The FCDO's approach to value for money

DFID was a global leader in its approach to value for money (VfM), and the Committee are pleased to hear that some of the core foundations of DFID’s framework have transferred into the FCDO. However, it is concerning that there is very little publicly available information on the FCDO’s current understanding of, and approach to, VfM. There is also limited public guidance available for FCDO staff and operating partners on the FCDO’s approach to VfM, and how to address VfM issues. This is particularly alarming in respect to ensuring that the principle of equity, achieving which often requires more resource- or time-intensive interventions, is assessed appropriately. (Conclusion, Paragraph 17)

The FCDO must publish a clear strategy and framework regarding its approach to VfM, as had previously been done by DFID and other Government departments. This should include: a. A clear definition of VfM; b. The FCDO’s core VfM principles; c. How the FCDO assesses VfM against its core principles; d. Governance, accountability and evaluation measures; and e. Examples of how VfM issues can and should be considered in different contexts, including when working with partners. (Recommendation, Paragraph 18)

Alongside a clear VfM strategy and framework, the FCDO should publish detailed and practical guidance for its staff and partners on how to approach and conduct VfM assessments, particularly in respect to equity, ensuring that programme activities address the needs of the most marginalised in society. The FCDO should also ensure that all partners are informed of the latest VfM strategy, to ensure coherence. This guidance should be produced as soon as possible, in the least to coincide with the 2026 Spring Statement. (Recommendation, Paragraph 19) 44

The Committee is disappointed to note that per the FCDO’s current published definition of VfM in its Programme Operating Framework, the department frames VfM in the context of value to the taxpayer, not improving the lives of those in poverty. Whilst accountability to the taxpayer should be a key facet of any VfM approach for a Government department, reducing poverty globally, and maximising the impact of each pound to do so, must remain the FCDO’s central tenet for ODA spending. (Conclusion, Paragraph 23)

It is essential that the FCDO makes it clear in all strategy frameworks and guidance documents that improving the lives of those in poverty is the core principle of the FCDO’s approach to VfM. All economy, efficiency, effectiveness and equity assessments must be explicitly considered against this principle. (Recommendation, Paragraph 24)

Sustainability is essential for ensuring that programmes have a long- lasting impact after a programme has ended. Despite broad recognition of the importance of sustainability, the FCDO is yet to formalise this within its VfM criteria. This should not just be an informal consideration within VfM assessments, but should mandatorily and consistently measured throughout a programme. (Conclusion, Paragraph 28)

The Committee recommend that sustainability should be a named central tenet of the FCDO’s VfM assessment criteria by the end of the 2025/26 financial year, and should be regularly and formally considered throughout the life of a programme. (Recommendation, Paragraph 29) The international development landscape and the UK ODA’s reduction to 0.3%

The UK’s planned reduction of ODA spend from 0.5% to 0.3% of gross national income will have devastating consequences across the world. The Committee recognises that increased defence spending is needed and is to be welcomed. However, to do this at the expense of the world’s most vulnerable undermines not only the UK’s soft power, but also its national security. (Conclusion, Paragraph 36)

Guaranteed, long-term funding for programmes is essential for ensuring that VfM is achieved, and that the impact of FCDO work continues to be felt long after the end of a programme. In the last five years, the UK has significantly cut its aid budget twice—damaging not just its international reputation and standing, but also those most in dire need of assistance. (Conclusion, Paragraph 37) 45

The Government must make every effort to return to spending 0.5% of GNI on ODA at a minimum, as soon as possible. The Government should produce a clear schedule for rebuilding aid from the interim level of 0.3%, with defined milestones in each Spending Review to provide certainty to the FCDO and partner countries and organisations. (Recommendation, Paragraph 38)

We recommend that the Government commits to publishing an impact assessment for every year in which cuts to ODA are implemented, including the 2026/27 financial year, and providing rationale for how these decisions align with the impact that UK aid aims to achieve. (Recommendation, Paragraph 39)

The Committee notes the continuing badging of high levels of Government spending on refugee costs within the UK as ODA with dismay. Whilst the Spending Review commits to ending the use of asylum hotels in this Parliament, the level of the UK’s in-country support for the poorest people in the world should not be dependent on the success of domestic immigration policy. (Conclusion, Paragraph 45)

Whilst the Committee recognises that in-donor refugee spend is allowable under DAC rules, in a world of rapidly decreasing aid budgets it is not in the spirit of what ODA should be used for, which per the OECD is spending that promotes and specifically targets the economic development and welfare of developing countries. Excessive spend on hotel costs is not an effective use of development budgets. (Conclusion, Paragraph 46)

The Government should consider that Home Office in-donor refugee costs should be capped at a fixed percentage of total ODA spend to protect a rapidly diminishing envelope of funding. This should include formal review points if projections breach 80% of the agreed caps. (Recommendation, Paragraph 47)

The FCDO must make formal representation to HM Treasury that any unspent ODA allocated to other Government departments is channelled back through the FCDO to continue its vital humanitarian and development work, and to ensure that overall ODA spending does not fall even further to below 0.3%. This representation must not be on a case-by-case basis, but requesting a commitment that all unspent ODA in future will be reallocated back to the FCDO. (Recommendation, Paragraph 48)

VfM approaches differ between Government departments, including in relation to ODA spend. The Minister’s announcement that the FCDO have been granted a greater leadership position in the way that ODA is spent across Whitehall is an opportunity for the FCDO to exert its leadership on all departments spending ODA and ensure that maximum VfM is being achieved across all aid spending. (Conclusion, Paragraph 49) 46

Achieving VfM for every pound of ODA is now more vital than ever, and it is essential that one consistent framework is applied across all aid spending. Given that the FCDO is the largest administrator of ODA, its published framework, in line with our recommendation in Chapter 1, should be used, with the Second Permanent Under-Secretary of the FCDO having formal oversight over the VfM of ODA spending across all departments. (Recommendation, Paragraph 50) The FCDO’s engagement with partners

We recognise that multilateral organisations can offer good VfM in many circumstances. However, it is concerning that the FCDO has not commissioned a review of its multilateral aid spend since 2016, despite £2.8 billion of core ODA funding being spent through multilaterals in 2024. (Conclusion, Paragraph 58)

We recommend that the Government conducts a new multilateral aid review of its current ODA spending to ensure that VfM is being achieved by the end of the 2025/26 financial year. This should include: a. An evaluation of the most effective proportion of spending through multilateral vs bilateral programming; b. Consideration of the benefits the UK receives through its multilateral development programming; c. How much UK funding to multilateral organisations is going towards administration costs compared to direct programme activities; and d. Evaluation of the performance of each multilateral organisations receiving UK ODA, including their impact, efficiency and alignment with UK priorities. (Recommendation, Paragraph 59)

The Government has ambitious and earnest intentions for championing locally-led solutions. However, there is a significant risk that these ambitions could be lost amidst financial pressures, in favour of centrally managed programmes, and that the VfM benefits that localisation can offer will be lost. (Conclusion, Paragraph 66)

The Government must prioritise localised interventions for context-specific challenges, including poverty reduction and community health. Given a reduced ODA budget, these interventions should be targeted towards areas with the highest level of impact to maximise VfM and fulfil the globally agreed Grand Bargain. (Recommendation, Paragraph 67) 47

The Minister for International Development must ensure that there is coherence across the department in respect of promoting locally-led programmes and ensuring they deliver good VfM. This should include prioritising the development of a local leadership strategy as a cross- departmental piece of work that places lower- and middle-income countries at the centre. (Recommendation, Paragraph 68)

Philanthropic organisations have considerable power that the FCDO is currently not wielding to its maximum impact. Whilst the Government must be aware of the risks and implement mitigations where possible, there are compelling reasons for the Department to improve engagement with philanthropic organisations. (Conclusion, Paragraph 74)

We recommend that the FCDO convenes regular strategic dialogues with philanthropists and development foundations to ensure that work can be aligned and complementary, and to encourage knowledge sharing. (Recommendation, Paragraph 75)

The FCDO’s use of private contractors is not inherently poor value for money. However, the published organisation and activity data of all implementing partners, including private contractors, is often incomplete and obscure. This exposes every pound spent to a higher risk of under-delivering impact. (Conclusion, Paragraph 87)

It is essential that the FCDO requires all of its contracts with private contractors to adhere to the International Aid Transparency Initiative, not just most, to ensure that all implementers of UK ODA are held to the same transparency and accountability standards. (Recommendation, Paragraph 88)

The FCDO must make every effort to improve the transparency of the data it collects on its engagement with contractors and operating partners. The information that is required of organisations to report through IATI must be published in a way that is clear, user-friendly, and complete. (Recommendation, Paragraph 89)

We are concerned about the potential loss of expertise within the FCDO as a result of engagement with private contractors, particularly where contracts have been ongoing for many years, where in-house expertise could have instead been used. (Conclusion, Paragraph 90)

The FCDO should perform an audit of all individual private contractor engagement longer than 12 months or approaching renewal. This must assess whether extended tenures align with performance outcomes and original mandates, with findings with clear recommendations for terminations or formal renegotiations to be escalated to senior leadership. (Recommendation, Paragraph 91) 48 Monitoring, Evaluation and Learning

We have been glad to hear that there is a stronger evaluation culture in the FCDO than can be seen in many other Government departments, and that the FCDO’s monitoring, evaluation and learning (MEL) processes are strong in comparison to other international actors. There has been a clear continuity of MEL processes from DFID to the FCDO, with the retained strengths of DFID’s frameworks being apparent. (Conclusion, Paragraph 100)

It is also positive that the FCDO recognises that the lack of data in many of the contexts it operates in means that some quantitative metrics are not possible or of good quality, and offers flexibility around this for operating partners. (Conclusion, Paragraph 101)

Whilst the FCDO’s strong MEL processes help to ensure that programmes are delivering VfM, these expectations increase administrative demands on organisations delivering these programmes. This may lead to smaller NGOs not applying for programme funding. (Conclusion, Paragraph 102)

Wherever possible, the UK should support smaller organisations in MEL processes without placing unrealistic expectations on the level of data and reporting they are able to provide. Whilst we recognise and agree that MEL is vital for ensuring VfM, this should not be at the expense of using local organisations. The FCDO should establish business hubs in partner countries to assist and support small organisations on the ground to meet MEL requirements. These hubs should include facilities such as feedback channels direct to the FCDO for local actors, which would aid in alleviating the excessive burden on organisations due to onerous, but necessary, MEL processes. (Recommendation, Paragraph 103)

To enhance the effectiveness and accountability of UK ODA spending, we recommend that MEL reporting requirements of ODA programming should be standardised across all Government departments. In line with our recommendation in Chapter 2, the Second Permanent Under-Secretary at the FCDO should have formal oversight of this, given their responsibility for ODA spend across Government. (Recommendation, Paragraph 104)

As a global leader in promoting VfM across development spending, it is vital that the FCDO protects its MEL budget. MEL should not be optional; it is a core function that underpins effective, accountable and adaptive programming. Without appropriate and complete MEL in place, the VfM of FCDO programmes cannot be adequately assessed. It is highly concerning that previous ODA reductions resulted in MEL being cut from programme budgets. (Conclusion, Paragraph 108) 49

It is essential that the FCDO ringfences MEL spend within programme budgets and protects these throughout the reduction of ODA to 0.3% of GNI. Further cuts to MEL threaten to undermine the very assessments that sustain the accountability and impact of all FCDO work. (Recommendation, Paragraph 109)

It is concerning that Programme Managers do not feel valued within the FCDO, a problem compounded by capacity issues and higher expectations than made of counterparts elsewhere in Government. Despite the Minister’s assurances that the FCDO recognises the importance of management, we are sceptical that measures such as mandatory training and networking opportunities will alleviate the pressure that FCDO staff are currently under. (Conclusion, Paragraph 110)

The FCDO must make every effort to ensure that its staff feel valued and appreciated within the organisation, particularly amidst budget insecurity. The Committee recommend that the FCDO commissions a rapid capacity assessment, and recruit or offer secondments to additional specialists to relieve overworked Programme Managers, rebalance workloads and bring better value to the taxpayer. (Recommendation, Paragraph 111) 50