The Newton Fund review: report of the Sub-Committee on the work of ICAI Contents

4Newton Fund design

Primary and secondary purposes

24.We were told that many of the Newton Fund’s intrinsic tensions identified by ICAI stem from the initial decision to repurpose what was then the Emerging Powers Opportunities Fund into an ODA fund before adequate systems and standards were in place within BEIS:

[…] there was no fundamental redesign of the Fund to reflect its new primary purpose. Senior external stakeholders who were closely involved in developing the Fund from the beginning told us that the failure to redesign the Fund at this stage lies at the heart of many of the weaknesses identified in this review. We have found no evidence of serious consideration given to the question of how to balance the Fund’s primary and secondary purposes.26

25.Administering a large, specifically ODA-compliant, spending programme necessitates substantial capacity (both in staffing levels and in departmental knowledge), combined with the refinement of internal systems, in order to ensure that ODA is administered effectively, is a good fit with OECD rules, and that the impact of the expenditure can be demonstrated.27 In the absence of an overarching role for HM Treasury or DFID in monitoring ODA compliance,28 it falls to BEIS to prove it is capable of administering the Fund effectively before bidding to extend it.

26.In this respect, it is disturbing that, as shown by the National Audit Office and the previous Public Accounts Committee,29 despite a lack of sufficient evidence, the decision was made at the 2015 Spending Review to extend the Newton Fund and double its budget. The extension was approved before the Fund’s impact had been assessed. This was accomplished as part of the 2016 mid-term review which raised doubts about the Department’s ability to measure outputs and outcomes in the absence of a value-for-money framework. Four years on and despite another mid-term review in 2018 which highlighted additional issues around collation of data and accountability, the Fund still does not have a value-for-money framework or KPIs (although pilot initiatives were said to be underway). This led the previous Public Accounts Committee to make recommendations to HM Treasury around ensuring that “departments have set up frameworks for assessing value for money at the business case stage of new programmes’’ which we strongly endorse.30

27.With respect to UK aid funds, whether within a dual-purpose fund or not, we believe that Departments should not be able to bid for ODA without due regard being given to their capacity and capability to administer these programmes effectively. Extensions to ODA-funded programmes should only be agreed where there is robust and up-to-date supporting evidence from an evaluation of impact conducted to a standard endorsed by ICAI or the National Audit Office.

28.For this reason, we recommend that the Newton Fund not be extended at the next Spending Review if BEIS is not able to demonstrate by then that it can measure value-for-money and impact. In addition, from inception, such a fund should have both a strategy and a theory of change. Renewal of the Fund should also be conditional on the Department improving the way it collates data to measure impact, starting with meeting its own deadline of October 2020 for the rollout of its ‘Research ODA’ information management system. The Department should update us on progress towards implementing these measures in its response to our Report.

29.It is clear from the evidence collected by ICAI - and the Department’s and UKRI’s written evidence — that the Newton Fund can deliver impact against development objectives. ICAI identified many individual projects that could be demonstrated to do so.31 However, several witnesses told ICAI that the Fund’s biggest weaknesses stemmed from the fact that its repurposing was not accompanied by any significant change to its design to reflect its primary purpose of promoting international development and ICAI itself found no evidence suggesting any “serious consideration given to the question of how to balance the Fund’s primary and secondary purposes’’.32 Overall the Fund is not designed in a way that guarantees that its primary purpose — delivering development impact — is as prioritised as its secondary purpose — fostering UK national interests. Large amounts of ODA should not be devolved to Departments other than DFID without establishing guarantees, or an oversight mechanism, in relation to their ability to deliver outcomes to consistently high standards of technical compliance and developmental impact.

30.In line with our predecessor committees, we recommend that HM Treasury and DFID take the lead in promoting and monitoring excellence in ODA administration across Whitehall. In addition, the Fund should only continue to be financed with ODA if the Department uses DFID’s expertise to substantially reshape it towards a model that prioritises its primary purpose and delivers development impact to a high standard. BEIS should update us on progress towards implementing these measures in its response to our Report, outlining DFID’s input into the process. DFID should also write to us to outline the steps it is taking to promote better ODA administration across Whitehall.

Matched funding

31.The Newton Fund’s lack of focus on its primary purpose is of particular concern in light of ICAI’s finding that “It is not common among donors to use 100% ODA to finance matched finding partnerships with strong national interest components.’’33 When pressed on this point, the Department told us that:

A unique and valuable feature of the Newton Fund is the fact that UK funding is matched by our partner countries. This has a range of benefits, including ensuring equitable partnerships and sustainability of funding for the longer-term in partner countries. […] In 2019 DFID commissioned a review of the evidence base for research capacity building in low and middle income countries, conducted by Research Consulting. This specifically highlights the importance of local matched funding as part of best practice for capacity strengthening programmes–it demonstrates the commitment from local stakeholders, ensures alignment with local-national priorities and is an indicator for future sustainability.34

32.Whilst we acknowledge this argument has validity in some developmental contexts, we do not find that it convincingly addresses ICAI’s concerns around the intrinsic barriers that the match funding model creates for countries with a lower research capacity:

Matched funding or effort works well in equal partnerships with strong research and science institutions, as it helps to ensure their commitment to the partnership. It is less convincing in countries with fewer resources for research and innovation–some of which have lost access to Newton Fund resources because they could not meet the requirement to match UK contributions.35

33.As shown by ICAI, there are examples amongst other donors of funds that are designed to promote research whilst also encouraging capacity building in lower-income countries with weaker research capacity.36 In this respect, although we welcome the Department’s ambition to review country-level strategies and acknowledge its capacity-strengthening policy,37 we fear it may be too little, too late to have an impact on the Fund’s demonstrated shortcomings before it ends. When the Fund was suddenly repurposed as an ODA dual-purpose instrument, Newton Fund delivery partners were made to rush funding ‘out of the door’ without sufficient time to establish new relationships, which encouraged them to favour established partnerships with high existing research capacity.38 As a result, so far in the Fund’s life, 54% of funding — approximately £397 million — was allocated to partnerships with institutions in four middle-income countries with China, India, Brazil and South Africa.39

Untied aid

34.According to ICAI, the matched funding model also creates serious issues in terms of untied aid. By relying on a funding model where 90% of ODA is spent on UK institutions, as is the case for the Newton Fund, it appears that the Government is not in line with the spirit of untying aid:

The matched funding allocation model and the fact that UK ODA stays largely with UK institutions raise queries about whether or not the Newton Fund honours the spirit of the UK government’s commitment to untying all its aid, even if BEIS maintains that it meets the legal requirements.40

35.ICAI reiterated this point in their evidence to us:

While in the case of business, there was no evidence of tying aid so far, in the case of research, it appears that the UK is content to tie aid to UK institutions, while reporting 100% untying. It may be that the UK can claim a loophole in the letter of the OECD-DAC guidance, but it is certainly not in line with the spirit of untying aid. The potential loss of EU research funding may accelerate this tendency.41

36.This view is corroborated by the Centre for Global Development whose research found that ODA directly awarded to UK research institutions is a form of tied aid and should therefore be reformed and reported as such:

This explicit commitment to “UK science” raises concerns about the extent to which this aid is tied–given on the condition that it be used to procure goods and services from the donor country. […] [E]ven in cases where aid is not literally tied, there is still a heavy bias towards UK institutions: it is tied de facto if not de jure. The UK reports that 100% of its aid is untied. But if funding for UK research projects is classed as ODA, and directed to UK researchers without competition, then this claim is incorrect. […]

On the location of spending, all else equal, the preferred recipients for UK R&D ODA spend should be researchers in developing countries. Failing that, ODA should at least be untied and awarded using allocation procedures designed to select the best institutions to do the work wherever they are located.42

37.The Department’s response to ICAI on this point welcomed “the recognition from ICAI that the Newton Fund is already compliant with the rules regarding the untying of all UK aid” and asserted that BEIS had “already implemented” ICAI’s “Recommendation 3” on the matter. This is, however, at odds with ICAI’s findings, as they stated clearly in their written evidence to us:

This is a misunderstanding of what our review found. On the contrary, the review flagged concerns that “almost 90% of the Newton Fund stayed in the UK and goes to UK institutions.” […] We understand that BEIS’s claim is not that the aid is in fact untied, but that this type of aid (defined by them as standalone technical assistance) does not fall under the OECD-DAC rules on aid tying, or as they previously said in a letter on the Global Challenges Research Fund in 2017 that “it is untied by convention”. We cannot agree that the UK should ignore the negative impacts of tying aid in the research context just because of a reporting technicality.43

38.Furthermore, ICAI stressed that “It is worth noting that the DAC untying guidance is encouraging aid untying in areas not covered.”44

39.It appears that the Department may have misinterpreted ICAI’s findings on whether Newton Fund grants amounted to inappropriately ‘tied aid’. We recommend that the Government undertake a formal review of the extent to which the matched funding model which is used for the Newton Fund (and other funds like the GCRF) is compatible with the spirit of the Government’s commitment to untie all UK aid and the letter of the rules on ODA as articulated by the Development Assistance Committee (DAC) of the OECD. This review should also specifically outline how the Government intends to de facto as well as de jure untie UK standalone technical assistance and proposals to strengthen the OECD-DAC rules to this effect. The outcome of this review should be reported to our parent committee (the International Development Committee) by the time BEIS’s response to our Report is due.

26 ICAI, The Newton Fund, a performance review, para. 4.3–4.3, p. 13

27 International Development Committee, Definition and administration of ODA, para. 50

28 Something which the Committee of Public Accounts and the previous International Development Committee have long called for.

30 Committee of Public Accounts, The effectiveness of Official Development Assistance expenditure, para. 1, p. 5

32 ICAI, The Newton Fund, a performance review, para. 4.4, p.13

33 ICAI, The Newton Fund, a performance review, para. 4.4, p.13

34 BEIS (INF003) Q4-a

36 ICAI, The Newton Fund, a performance review, para. 4.5–4.6, p. 13

37 BEIS (INF003) Q2-b

38 ICAI, The Newton Fund, a performance review, para. 4.7, p. 14

39 ICAI, The Newton Fund, a performance review, para. 3.9, p. 11

40 ICAI, The Newton Fund, a performance review, para. 5.2, p. 30

41 ICAI (INF002)Q1-c

42 Centre for Global Development’s ‘UK Research Aid: Tied, Opaque and Off-Topic?’, pp. 9–10&17

43 ICAI (INF002) Q1-a

44 ICAI (INF002) Q1

Published: 15 June 2020