Effectiveness of UK AID

The Committee welcomes the Government’s commitment to spending 0.7% of Gross National Income (GNI) on aid, keeping within the current international rules-based consensus of the OECD’s DAC definition, and preserving the primary focus of UK aid upon poverty reduction.

The UK aid strategy sets out the priorities and principles against which UK aid spending should take place. The refreshed aid strategy will shape ODA expenditure beyond 2020 and should be an important building block in the Government’s forthcoming Comprehensive Spending Review (CSR). Therefore, it is crucial that the refreshed Strategy is in place before the next CSR so that the UK’s aid outputs are based on strategic planning rather than fitting around Whitehall budgets.

In recent years, the UK aid budget’s focus has shifted towards middle-income countries that are primarily of interest to the UK from a security, climate change or economic perspective. This shift is driven by non-DFID UK aid spending. To ensure that UK aid is used as effectively as possible, the Government must direct ODA to countries where there is the greatest likelihood of reducing poverty. Accordingly, it should review the growth in ODA directed to middle income countries to ensure that these interventions are helping the world’s poorest and most vulnerable people.

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.

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 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.

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.

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.

UK aid often seeks to create impact in challenging environments, where monitoring impact is difficult. However, this should not preclude departments administering ODA from setting objectives aligned to the UK Aid Strategy and seeking to monitor and evaluate change, in order to achieve the fullest picture possible of the totality of the UK’s aid spend and the impacts it is securing.

The UK Aid Strategy set an ambition that all UK government departments that spend the ODA budget will be ranked as ‘good’ or ‘ very good’ in the international Aid Transparency Index (ATI) by 2020. To date, only three departments—DFID, DHSC and BEIS—had met the target. Departments need to improve the transparency of their aid spending. The Government must set out how it intends to measure progress towards the commitment to publish data to global transparency standards, with milestones, and hold relevant Secretaries of State and departmental officials to account for failing to meet target dates.

UK aid should be scrupulously monitored to help ensure it is fulfilling its remit to eradicate extreme poverty and delivering value for money for the taxpayer. The current independent scrutiny regime is one of the strengths of UK aid. These scrutiny arrangements should continue—particularly as ODA is increasingly disbursed across government departments. If DFID’s functions are absorbed into another government department, parliamentary scrutiny should continue under a standalone parliamentary committee that scrutinises UK ODA which ICAI should report to.

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.

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.

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.

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.

UK aid spending amplifies the UK’s voice on the world stage, promoting our national interest by projecting our core values, and transforming the lives of people living in the very poorest countries. A potential shift of the UK’s ODA budget away from helping the very poorest people would be counterproductive - global poverty drives conflict and instability, and inaction on tackling poverty will compromise the other strands of the UK’s international policy.

Poverty reduction should continue to form a central part of the Government’s international policy. Accordingly, it should commit to targeting the majority of the UK’s ODA spend towards the very poorest countries. The Government should also set out how its refreshed international policy intends to work towards attainment of the Sustainable Development Goals and ensure that no-one is left behind.

The UK’s development legislation plays an intrinsic part in ensuring that aid is spent well and is focused upon poverty reduction. The very presence of this legislation demonstrates the UK’s role as a serious player in international development, and accordingly the Government should commit to maintaining the UK’s development legislation.

We recommend that the Government appoints a Minister for Development with responsibility for the totality of the UK’s aid spend, and that this Minister attends Cabinet. We also recommend that this Minister attends the National Security Council.

UK aid will increasingly have to balance short term diplomatic needs and initiatives with long term development objectives. Ultimately, ensuring that UK aid interventions are high quality is crucial to maintaining the UK’s reputation as a top-level development provider, and we are concerned that the FCO’s performance in ICAI reviews suggests it is not yet reaching the performance level required. The Government should set a target for all FCDO programmes to achieve a minimum ICAI grading of ‘green/amber’ within the next year.

In the face of pandemic-related budget cuts, difficult decisions will need to be made as to how savings can be made whilst protecting the overall effectiveness of aid spending. Given the grave challenges faced by developing countries in tackling COVID-19, disproportionately cutting long-term and locally led development programmes would hamper both present efforts to tackle the pandemic and long- term development goals. The Government should maintain a commitment to multi- year programming and grants to locally led projects in order to safeguard hard-won development gains. In its current review of ODA spending, it should prioritise life- saving projects across the global south.

To safeguard the effectiveness of UK aid interventions, the Government should set out how it intends to capture and retain DFID expertise in doing development well, and what plans are in place to rapidly train FCO staff in the skills necessary to manage effective and poverty reduction focused development programmes.

Aid spending through the FCO continues to raise concerns relating to transparency and quality of programming. With the new FCDO set to become the largest Effectiveness of UK aid: potential impact of FCO/DFID merger 39 implementing department of UK aid spending, this trend is very concerning. The Government should set out how it intends to ensure that ODA administered through the new FCDO meets high standards for transparency in its programming. Consequently, it should commit to all UK ODA funding meeting the transparency standard of ‘good’ within the next year.

Multilateral spending forms an important part of the UK’s ODA, but we are concerned that the merger may lead to an increase in funds provided to these organisations for generalised future spending rather than targeted funds delivering immediate benefits. As part of the Integrated Review, the Government should set out its strategy for development spending through multilateral institutions over the next five years, including the proportions of UK ODA to be spent through bilateral and multilateral channels, whether it intends to honour existing agreements and how it will it will seek to influence these organisations to ensure that UK aid is spent in the best possible way.

In 2019, the UK aid budget totalled £15.2 billion. Given the size and complexity of this budget, thorough parliamentary scrutiny of UK aid spending is essential. This is best performed by a dedicated select committee which is able to take a holistic overview of UK ODA, ensuring that aid is spent in a strategic and transparent manner on high-quality interventions. Therefore, we recommend the creation of a House of Commons Select Committee on Official Development Assistance (ODA), with a remit for scrutiny of the totality of the UK’s ODA spending.

Through its close work with us, and our sub-committee, the Independent Commission for Aid Impact (ICAI) is a crucial part of the robust scrutiny architecture which ensures the aid budget is well spent. ICAI’s expert reviews identify areas of good practice as well as areas for improvement, helping the UK to maintain its reputation as an international development superpower. It also satisfies the statutory requirement set out in the International Development (Official Development Assistance Target) Act 2015 for independent scrutiny of UK aid spending. There is simply no reason to change these arrangements. We recommend that the Government retains ICAI in its current form in order to provide thorough and independent scrutiny of the UK’s aid budget.

Drawing upon the highly effective model of cooperation between the National Audit Office and Public Accounts Committee, the new ODA Committee should have responsibility for receiving and considering ICAI’s reviews. It should also have responsibility for the other aspects of cooperation and coordination with ICAI in which we currently participate, including recruitment of the Chief Commissioner and other commissioners; agreement of the forward work programme and commissioning work.