2 Areas of increased expenditure |
The DFID CSR settlement
5. DFID's budget will grow unevenly over the next
4 years: by £1 billion in the two years to 2012-13 and then
very rapidly by £2.5 billion in 2013-14 to reach £11.3
billion and £11.5 billion in the 2014-15. In this chapter
we look at some of the Coalition Government's new priorities and
areas where spending will, or might, increase. We consider:
- Fragile and conflict-affected
- Climate change
- ODA spending by other Departments
- Multilateral institutions.
Fragile and conflict-affected
6. Government policy towards conflict-affected and
fragile countries has two distinct, albeit related strands. First,
it is clear that aid and soft diplomacy have a key role in conflict
prevention and resolution. Secondly, some of the poorest people
in the world live in conflict-affected countries and those where
governments are unable or unwilling to deliver basic services.
7. The Secretary of State has said that he wants
an international development programme that contributes to national
security goals. The
Government plans to ensure that DFID works more closely with other
Government Departments, in particular the Foreign and Commonwealth
Office (FCO) and the Ministry of Defence (MOD). To achieve this,
the Government has set up a National Security Council which includes
the Secretary of State for International Development. DFID informed
us of the advantages of this arrangement:
The production of a national security strategy and
the Strategic Defence and Security Review were interesting in
the sense that it was the first time that development had a big
seat at that table, and I think some of the emphasis in those
documents on prevention and taking a long-term view reflects the
fact that development had an important seat at that table. I think
there was an awareness from many of our colleagues, both in the
Ministry of Defence and the intelligence community, that in future
it would be much cheaper to prevent Afghanistans rather than to
try and fix the problem once it has gone terribly wrong.
The National Security Strategy (NSS), including the
work of the National Security Council (NSC), is to be scrutinised
by the Joint Committee on the National Security Strategy. We will,
however, take a close interest in the development aspects of the
NSS and NSC.
8. Another example of joint working between DFID,
the FCO and MoD is the Conflict Pool. From 2009 the Africa Conflict
Prevention Pool and the Global Conflict Prevention Pool were merged
into the Conflict Prevention Pool; and the Stabilisation Aid Fund
was created. In 2009 the Conflict Prevention Pool and the Stabilisation
Aid Fund were merged to form the Conflict Pool; and responsibility
for discretionary peacekeeping costs was moved from the FCO to
the Conflict Pool. The Conflict Pool is governed and managed jointly
by DFID, the FCO and MoD. It is a source of funding to support
the UK Government's aims for preventing and managing international
conflict. The cross-Whitehall Conflict Pool helps address global
conflict, by bringing together the UK Government's development,
diplomatic, and defence interests. In 2009-10 £103.7 million
was allocated to the Conflict Pool.
that closer working between departments should be assisted by
the Conflict Pool which brings together the Government's development,
diplomatic and defence interests. We trust the Pool will continue
to be used for conflict prevention.
9. During a visit to Afghanistan in May 2010 the
Secretary of State emphasised the link between development and
the UK's national interest, noting that there were few countries
the combination of our moral commitment to development
and safeguarding our national interest is so enmeshed. Building
the capacity of the state to guarantee security and stability,
deliver development and reduce poverty is central to defeating
violent extremism and protecting British streets.
10. A recent Chatham House paper argued that if the
UK wanted to deepen its commitment to tackling the challenges
posed by fragile states, it needed to remodel DFID extensively
with the Department concentrating on developing a coherent, preventative
agenda for fragile states. 
The report also recommended that DFID put more staff in fragile
states and concentrate on enhancing its political influence rather
than on administering aid budgets.
11. Of the 34 countries furthest from reaching the
Millennium Development Goals, 22 are in or emerging from conflict.
Moreover, according to DFID, fragile states receive approximately
43% less funding than they should from the international donor
community, based on their need and levels of poverty.
Although, as the Department recognises, it can be difficult to
spend money in more challenging environments,
the Department intends to continue to expand its work in them.
DFID told us:
The Coalition Government has a different set of priorities
from its predecessorssome continuity, but also some very
important new themes. It has been clear that we need to do more
than we're currently doing in the most fragile, conflict ridden
statesthose are obviously the hardest operating environments.
12. The NAO has informed us that the CSR
projected a rise in the share of UK ODA supporting
fragile and conflict-affected states will increase from 22% in
2010 (the equivalent of £1,800 million) to 30% (around £3,800
million) by 2014-15.
13. However, this spending is difficult to monitor
in part because there is no agreed global list of fragile states.
It will be necessary to ensure that the increased spending is
ODA-compliant and we consider this below.
14. Increasing spending in fragile states will necessarily
lead to a relative decrease in spending in more stable developing
countries. DFID told us:
Actually, from our point of view, that's kind of
a win; the whole goal of our business is to help countries move
on and no longer need aid, so we view that mostly as a good thing,
but at the margins it is possible that Ministers will face quite
tough choices about a bit more investment in a less fragile country,
which might have higher returns, as opposed to wanting to do more
in a more fragile one, whose returns might be longer in coming
is placing an increased focus on working in fragile and conflict-affected
countries, which are often furthest from achieving the Millennium
Development Goals. In its reply to this report the Government
should state which countries will be receiving the increased spending.
The new focus will produce problems. There will be severe difficulties
in ensuring every pound is well-spent in war-torn environments
with corrupt and incompetent Governments and the greater focus
on fragile states is likely to lead to less assistance to some
countries with good governance where aid is likely to be well
spent. We are to undertake an inquiry into fragile states in 2011
and will examine these issues in more detail.
16. Closer working
between DFID, the FCO and the MoD is welcome, especially in fragile
and conflict-affected countries. We do not expect this will lead
to the potential militarisation of aid and trust it will not.
We also welcome DFID's inclusion in the National Security Council
and expect it will lead to a more coherent approach to national
security. We support the establishment of the Joint Committee
on the National Security Strategy which will scrutinise the National
Security Strategy, including the work of the National Security
Council. We comment below on the staffing
requirements of increasing emphasis on working in fragile states
and conflict prevention.
17. The Copenhagen Accord, agreed at the United Nations
Conference on Climate Change in 2009, included a commitment to
provide $30 billion in funding over the three years to 2013 to
help developing countries mitigate and adapt to climate change
and an agreement to work towards the goal of achieving US$100
billion annual funding for developing countries by 2020.
The last Government agreed to play its part in providing funding,
as has the coalition Government. The UK is contributing £1.5
billion in Fast Start finance over three years (2010-2012), of
which £300 million will be dedicated to helping rainforest
nations safeguard their forests.
The CSR allocated £2.9 billion to assist developing countries
to respond to climate change for the period to 2014-15. DFID assured
us that all this funding was "for the purpose of poverty
reduction through low-carbon growth, building resilience and adapting
to climate change, and also tackling the problem of deforestation."
Although DFID has been allocated the majority of this (62%), the
Department for Environment, Food and Rural Affairs
(DEFRA) and the Department
of Energy and Climate Change
(DECC) also have shares3%
and 35% respectively. DFID added that there were "some
possibilities of intra-departmental flows if we need to adjust
during the course of the spending review period"
18. The last Government imposed a 10% limit on the
amount of ODA which could be used for helping developing countries
to respond to climate change. DFID informed us that the funding
allocated over the CSR period was no more than 7.5% of ODA and
that "it would not go beyond this in the spending review
period."  DFID
considered that it was important for development and climate change
to be tackled together; climate change had become one of the pillars
of the Department's Business Plan.
We welcome the Government's
policy of making climate change an integral part of DFID's programmes
and providing £2.9 billion funding up to 2014-15 to help
developing countries respond to climate change. In its response
to this report the Government should state how much of this money
will be ODA-compliant and how DECC is to spend its share of the
money. There should be a limit on the amount of ODA spent helping
developing countries respond to climate change, and we are reassured
that the funding allocated for this purpose in the CSR is less
than 10% of ODA.
Development expenditure by other
19. At present DFID contributes approximately 86%
of the UK's total ODA. This share has been relatively stable over
time. It was 84% in 2006.
Other Government Departments and public bodies also deliver UK
ODA. For example, the FCO's contribution to UK ODA spending is
around 2% in 2010/11 and will increase to 2.4% in 2011/12.
20. The Institute of Development Studies (IDS) has
argued that if more ODA is used by other Government Departments
"it must be shown and be seento have an impact
on poverty. If not, DFID's work will lose credibility."
We asked the Permanent Secretary whether she expected the proportion
of ODA provided by other Departments to increase and how it would
be possible to ensure it met with agreed definitions of ODA-eligible
expenditure. We were told that:
Other Departments' ODA allocations have been hard-wired
in their settlement letters, and the indications that we have
are that the proportion spent by DFID will actually increase to
89% by the end of the spending review. So that worry that the
money would be spread round actually has not manifested itself.
In terms of your question as to whether we have any leverage
over it, I think we have three; one is that we're responsible
for making sure that all that spend is actually compliant with
the OECD definition of aid[....] Secondly, it will also be subject
to the transparency agenda, so they will also have to publish
in a transparent way how they are spending the aid budget. Thirdly,
it will also be subject to the Independent Commission for Aid
Impact, so they will be subject to evaluations that are done by
21. The type of expenditure which can be reported
as ODA is determined by the Organisation for Economic Cooperation
and Development's (OECD) Development Assistance Committee (DAC).
The basic definition of ODA, which has not changed significantly
since 1972, refers to:
to financial flows to countries on the DAC list of
ODA recipients and to multilateral development institutions which
are provided by official agencies or by their executive agencies,
and each transaction of which is administered with the promotion
of the economic development and welfare of developing countries
as its main objective; and is concessional in character and conveys
a grant element of at least 25 per cent.
22. Although it might be desirable, the OECD-DAC
told us that there were no current plans to revise the definition
of ODA. There were clear guidelines about what type of expenditure
was eligible to be reported as ODA. For example, 6% of donor contributions
for UN Peacekeeping operations are eligible. For bilateral assistance
the management of security expenditure can be counted but not
counter-terrorism activities or any expenditure on weapons. Police
training is eligible as are improving governance and democratisation
programmes. Gift Aid through NGOs can also be reported as ODA.
23. All ODA provided by DFID is subject to the International
Development Act 2002 which states that the Secretary of State
may provide development assistance if he is satisfied that such
assistance will contribute to poverty reduction.
This is a narrower interpretation of ODA than that used
by the OECD, but the Act applies only to ODA provided by DFID,
not to ODA provided by other Government Departments.
This means that the ODA provided by these Departments need not
have poverty reduction as its primary objective.
24. Some of DFID's budget is being transferred to
others departments. In the 2010-11 Winter Supplementary Estimate
£58.697m is transferred to the FCO for British Council Official
Development Assistance (£40m), Conflict Prevention Pool (£16.547m),
Papal Visit (£1.85m.), Police Training in Tanzania (£0.2m)
and Visas for Chernobyl Victims (£0.18m). £16.033m.
is transferred to the Ministry of Defence in respect of the Conflict
Prevention Pool. 
The Secretary of State told us:
When I was in discussions with the Foreign Secretary
about the British Council, it was clear that he would not be able
to fund that through his budget and I said that we would look
at it. I made it clear back in July that, as much of what the
British Council does is ODA compliantthe Committee will
understand the very good work that the British Council does around
the world, particularly on educationI would not want us
as a country to lose the ability to fund that. So I made it clear
to the Foreign Office that we would take that over, but subject
to the fact that it must be good quality spend that the independent
evaluation body says is well spent.
DFID subsequently clarified the situation, noting
that the Secretary of State had agreed to
release budget to the FCO to remove the [financial
pressure] from them. FCO and British Council remain responsible
and accountable for the spend, with no DFID involvement on a day
to day basis. Of course, as the overall "owner" of UK
ODA, DFID has a general interest in ensuring that all reported
ODA is well spent. For future years, the recent Spending Review
2010 settlement has ensured that each department has received
the appropriate amount of ODA budget.
Permanent Secretary informed us that the share of the UK's ODA
which DFID spends will continue to increase. She expects it to
be 89% by 2014-15. This ensures that the majority of UK aid is
compliant with the International Development Act 2002 and is for
the purposes of poverty reduction. Spending by other departments
does not necessarily comply with the 2002 Act. DFID is transferring
sums to other departments, including somewhat surprisingly funds
for the papal visit. The Government should explain in its response
to this report what the funds transferred to the FCO for the papal
visit were spent on and how this was ODA-compliant.
26. According to the Permanent Secretary DFID will
increase its research budget over the CSR period from 2.6% to
3% of a significantly larger budget (ie to c. £350 million).
This is based on "analysis of the value for money we get
out of research, particularly some of the research in new agricultural
technologies and techniques, and medical trials."
We asked the Permanent Secretary whether DFID sought to ensure
that the UK maintained a strong research base in international
development. She told us that all research contracts were competitively
tendered for and that there was no particular preference given
to UK universities. 44% of DFID's central research funds went
to UK institutions in 2009-10.
27. We expressed our concern in the evidence session
with the Permanent Secretary that the results of DFID's research
were not always readily available and that little effort was made
to disseminate them widely. This could be done by making it clear
to those receiving research grants that they were expected to
submit evidence to relevant Select Committee inquiries. We were
assured that these issues would be addressed.
DFID has subsequently put forward a number of suggestions for
makes an important contribution both to DFID's work and to international
development more widely and it is important that DFID continues
to fund high quality independent research. DFID should seek to
stimulate research in institutions in developing countries, but
it must also recognise the expertise in UK universities and ensure
that the UK remains an important centre of research into international
development. We are concerned that at present UK research institutions
are unfairly disadvantaged compared to universities in other donor
countries. Research commissioned by DFID must be disseminated
more widely. Tenders for research should state that researchers
are expected to provide submissions to select committee inquiries
into relevant subjects and make their research available to the
public at large in order to increase transparency.
Switching aid from
bilateral to multilateral institutions
29. DFID provides aid directly to around 90 countries.
About 90% of its bilateral aid goes to 22 priority countries.
A Bilateral Aid Review of all DFID's country programmes is expected
to be completed at the end of February. Announcing the review
on 16 June the Secretary of State said:
The review will consider which countries should receive
British aid, how much they should receive and which countries
should stop receiving British aid. It will also consider which
aid instruments are most effective at delivering poverty reduction
in different contexts. Any savings generated will be redirected
to more effective programmes in other poor countries.
30. DFID has already announced that it will end its
aid programme in China and Russia and the funds will be redirected
to countries where it can make the most difference.
Announcing the closure of these programmes the Secretary of State
said that "UK money should be spent helping the poorest people
in the poorest countries."
This seemed to imply that aid to other middle income countries
would also be reduced. The previous International Development
Committee had urged DFID to create a coherent strategy for its
assistance to middle income countries.
This is becoming more important as the number of middle income
countries, with significant levels of poverty, is increasing.
We are currently engaged in an inquiry into the future of DFID's
programme in India, a country which has recently attained lower
middle income status.
31. DFID might be able to employ fewer staff and
lower its administration costs by concentrating bilateral aid
in fewer countries. DFID could also spend its increased budget
with little increase in its own administration costs if the share
of spending through multilateral institutions increased. In 2009-10
DFID spent £2,436m (37%) of its aid on core funding to multilateral
organisations. DFID said that one of the ways it could absorb
the big increase in ODA funding in the third year of the settlement
(2012-2013) would be to spend it through multilateral channels.
The World Bank's International Development Association (IDA) was
one of a number of options.
However, while it is cheaper for DFID to spend funds through multilateral
institutions, these institutions have their own administration
costs which are in many cases almost certainly higher than DFID's.
32. DFID added that these decisions would be based
on the results of the multilateral and bilateral reviews:
Ministers are in the midst of making decisions such
as choosing between multilateral and bilateral and other global
issue spend. They have no preconceptions about that. I think
the criteria that we will use to decide will be: "Where do
we get the most value for money? Which are the institutions,
or countries, where we can get the biggest development impacts
for our spend?" As yet, there is no decision on that. I
think the admin budget settlement ultimately constrains us a bit
as to how much we can do bilaterally, but I don't think it constrains
Ministers' choices to such a degree that we have to think about
all the incremental increase on the programme side going through
spending through multilateral organisations would enable DFID
to accommodate the large increase in spending in 2013-14 without
a major increase in running costs, for example by making additional
payments to the World Bank. However, it would make little sense
to save on DFID's administration costs by spending money through
institutions with higher costs. Moreover it should also be noted
that increased spending through multilaterals may reduce the control
available to DFID. It can be argued that it also dilutes its influence
as a major international donor - a proposal which the Committee
will examine further. The case for spending through multilaterals
must come from intrinsic advantages such as economies of scale
and lower transaction costs for developing countries. DFID has
not taken a decision yet and we await the Multilateral Aid Review
for an analysis of the costs and benefits.
34. It is also
uncertain as yet what decisions will be made in respect of middle
income countries following the Bilateral Aid Review. We reiterate
our recommendation made in reports in the last Parliament that
DFID should have a strategy for its engagement with middle income
countries, especially those with large numbers of poor people,
indicating the role of bilateral and multilateral aid.
9 In our report on the Millennium Development Goals
(MDGs) we examined a number of other Government priorities, namely
DFID's commitment to meet the MDGs and its role in improving the
lives of girls and women (International Development Committee,
Second Report of 2010-12, The 2010 Millennium Development Goals
Review Summit). Back
Q 66 Back
Organising for influence: UK Foreign Policy in an age of uncertainty,
June 2010 Back
International Development Committee, Second Report of Session
2010-11, The 2010 Millennium Development Goals Review
Summit, HC 534 Back
International Development Committee, Fourth Report of Session
2009-10, DFID's Performance in 2008-09 and the 2009 White Paper,
HC48 -II, Ev 2 Back
Ev 20 Back
Q 9 Back
NAO, The work of the Department, p 20 Back
Q 64 Back
International Development Committee, Fifth Report of Session 2009-10,
Sustainable Development in a Changing Climate, HC 177 Back
Q 60 Back
Q 59 Back
Q 61 Back
OECD, Review of the Development Cooperation Policies and Programmes
of the United Kingdom, 20 April 2010 Back
Ev w37 Back
OECD, Is it ODA? Fact sheet, November 2008 Back
Informal meeting with Karen Jorgensen, OECD-DAC, 11 November 2010 Back
International Development Act 2002, Section 1 Back
International Development Committee, Seventh Report of Session
2009-10, Draft International Development (Official Development
Assistance Target) Bill, paras 22-24 Back
Ev 29 Back
International Development Committee, Second Report of 2010-12,
The 2010 Millennium Development Goals Review Summit,
HC 534, Ev 3 Back
Ev 31 Back
Q 70 Back
Ev 31 Back
UK terminates development aid to China and Russia, The Guardian,
16 June 2010 Back
International Development Committee, Third Report of Session 2008-09,
DFID and China, HC 180, paras 16-19 Back
Q 15 Back