of each calendar year to ensure that the 0.7% target is met but not exceeded..63 In written evidence, Dr Emma Mawdsley stated that this means real-time adjustments have to be made to aid budgets, “with a moving target based on the vicissitudes of the UK economy”. This creates, among other things, “significant programming uncertainty” for aid programming and “focuses administrative attention on the accounting of ODA rather than its purpose”.64

24.To support ODA spending across government, DFID provides extensive guidance, training and secondments to other departments (in 2019, it had more than 100 staff on loan to other departments). In response to concerns raised by this Committee and others that DFID was not resourced for this supporting role, the Department was allocated £20 million in the September 2019 Spending Round to support its cross-government work.65

Gaps in the oversight of ODA spending

25.In written evidence, ICAI drew attention to the significant gaps that it, the NAO and this Committee, have identified in the management of the aid budget.66

• First, there is no oversight of whether the aid programme as a whole meets its objectives. The 2015 aid strategy set out high-level objectives for UK aid, but there is no single body responsible for assessing whether the aid programme as a whole aligns with those objectives or is delivering its intended results.
• Second, the distribution of UK aid across countries and sectors is an unintended result of allocation decisions made separately by aid-spending departments and funds. This means that no explicit decision is made on how much aid to spend in the poorest countries, even though poverty reduction is the primary objective of UK aid under the International Development Act.
• Third, there is no overall quality control mechanism. DFID and HM Treasury published value for money guidance in 2018.67 However, there is no requirement to adhere to international standards on aid effectiveness, such as the Paris Declaration.68 Only DFID has made a public commitment to ‘leaving no one behind’ – the underlying principle of the Sustainable Development Goals Agenda.6970
• Finally, while the UK government remains committed to untying all UK aid, concerns have been raised by ICAI around the tying of ODA research funds and pushing the boundaries of what constitutes aid.71

26.In oral evidence, the Secretary of State for International Development, Anne-Marie Trevelyan, told us that:

“One of the things I am looking to bring back into regular activity, which officials do all the time but Ministers have not done since 2018, is a regular review of what everyone is doing with their ODA and questioning whether we have as strategic and effective an output across the board as we want to have as HMG. […] We could benefit from a more ministerial-led oversight of that, which is something that I hope to do in the months ahead.72

27.The shift in the increasing amounts of ODA administered outside DFID has created significant challenges for the management and oversight of ODA spending. More than one quarter of the UK aid budget is now spent outside DFID; and, as more bodies become responsible for aid spending, accountability for spending aid well appears to have been eroded. The Ministerial Group which reviews what everyone is doing with their ODA has not met since 2018. We are not convinced that all ODA programmes administered outside of DFID are adequately targeted towards poverty reduction or the most vulnerable. Furthermore, there is a significant risk that non-DFID government departments will rebadge day-to-day spending as aid and push the boundaries of what counts as aid.

28.In this Committee’s view, stronger accountability and oversight is needed to help prevent distortions in the uses of development assistance and undermining the case for aid. For aid spending outside DFID, there should be clearer links to poverty reduction. The Government should put measures in place to ensure there is no return to tied aid. Finally, ministerial-led oversight of the ODA spending budget across Whitehall should be restored.

The future of international development spending in a time of COVID-19

29.When the Committee launched its inquiry into the Effectiveness of UK aid in March 2020 we had planned for the inquiry to keep pace with the Government’s Integrated Review of Security, Defence, Development and Foreign Policy, providing the Review with our consideration of how UK aid could be as effective as possible and what the future of UK aid spending should look like. Since then, the world has been gripped by the COVID-19 pandemic, impacting developed and developing countries alike. It is likely that the pandemic will shape the future of international development policy for years to come.

The Government’s Integrated Review of International Policy

30.The Government announced the launch of its Integrated Review in the Queen’s Speech of December 2019.73 Work on the Review is being led by Number 10 and a team in the Cabinet Office. In the briefing notes to the Queen’s Speech, the Government said the Review:

“[…] will also develop Global Britain’s foreign policy; with a focus on our alliances and diplomacy, trends in shifts of power and wealth, and how the UK can best use our international development resource.”

The Review’s remit includes consideration of the necessary reforms to Government systems and structures to achieve the Review’s goals.

31.In response to a letter from the Chairs-Elect of the International Development, Foreign Affairs and Defence Committees, the Prime Minister resolved “to commit 0.7% of GNI to international development”.74 However, the Prime Minister’s reply did not explicitly commit to maintaining the International Development Act 2002, which states that UK aid must be “likely to contribute to a reduction in poverty” nor the OECD’s Development Assistance Committee’s (DAC’s) broader definition for ODA spending, which states that aid must be “administered with the promotion of the economic development […] of developing countries as its main objective”.75 There was also no commitment to an independent DFID.

Closer alignment of FCO and DFID operations

32.Alongside the Integrated Review, there are signs that the Government has started to align more closely operations between the FCO and DFID.

• Following the ministerial reshuffle in February 2020, the Government revised its approach to international ministerial portfolios. All junior ministerial positions within the FCO and DFID have ‘joint’ status between the two departments (previously this had applied to a small number of positions only e.g. Minister for the Middle East and North Africa). In oral evidence, Minister of State, James Cleverly MP, told us that: “There is not an inherent conflict or contradiction between the work that the FCO does and the work that DFID does.” But, because of the Government’s response to coronavirus, working patterns had been distorted and he had found himself “interacting predominantly in [his] Foreign Office capacity”.76
• Reporting lines amongst UK officials working overseas have changed. In March 2020, the Government made changes to overseas reporting arrangements so that DFID officials now answer to British ambassadors and high commissioners.7778 This represents a return to the pre-1997 arrangements before DFID was created. In oral evidence, Minister of State, James Cleverly MP, told us that the development represented a move towards more coordinated and joined up government: “ Ultimately, what we are trying to achieve, and what the Prime Minister has made clear, is that we want to, as effectively as possible, deliver the respective remits of our foreign-facing Departments. The ambassador or high commissioner within a country is the most senior official face of UK Government in a particular country.”79
• On the instruction of the Prime Minister, FCO and DFID have been “working through the consequences of closer alignment” and this would be an important area of focus for the Government’s Integrated Review.80 81

The pausing of the Integrated Review

33.On 9 April 2020, the Government wrote to the Foreign Affairs, Defence and International Development select committees, announcing that work on the Integrated Review was to be paused across Whitehall to enable the Government to focus upon COVID-19. Work on the Review will resume once the situation becomes clearer.82 In oral evidence, the Secretary of State for International Development stated that the Review would likely resume in the autumn.83

The potential impact of COVID-19 on the developing world

34.The potential scale and impact of COVID-19 is immense. The Secretary of State for International Development told us that the COVID-19 pandemic threatens to undo 30 years of international development work, with a bleak picture for the world’s poorest:84

“The reality is that the humanitarian picture is bleak right now: we have the threat of famines exacerbated by the worst locust plague for 70 years; weak healthcare systems allowing the spread of the disease; economic disruptions hitting the world’s poorest, threatening a global recession and a much longer and harder road back to recovery; and the threat of conflict insecurity increasing and those populations already displaced by war and persecution being left out of reach of their homelands for even longer.”85

Potential implications of absorbing DFID’s operations into the FCO

35.Inquiry witnesses and written evidence submissions drew attention to two potentially significant implications of absorbing DFID’s operations into the FCO: the costs and disruption caused by such a machinery of government reorganisation; and the consequences for Britain’s ‘soft power’.

Machinery of government reorganisations

36.In written evidence, the NAO stated that departmental reorganisations can be costly and disruptive.86 And the disruption can last years.87 The NAO added that the intended benefits of such reorganisations are often poorly defined, making it difficult to subsequently judge whether the changes represented value for money. In the NAO’s recommendations to government on this topic, it has emphasised that reorganisations need to carefully planned and managed, with full project management disciplines being applied.88 89

Soft power

37.The House of Lords Select Committee on Soft Power and the UK’s Influence concluded in its 2014 report on ‘Persuasion and power in the modern world’ that the promotion of British values through the funding of international development projects can yield significant soft power gains.90 In written responses, former Secretaries of State for International Development, Andrew Mitchell MP and Hilary Benn MP, both argued that British soft power is extraordinarily effective around the world and Britain’s international development work and reputation contribute to its global reputation. Aligning aid more closely with foreign policy goals and national interests have the potential to damage that soft power.91

38.International Development Secretary of State Anne-Marie Trevelyan told this Committee that:

“[H]aving a separate DFID Secretary of State brings to [the UK’s} global leadership and respect, and what we can deliver in trying to achieve the reductions in global poverty, is well served by having both a Foreign Secretary and a DFID Secretary. […] The reality of having those two voices and a Prime Minister who is global-facing is a really powerful message to the rest of the world.”92

39.The Committee agrees that it is important to review systems to make sure they are delivering value for money and meeting their strategic objectives. However, there are signs that key decisions regarding the future of DFID have already been made. In a time of COVID-19, now is not the time to take those decisions or make those changes.

40.The Committee would caution against restructuring the way UK aid is administered that might potentially impair the effectiveness of aid, and advocates strongly for the retention of the current standalone Ministry of State model with a Cabinet level Minister.

41.If the Government should decide to make significant changes to current systems and structures for administering UK aid, it should avoid taking such a decision in haste. The Government should, as a minimum, present a statement to Parliament setting out an evidence-led rationale for any change; quantifying expected costs and how intended benefits justify the costs; and showing how both will be measured and controlled.

Lessons from overseas counterparts

Administration of development assistance elsewhere in the world

42.The UK is virtually unique amongst other donor countries in maintaining a separate development Ministry responsible for policy and delivery and headed by a Cabinet level Minister. Witnesses identified this as a key strength of DFID. Speaking to the Foreign Affairs Committee, former US Ambassador the UN, Samantha Power, described the combination of the UK’s diplomatic and development presence as “a striking feature of the UK’s comparative advantage of its value add globally”.93 Across OECD DAC countries, there are essentially four models for administering development assistance.94 (Figure 6.) These are:

• Model 1: International development is integrated within the Ministry of Foreign Affairs that takes the lead and is responsible for policy and implementation. For example, Denmark and Norway.
• Model 2: A directorate or development agency located within the Ministry of Foreign Affairs which leads and is responsible for policy and implementation. For example, Australia, Canada and the Netherlands.
• Model 3: A ministry has overall responsibility for policy with a separate executing agency responsible for implementation. For example, United States, France and Germany.
• Model 4: A ministry or agency (other than a Ministry for Foreign Affairs) is responsible for both policy and implementation—the UK example.

Figure 6: Models of aid donor governance in OECD DAC countries

Source: Overseas Development Institute, Merging development agencies: Making the right choice, N Gulrajani, Jan 2018, Figure 1

43.Figure 7 shows that the five largest donor countries in absolute terms in 2018—the US, Germany, UK, Japan and France—align most closely to aid donor models three and four in Figure 6. While it is difficult to draw definitive conclusions, it appears that those countries with the largest aid spending budgets tend to have separate aid implementation agencies for administering those budgets.

Figure 7: Spend on Official Development Assistance in 2018 by major DAC donors

Country	Responsible department/agency	ODA spend (US$ billion)	% of Gross National Income (GNI) spent on ODA
United States	State Department / United States Agency for International Development (USAID)	34.3	0.17
Germany	Ministry of Economic Cooperation and Development (BMZ)	25.0	0.61
United Kingdom	Department for International Development (DFID)	19.4	0.70
Japan	Ministry of Foreign Affairs	14.2	0.28
France	Ministry of Europe and Foreign Affairs	12.2	0.43
Sweden	Ministry of Foreign Affairs	5.8	1.04
Netherlands	Ministry of Foreign Affairs	5.6	0.61
Italy	Ministry of Foreign Affairs and International Cooperation	5.0	0.24
Canada	Global Affairs Canada	4.7	0.28
Norway	Ministry for Foreign Affairs / Norwegian Agency Development Cooperation (Norad)	4.3	0.94
Switzerland	State Secretariat for Economic Affairs (SECO) / Swiss Agency for Development and Cooperation (SDC)	3.1	0.44
Australia	Department of Foreign Affairs and Trade	3.1	0.23
Spain	Ministry of Foreign Affairs, European Union, and Cooperation	2.9	0.20
Denmark	Ministry of Foreign Affairs / Danish International Development Agency (Danida)	2.6	0.72
South Korea	Ministry of Foreign Affairs/ Ministry of Economy and Finance	2.4	0.15

Sources: Donor Tracker, accessed 9 May 2020; OECD development cooperation report 2019

Integration of overseas development and foreign affairs—what can the UK learn?

44.In recent years, Denmark (in the late 90s), Australia (in 2013), Canada (2013), Norway (2014) and Iceland (2016) have merged their aid agencies with their foreign affairs ministries.95 The evidence on the effectiveness of development mergers is mixed. In 2018, the Overseas Development Institute (ODI) compared pre- and post-merger performance among an illustrative sample of OECD DAC countries that had undertaken development mergers.96

• While there is some evidence that administrative costs—in the Australian and Canadian cases—fell as a percentage of ODA spending, they only tipped towards the DAC average. DFID, however, still retains one of the lowest administrative cost profiles among DAC countries.
• Evidence on the impact of development mergers on effectiveness is limited—not least because the it is difficult to observe the counterfactual. However, Australia’s aid programme is still in the recovery phase following the initial disruption caused by its merger seven years ago.97

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