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Effectiveness of UK aid: potential impact of FCO/DFID merger Contents

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2Process of the merger

Overview of steps towards integration

6.The Foreign, Commonwealth and Development Office will be established in September 2020. It will combine the functions of the Department for International Development and the Foreign and Commonwealth Office and be led by the Foreign Secretary. The new FCDO will be responsible for around 80% of UK aid spending.2

7.The Prime Minister’s enthusiasm for merging these departments is well-known. As a backbencher in 2019, he called for DFID to be abolished, telling the Financial Times that “if ‘Global Britain’ is going to achieve its full and massive potential then we must bring back DFID to the FCO.”3 Following the 2019 General Election, the Government began clearing the ground for a merger:

• first, announcing the launch of its Integrated Review of International Policy in December 2019 whose remit included consideration of reforms to Government systems and structures;
• second, merging the DFID and FCO junior ministerial teams in the February 2020 ministerial reshuffle;
• third, in March, instructing DFID country directors to report to British ambassadors and high commissioners, and;
• fourth, in evidence to the Foreign Affairs Committee in April, the Permanent Under-Secretary of the FCO, Sir Simon McDonald, said he had been tasked by the Prime Minister “to align terms and conditions [of staff] between the two Departments” [the FCO and DFID].4

The Government’s Integrated Review of International Policy

8.The Government announced the launch of its Integrated Review of Security, Defence, Development and Foreign Policy in the Queen’s Speech of December 2019.5 The Review’s remit included consideration of the “necessary reforms to Government systems and structures” to achieve the Government’s international policy goals.6 As part of the Review’s process, the Government announced it would undertake a consultation process and build its new strategy upon this. The Review is led by Number 10 and a team in the Cabinet Office. Work on the Review was paused in April 2020 to enable the Government to focus upon the COVID-19 pandemic. The Review was restarted in late June,7 and the Government has said that it will report in the autumn.8

Joint ministerial teams

9.The Government appointed a joint ministerial team to the FCO and DFID in February 2020 (previously this had applied to a small number of positions only, for example, Minister for the Middle East and North Africa). The Foreign Secretary and Secretary of State for International Development do not have joint status. Joint Minister of State in the FCO and DFID, James Cleverly, told us that in practical terms his private office is comprised of a mixture of civil servants from both the FCO and DFID, and that the functions of the Departments “are complementary and aligned, but they are not the same”.9 The Secretary of State for International Development, Anne-Marie Trevelyan, said:

“In practice, it was happening before but perhaps without a coherent framework. Whichever Minister was visiting somewhere was asked if they could raise the question of sexual violence or the lack of girls in school, or pick a subject where there was an area of concern. This gives a holistic presentation of that, and I think it is working well. [ … ] It feels like that overlaying of the two—of certain areas of the world and indeed the kind of DFID programme delivery that is going on there—gives a strength to the UK’s message more than anything else.”10

Aligning operations in overseas posts

10.The 2015 UK Aid Strategy established an objective of administering an increasing proportion of the UK’s Official Development Assistance (ODA) spend outside of DFID. Since then, DFID’s share of UK ODA has fallen from 86% in 2014 to 73% in 201911 with a broad range of Government departments administering ODA. Consequently, UK embassies overseas are increasingly home to staff from departments other than the FCO.12 Reflecting upon this trend, former UK Ambassador to Jordan, Peter Millett, noted that,

“Embassies have increasingly become mini-Whitehalls with many government departments operating under the same roof and engaging with the authorities and people of the host country”.13

11.Earlier this year, the move to require DFID staff in country to report to Ambassadors or High Commissioners took this integration even further. Minister of State James Cleverly said,

“The ambassador or high commissioner within a country is the most senior official face of UK Government in a particular country. Having everybody, whether that is trade officials, our humanitarian function or our DFID offices, co-ordinated has to be a good thing. It maximises the impact that we can have in country.”14

Managing the transition to a new merged overseas department

12.The timing of the Prime Minister’s announcement on 16 June 2020 to fold DFID’s functions and resources into the FCO15 came as a surprise. Especially against a background in which we had published our interim findings, on the effectiveness of UK aid only the previous week. In that report, we argued strongly for the retention of the current standalone Ministry of State model for international development, with a Cabinet level Minister.16

Timing of announcement

13.We find it extremely disappointing that the decision to merge the two departments was taken before the Integrated Review, which was supposed to inform such reforms, had even restarted, let alone concluded. Moreover, the timing of the announcement, during the COVID-19 pandemic, was perplexing. Following the decision, the Overseas Development Institute stated that,

“Overall, departmental mergers are complex and time-consuming exercises. So doing this in the middle of the COVID-19 pandemic is very strange. The government should be focusing on helping poorer countries to weather the crisis and solving mounting global challenges like climate change rather than rearranging the bureaucratic furniture.”17

Furthermore, amid projections of a sharp contraction in the domestic economy from COVID-19, and warnings that the Government is looking to make savings of £2bn from the aid budget,18 the Government’s proposals to restructure two of the largest aid spending departments could not have come at a worse time.19

Consultation

14.As part of the Review process, the Government committed to “consult with experts beyond Whitehall”.20 However, at the time of the Government’s announcement to merge the departments, no consultation appeared to have started—indeed, the Government had told us that all consultation and engagement “will be placed on hold until the Review is resumed”21—and numerous development experts and aid groups were unaware of any plans for consultation.22 Taking the decision before completing the Review denied many external stakeholders the opportunity to contribute evidence; and pre-empted the Review’s conclusions.

15.We are also concerned that staff in neither organisation were consulted about the proposals to merge the two departments and only heard about the change through media reports instead of from their employer. The haste in which the decision was taken meant, for instance, that there were no answers to questions from staff about the different employment rules in the two departments - DFID, for example, employs 200 EU nationals who do not meet the more stringent nationality requirements for the FCO.2324

Planning for the merger

16.Any departmental reorganisation is a project, sometimes a very large and complex one. Adherence to key principles of good project management is essential for success.2526 In our interim findings report, we recommended that, if the Government should decide to make significant changes to the way UK aid is administered, it should set out the rationale for change; and quantify expected costs and how intended benefits justify those costs.27 We would also expect to see an appraisal of merger options; and a delivery plan with clear milestones; and how success will be measured and evaluated.

Rationale for change

17.To ensure any major departmental reorganisation is a success, there needs to be clarity about the problem it is intended to solve. In our view, there is a lack of clarity around the rationale for integrating DFID into the FCO. In his announcement on 16 June, the Prime Minister said:

“[A] dividing line between aid and foreign policy runs through our whole system, with our Department for International Development working independently from the Foreign and Commonwealth Office. [ … ] [N]o single decision maker in either Department is able to unite our efforts or take a comprehensive overview. [ … ]

“Faced with the [COVID-19] crisis today and the opportunities that lie ahead, we have a responsibility to ask whether our current arrangements, dating back to 1997, still maximise British influence. Those well-intentioned decisions of 23 years ago were right for their time. [ … ] Yet those judgments date from a relatively benign era when China’s economy was still much smaller than Italy’s and the west was buoyed by victory in the cold war.

“We must now strengthen our position in an intensely competitive world [ … ], so I have decided to merge DFID with the FCO to create a new Department: the Foreign, Commonwealth and Development Office. This will unite our aid with our diplomacy and bring them together in our international effort.”28

The justification for the merger—foreign policy alignment—does not itself provide a compelling case for the proposed change. Furthermore, at this stage, we do not know what the aims and objectives of the new FCDO will be. The Government’s official statement published shortly after the Prime Minister’s announcement said those objectives will be shaped by the outcome of the Integrated Review.29

Merger options

18.The merger option that the Government seems to have chosen - full integration of DFID into the FCO - means the new overseas department will be responsible for both development policy and its implementation.30 It is one of several models for administering development assistance that the Government could have chosen. Across OECD aid donor countries, there are basically four models for administering development assistance, with each model offering development different degrees of distinctiveness and autonomous identity.31 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. (The model proposed in the Prime Minister’s statement. For example, Denmark has adopted this model.)
• Model 2: A directorate or development agency located within the overseas department which leads and is responsible for policy and implementation. (For example, Australia, Canada and the Netherlands.)
• Model 3: The overseas department has overall responsibility for policy with a separate executing agency responsible for implementation. (For example, the United States, Germany, France, Japan and Sweden.)
• Model 4: A ministry or agency (other than a foreign affairs department) is responsible for both policy and implementation (the current UK position.)

There is no evidence that the Government considered the merits of these alternative governance models for administering aid, or assessed the impact of the proposed merger on the poorest and most vulnerable people, before reaching its decision to integrate DFID and the FCO.

19.Furthermore, it is not clear why the Government chose the departmental reorganisation option when other alternatives were available. For example, if the intention was to refocus aid spending on the UK’s strategic priorities abroad, the Government could have ordered a further shift in resources to other government departments and the cross-government Conflict, Stability and Security Fund (CSSF) and Prosperity Fund.32

Merger benefits and costs

20.According to the Overseas Development Institute, mergers between development ministries and foreign affairs departments are often justified in terms of improving administrative efficiency and development impact.33 In his statement to the House of Commons on 16 June, the Prime Minister said the merger would maximise value for money of the UK’s aid budget (although the statement to the House and the subsequent official statement did not explain how this would be achieved).34

21.A merger might also offer policy coherence benefits (the key argument used in the Prime Minister’s statement.) In written evidence, the Centre for the Study of Existential Risk, University of Cambridge, stated that “a merger between DFID and FCO could help the UK take a clear joined up approach to foreign policy and help DFID and FCO work closer together”.35 The HALO Trust stated that [a merger would offer] a more integrated approach between development, diplomacy and defence as current arrangements remain very siloed.36

22.While departmental reorganisations offer potential benefits, they can also be costly and disruptive.37 And the disruption can last years.38

• Peter Ricketts, a former UK national security adviser, assessed that: “In my experience, departmental mergers soak up time and effort of senior management and rarely deliver real operational benefits. A more integrated UK international structure would be a good thing, but what really matters is a clear national strategy for it to implement.”39
• The National Audit Office concluded in its 2012 report, ‘Reorganising central government bodies’, that most government departments do not have a good enough grasp of the one-off costs of restructuring central government bodies or the ongoing costs of carrying on the functions that have been transferred.40
• According to the National Audit Office and the Institute for Government, any changes to departmental structures will incur costs and absorb senior decision maker effort. The direct costs of creating a new department—for example, integrating IT and HR systems, moving officials between buildings and aligning pay scales and allowances—average £15 million but can be much higher;41 with a further estimated cost of up to £34 million when including loss of productivity as staff adjust to the new organisation. Previous departmental changes have typically taken about two years until the new organisation was operating as effectively as possible.42

The last major restructuring of two government departments was the merger in July 2016 of the Department for Energy and Climate Change (DECC) and the Department of Business, Innovation and Skills (BIS) to create the Department for Business, Energy and Industrial Strategy. The Institute for Management estimates that the loss of productivity alone amounted to £34 million over the first year; and it took around two years before the new department began operating properly as a single entity.43

Opportunities and risks

23.While departmental mergers do not, in themselves, bring about greater efficiency, they do create a potential opportunity to review, reprioritise, and develop a strategic vision. We would hope that the recommencing of the Integrated Review of International Policy on 24 July will provide the opportunity to inform that strategy and vision.44

24.The success of the proposed merger will depend on blending the diverse skills of both departments. Despite some shared interests, DFID and the FCO do very different things. FCO staff are adept at understanding the politics of countries around the world, while DFID staff are programme managers with development expertise.45 In written evidence, many stakeholders drew attention to these differences and how they might impact on the success of any merger. The Centre for the Study of Existential Risk, University of Cambridge, for example, stated that the differences are stark:

“We do not however think it is clear that a merger would clearly resolve these differences without significantly damaging the effectiveness of one or both departments. Discussions with civil servants have highlighted that diplomacy skills and international development skills are very different and suggest that even if the departments were merged it would be important to maintain a separation of the diplomacy profession and the development profession.”46

25.The proposed merger of DFID and the FCO brings another significant risk. Once the merger is complete, the vast majority of the FCDO budget will be ODA. According to Professor Malcolm Chalmers (Royal United Services Institute), in spending terms, the FCDO will primarily be a development ministry with some diplomacy functions. And while the new integrated structure is likely to improve the cohesion of policy between diplomacy and development, it could also risk overloading the managers, at every level, who must now combine very different responsibilities previously held by two separate chains of command.47

Planning for reorganisation

26.According to the National Audit Office, having good project management systems in place as early as possible, ideally when a reorganisation is announced or as soon after as possible, is essential for success. A lack of preparation time is an acute problem in changes involving new departments. The new body almost always comes into being on the day the change is announced, so senior civil servants have no time to plan before implementation.48 In this case, the Government has given itself three months, between now and September, to plan and implement the merger. This is still a very short period of time to merge two strategically important internationally facing departments, not least during the global COVID-19 crisis and when spending budgets are being cut.

27.The Government has set up a merger transformation team, under the Cabinet Secretary’s chairmanship, that will report regularly to the Foreign Secretary.4950It is not clear how the resignation of the current Cabinet Secretary, announced on 28 June 2020 and due to take effect in September, will affect the merger timetable.51

28.Reorganising departments is not easy. In our view, the decision to merge the FCO and DFID into a new international department, the Foreign, Commonwealth and Development Office (FCDO), is flawed on a number of grounds:

• The decision was taken whilst the Integrated Review was paused, in its early stages, and far from ready to reach any decisions about future systems and structures.
• Linked to the status of the Integrated Review, there appears to have been no structured consultation of the aid sector, either in the UK or internationally, nor other obvious stakeholders to inform the decision to merge DFID into the FCO.
• It is also perplexing that the decision to merge DFID into the FCO was taken in the midst of the COVID-19 pandemic. The decision puts the international response to COVID-19 in jeopardy at a time when global cooperation is needed. It is the world’s poorest and most vulnerable who are likely to pay the greatest price.
• Little, if any, detail has been provided about the rationale for the decision or its timing, the options considered, likely costs and specific benefits, implementation plans for the reorganisation and how its success will be measured, the new department’s aims and objectives, and how it will tackle global challenges beyond aid.

29.While merging departments may seem attractive short-term, with improved policy coherence and possible administrative savings, they can be extremely costly and disruptive and impair organisational effectiveness. In the long run, the creation of the FCDO could reduce the UK’s influence on the world stage.

30.In the light of developments since the publication of this Committee’s interim findings on the effectiveness of UK aid, we restate the recommendation we made in that report about significant reorganisations of UK aid: that the Government should 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

31.In most OECD donor countries, overseas aid delivery is closely linked to foreign affairs ministries—governance Models 2 and 3 described in paragraph 18 above. The mainstreaming of overseas aid within a Ministry of Foreign Affairs (Model 1) and the existence of a ministry dedicated to development (as in the UK - Model 4) are less usual.52 However, the major donor countries in terms of overall aid spending—the United States, Germany, Japan and France—have all gravitated towards delivery models involving a separate development agency responsible for implementing their respective governments’ overseas aid policies (Model 3).53

Making the right choice

32.In our interim findings report, we found that evidence about the success of merging development assistance into ministries of foreign affairs - in terms of organisational efficiencies and development outcomes - is mixed.54 One key area the UK will need to guard against is losing talented development staff. Loss of this expertise will potentially impair the new overseas department’s effectiveness and damage the UK’s global standing. According to Ian Mitchell of the Center for Global Development,

“In going a different way [merger of DFID and FCO], the new department will need to work hard to retain that same degree of expertise. DFID is renowned for the professionalism of its approach—and there is clear evidence that mergers elsewhere have led to a loss of expertise.”55

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

33.In his statement on 16 June, the Prime Minister suggested the UK would draw upon the experiences of Australia and Canada in merging their foreign affairs and development agencies to ensure this merger is as successful as possible.56 Both mergers occurred in 2013.

Australia

34.In 2013, Australia folded its standalone aid agency, AusAID, into its Department of Foreign Affairs and Trade (DFAT). Announcing AusAID’s closure, then Australian Prime Minister Tony Abbott said:

“We want Australia’s aid program to be fully integrated into our overall diplomatic effort. We don’t want our diplomacy going in one direction and our aid program going in another direction”.57

35.Australia repositioned its aid spending to place a greater focus upon its immediate neighbourhood (the majority of countries in this region are ODA recipients). The merger led to the departure of significant numbers of skilled AusAID staff, taking their expertise in development programming with them, and had a detrimental impact on Australia’s aid effectiveness.58 The merger of DFAT and AusAID was also accompanied by a significant reduction in the country’s ODA budget, and the Australian ODA budget is set to remain frozen until 2022–23.59 We discuss the loss of expertise and ODA spending trends further in Chapter Three.

Canada

36.In 2013, the Canadian International Development Agency (CIDA) merged with the Department of Foreign Affairs and International Trade to create Global Affairs Canada.60 Administrative costs as a percentage of the country’s ODA spend initially increased immediately after the merger, before reducing in 2015.61 An argument for the merger was to ensure that the former international development ministry could have a substantial influence on foreign affairs. However, in practice, the reverse happened.62 The merger was also beset with poor transparency, and Leonard Cheshire told us that “details on the process were scarce and slow to materialise, with the new structure still unclear a year after the amalgamation was announced”.63

37.There is one notable difference to the Australian experience of integration. In the Canadian case, it has appointed a Chief Development Officer who reports directly to Canada’s Minister for International Cooperation; and all major spending decisions need the Chief Development Officer’s approval vesting considerable power in that office.64

Norway

38.In contrast to the Australian and Canadian examples of integration, Norway is moving in the opposite direction. Norway merged its aid delivery body, the Norwegian Agency for Development Cooperation (Norad), with its foreign affairs ministry in 2014.65 In 2020, Norway reformed its aid management again, strengthening the role of Norad and extending its operational and implementation responsibilities. Responsibility for deciding the strategic focus of Norway’s aid and policy development remains with its Ministry of Foreign Affairs, which has a distinct Minister for International Development.66 Effectively, Norway’s 2020 reconfiguration has shifted its donor governance from Model 1 (described in paragraph 18 above) towards Model 3, the donor governance model used in the larger donor countries such as the US, Germany, Japan and France.

39.While there has been a trend in recent years for some OECD donor countries to merge their development and foreign policy administrative bodies, all the other most substantial donor countries - the United States, Germany, France and Japan - typically adopt governance models where there is a clear separation between policy and implementation.

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