House of Lords - The Economic Impact and Effectiveness of Development Aid

The Economic Impact and Effectiveness of Development Aid - Economic Affairs Committee Contents

CHAPTER 6: British Aid Policy

Institutional and statutory framework

75. The institutional framework was put in place in 1964 when in the words of Mr Richard Manning, former senior DFID official and former Chairman of the OECD's Development Assistance Committee, the Government "put together all Britain's aid assets in one place",[91] the new Overseas Development Ministry. Under successive Governments it was either a Ministry in its own right or an Overseas Development Administration under the aegis of the Foreign and Commonwealth Secretary. In 1997 it was remodelled as the Department for International Development (DFID) under the Secretary of State for International Development. Lord Jay of Ewelme, a former official of the ODA (now DFID) and former Permanent Secretary of the Foreign and Commonwealth Office, told us that "the right structure is to have a separate DFID from the Foreign Office, but working closely together."[92]

76. The International Development Act 2002 sets out the powers of the Secretary of State and lays down the terms on which he may provide development and humanitarian assistance. None of our witnesses suggested that the Act should be changed or repealed.

77. DFID is a partner with the Foreign and Commonwealth Office and the Ministry of Defence in the Conflict Pool set up in 2008 by merger of the previous Africa Conflict Prevention Pool and Global Conflict Prevention Pool. In 2009 the Stabilisation Aid Fund, established to support stabilisation in Iraq and Afghanistan, was also merged into the Conflict Pool. The Conflict Pool does not draw on its three partners' Departmental budgets, but is separately funded by the Treasury. It aims for pan-Whitehall coordination of conflict prevention activity.[93]

78. We agree with Lord Jay of Ewelme who told us that aid should complement British foreign policy. The Conflict Pool provides scope for coordinated responses by DFID, the Foreign and Commonwealth Office and the Ministry of Defence to instability and conflict in developing countries in carefully assessed cases.

The aims of British aid policy

79. The International Development Act 2002 empowers the Secretary of State to "... provide ... development assistance if he is satisfied that ...[it]... is likely to contribute to a reduction in poverty."[94] Most of our witnesses, for example Lord Jay of Ewelme,[95] agreed that poverty reduction should be the main priority.

80. In furtherance of the primary purpose of poverty reduction and of DFID's ultimate goal—still distant—of making itself redundant, the priorities of the DFID business plan are to:

i) Honour international commitments

Honour the UK's international commitments and support actions to achieve the Millennium Development Goals

ii) Introduce transparency in aid

Make British aid more effective by improving transparency and value for money

iii) Boost wealth creation

Make British international development policy more focussed on boosting economic growth and wealth creation

iv) Strengthen governance and security in fragile and conflict-affected countries

Improve the coherence and performance of British international development policy in fragile and conflict-affected countries, with a particular focus on Afghanistan and Pakistan

v) Lead international action to improve the lives of girls and women

Work to empower and educate girls, recognise the role of women in development and help to ensure that healthy mothers can raise strong children

vi) Combat climate change

Drive urgent action to tackle climate change, and support adaptation and low carbon growth in developing countries[96]

81. DFID's Bilateral Aid Review makes clear that spending in fragile states and conflict areas is to increase to 30% (as a share of the total budget) by 2015, in line with the view expressed in the Government's Building Stability Overseas Strategy (BSOS) that "Working to address instability and conflict upstream is a sound investment."[97] At the same time bilateral programmes in 16 countries including China and Russia are being wound down, so that bilateral aid will be concentrated in 27 countries.

82. The International Development Act also defines "furthering sustainable development" as a purpose of development assistance. DFID cites research conclusions that "aid has a positive and statistically significant causal effect on growth over the long run" and contends that even "aid ... spent on providing immediate benefits rather than directly on economic growth ...[may] eventually increase economy-wide productivity and hence the growth of incomes."[98]

83. None of our witnesses advocated a return to tying aid funds to purchase of British goods or services. Mr Jan Dehn of Ashmore Investment Management Ltd agreed that tied aid was "... a very inefficient allocation of resources ..." it was not "... in our general interest ... to tax everyone in the UK to give money to a particular company so that it can gain a contract as part of our aid budget."[99]

84. We believe that poverty reduction through economic growth should remain the main aim of aid policy.

85. We welcome the Secretary of State for International Development's decision to run down bilateral development aid programmes in 16 countries including China and Russia and to concentrate bilateral aid in 27 countries.

Spending on aid

86. The UK's gross spending on development (DFID and non-DFID) rose from about £7.6 billion in 2006/07 to £9.0 billion in 2010/11.

FIGURE 7

UK Gross Public Expenditure on Development 2006-2011 (current prices)

Source: DFID / National Statistics, Statistics on International Development 2006/07-2010/11, October 2011.

The DFID programme rose substantially faster, from £5.0 billion in 2006/07 to £7.7 billion in 2010/11, a rise of 53% (Figure 7). This increase was more or less balanced between increases in DFID's bilateral aid programme and spending via multilateral institutions. Over the same period, DFID's administration expenditure fell from 4.65% of total departmental spending to 2.85% (Figure 8).

FIGURE 8

The DFID Programme 2006-2011

Source: DFID / National Statistics, Statistics on International Development 2006/07-2010/11, October 2011.

87. Under the Coalition Government spending plans, DFID is the only Department to receive a substantial increase in spending, 37% in real terms between 2010/11 and 2014/15, when almost all other departments are expected to cut spending.[100] These planned increases in spending are to enable the Government to meet its commitment to reach by 2013 the target of spending 0.7% of Gross National Income (GNI) on aid. On this basis, the 2010 Treasury Spending Review projects total UK net ODA to equal £12.6 billion in 2014, approximately 1.7% of total public sector expenditure; in 2010 net ODA accounted for approximately 1.2% of expenditure.[101]

88. The 0.7% target was adopted in 1970 by the UN including the UK (cf. footnote 3). No British Government has resiled from the target but neither has any achieved it. British net Overseas Development Assistance rose from 0.43% in 2008 to 0.56% in 2010.

TABLE 3

UK Aid Summary

	UK Net ODA (Constant 2009 prices)	Share total net ODA from all DAC donors	Net ODA as % of UK Gross National Income (GNI)
2008	£7.36 bn	9.6%	0.43%
2009	£7.23 bn	9.4%	0.52%
2010	£8.64 bn	10.6%	0.56%

Source: OECD Development Assistance Committee (DAC), Statistics on Resource Flows to Developing Countries; UK share calculated from DAC data

Note: Figures differ slightly between UK budget and DAC sources. DAC data are reported on calendar year basis and expressed in constant 2009 prices.

89. Some of our witnesses opposed continued pursuit of the UN target. Michela Wrong wrote that the target "places supply before demand, the wrong way to go about things."[102] It was "... a straitjacket ... unhelpful and possibly dangerous ..."[103] because it encouraged officials "... to turn a blind eye to flagrant abuse in the pressure to get the money out of the door."[104] Mr Dehn said 0.7% was "an arbitrary number ... budgets should be flexible so they can adjust to needs."[105] Sir Edward Clay, formerly British High Commissioner in Kenya, said "...0.7%... has had its day."[106]

90. Others still see merit in the UN target. Sir Tim Lankester thought it "worth having as an aspirational target."[107] Lord Jay of Ewelme thought it "a good target to aim for, provided that it can be well spent ... I do not think we should underestimate the impact that a British aid target and the quality of British aid can have on others."[108] Mr Simon Trace, Chief Executive, Practical Action, saw the target as "modest ... affordable ... and a reasonable thing to go for."[109] Professor Sachs was "all for the 0.7%."[110] Professor Collier "would not have given the 0.7% target anything like the profile that it has ... The main reason why we should do it is that we said we would."[111]

91. The Secretary of State for International Development defended meeting the UN target on the same grounds: "we have promised that we will do that" [112] "... it is the right thing to do ... we would not seek to balance the books on the backs of the poorest people in the world."[113]

92. The coalition Government is committed not only to meeting by 2013 the UN target of spending 0.7% of GNI on aid but also to bringing forward legislation to make compliance with the target a legal obligation on future British Governments. All of our witnesses who opposed meeting the UN target were strongly against enshrining it in legislation. So were some supporters of the target: Lord Jay of Ewelme said "I am not in favour of it being a legislative obligation."[114]

93. The commitment to legislation has its defenders. Professor Sachs "... would say 'Go for it'."[115] Mr Jonathan Pell said the target "should perhaps be put into legislation."[116] Mr Patrick Watt, Director of Policy and Research, Save the Children, said legislation would "protect the aid budget from political jockeying."[117] Mr Alex Cobham, Chief Policy Adviser, Christian Aid, thought British aid would "be much more predictable and therefore much more beneficial."[118]

94. The Secretary of State for International Development explained the commitment to enshrine the 0.7% target in British law as "a commitment of all three parties, it was a commitment in the Gracious Speech and it was a commitment in the coalition agreement. If you make these commitments, I think you should stand by them."[119] He added "There are arguments against declaratory legislation—I freely accept that—but the position of the coalition Government is that the Bill will proceed at the time the business managers decide that it should ... As the Prime Minister made very clear when he went before the Liaison Committee, we will proceed when the business managers are able to find us a slot."[120] The Secretary of State did not adduce economic or developmental benefits expected to flow from legislation.

95. Whatever its merits when it was adopted in 1970, we do not accept that meeting by 2013 the UN target of spending 0.7% (£12bn) of Gross National Income on aid should now be a plank, let alone the central plank, of British aid policy because:

a) it wrongly prioritises the amount spent rather than the result achieved;

b) it makes the achievement of the spending target more important than the overall effectiveness of the programme;

c) the speed of the planned increase risks reducing the quality, value for money and accountability of the aid programme;

d) reaching the target increases the risk identified in Chapter 4 that aid will have a corrosive effect on local political systems.

We recommend that the core of aid policy should be choosing and funding the best ways of promoting international development and stability, rather than finding new ways to spend ever-increasing resources.

96. The Government should therefore drop its commitment to enact legislation to enshrine in British law an obligation on future Governments always to comply with the UN target of spending 0.7% of Gross National Income on aid. It would deprive future Governments of the flexibility to respond to changing circumstances at home and abroad. The Secretary of State has not put forward any case for legislation other than the Government's political commitment to it.

91 Q 315 Back

92 Q 59 Back

93 Q 169 Back

94 International Development Act 2002, section 1(1) Back

95 Q 52 Back

96 DFID Business Plan 2011-2015 Back

97 DFID, Foreign and Commonwealth Office and Ministry of Defence (2011), 'Building Stability Overseas Strategy', page 2 Back

98 DFID 1, para 7 and Secretary of State for International Development (SoS 2) Back

99 Q 282 Back

100 HM Treasury, Spending Review 2010, Table 1 (excludes departmental capital budget). Back

101 HM Treasury, Spending Review 2010, Table 2.16. Public expenditure is defined as public sector current expenditure plus public sector gross investment (Spending Review, Table 1.1). Over the Spending Review period, revisions to gross national income will be accompanied by corresponding adjustments to the budget for Net ODA. Back

102 Wrong, para 7 Back