2 Expenditure plans
Expenditure 2006-07 to 2010-11
5. The Department's expenditure is growing substantially—it
spent £7,689 million on aid in 2010-11, split between bilateral
programmes in developing countries (55% of the Department's expenditure
in 2010-11),[5] and direct
aid funding to multilateral organisations (42 %).[6]
Funding to multilateral organisations increased as a proportion
of expenditure, rising by £800 million since 2009-10.[7]
Bilateral spending also increased by £300 million. Figure
1 shows expenditure growth in the past five years. Some bilateral
expenditure is spent by DFID's country offices through multilateral
organisations.
Figure 1: How the Department spent its money in
2010-11, and changes in spending since 2006-07
Note: In total £1,883 million of the bilateral
programme was channelled through multilateral organisations. In
addition to the £1,466 million identified in this Figure,
other elements of the bilateral programme, such as humanitarian
assistance and debt relief, include sums distributed through multilaterals.
Source: NAO presentation of data from the Department
for International Development, Statistics On International Development
2006-07 - 2010-11, October 2011
Future expenditure
6. In 2010, DFID planned large increases in expenditure
over the Comprehensive Spending Review period (see Figure 2).
The Department reviewed all the countries and multilateral organisations
which it funded in order to decide how to allocate its future
expenditure. It announced the results in March 2011 and multilateral
spending plans and bilateral programmes for individual countries
have now been published. While multilateral spending increased
as a proportion of expenditure in 2010-11, from 2013-14 the bilateral
aid will be an increasing share of expenditure.[8]
Figure 2 shows the position before the Government announced
in November 2011 that DFID's budget would be cut in 2012-13, 2013-14
and 2014-15. The Committee has not received up to date values
from the Department on how these changes are likely to affect
its plans.
Figure 2: Planned growth of bilateral and multilateral
expenditure over the Spending Review period at October 2011[9]
Source: Department for International Development's
Allocated Programme Budgets
7. The 0.7% target and the Department's budget was
set on the basis of Government projections of the size of GNI
and the economy at the time of the Comprehensive Spending Review
2010. Since then, the economic climate has changed substantially
and at the evidence session we highlighted the likelihood that
the Department would require less aid to reach the 0.7% target.[10]
The Department told us that, in addition to the contingency
reserve, it had held back £1.5 billion for 2013-14 'because
they wanted to keep open the possibility that new ideas could
emerge, results could be identified that they wanted to have the
resources to buy into in the outer two years'. As a result there
was a great deal of 'flexibility'.[11]
In effect, these uncommitted funds could be cut if expenditure
was reduced. DFID added that spending changes would not compromise
targets and outcomes and that 'in most of the areas we identified
for results in the BAR and the MAR, we are more likely to over-perform
than to under-perform'.[12]
8. Following the evidence session, the Chancellor,
in his Autumn 2011 statement,[13]
announced that aid as
a percentage of GNI would remain unchanged from the planned levels
set in October 2010 (0.56% for 2012-13 and 0.7% from 2013-14 onwards).
At the time of the CSR it was planned to increase DFID's budget
from £7.6 billion in 2010-11 to £11.3 billion in 2013-14
and £11.5 billion in 2014-15. As a result of the Autumn Statement
ODA is to fall by over £1 billion in the three years from
2012: by £380 million (2012-13), £265 million (2013-14)
and £525 million (2014-15). We have expressed the view
in previous reports that it would be hard to spend the enormous
increase in expenditure between 2012-13 and 2013-14 (£2.5
billion) efficiently in poor countries with limited administrative
capacity. The decision to cut spending by over £100 million
more in 2012-13 than 2013-14 makes the increase between these
years even larger and hence exacerbates the challenge. While this
will not affect programmes already planned because of the extent
of uncommitted funds retained by DFID, DFID does require clarity
about its future budget, which should not be changed every time
growth forecasts are revised. In its response to this Report,
the Government should set out how it plans to set a stable budget
for DFID so that the Department can properly plan its activities
and deliver its commitments consistent with meeting the 0.7%
target. We asked DFID to update Figure 2 to take account of
these reductions, but at the time of agreeing this report, it
had not done so. It is not yet clear exactly how this will impact
on the Department.
DFID's planned budget is to be reduced by c.£1billion in
the three years from 2012-13 to 2014-15. This
will affect the attainment of the Millennium Development Goals
by 2015. This problem could be avoided if other major donors fulfilled
their commitments. In addition,
greater clarity is needed about how DFID will address these budget
reductions. We recommend that DFID set out in its response to
this report the implications of the reductions in the Department's
planned budget on programme and country budgets and staff numbers.
DFID should also explain if and how results it seeks to achieve
will be affected. It should also put in place contingency arrangements
in case of further cuts.
Challenges in meeting the 0.7%
target
9. In our evidence session with the Permanent Secretary
at DFID we raised our concerns about the difficulties in meeting
a target of spending 0.7% of GNI on ODA, particularly if, as the
Government intends, it becomes a legal requirement. The Department
cannot control or precisely predict income or expenditure from
items which count as ODA, including Gift Aid (on donations made
to development charities), CDC's (the UK's own bilateral development
finance institution which is owned by DFID) investment in or sale
of assets, the Conflict Pool and humanitarian crises.[14]
10. The NAO added that the approach the Department
has used to estimate gift aid provides a conservative estimate,
excluding gift aid received by a number of large development charities.
If this underestimate persisted it would increase the amount the
Government would need to spend to hit the 0.7% target.[15]
11. Decisions by CDC to invest in or sell assets
can have a substantial impact on ODA. Last year net investment
was over £200 million; in some years, net disinvestment has
been over £0.5 bn. The Permanent Secretary argued that CDC's
share of the 0.7% was about 0.01% in most years and in one year
0.02% or 0.03%.[16] The
Department admitted that there were uncertainties in meeting the
0.7% target and that it would have to manage actively. For example,
DFID would 'track during the course of the year with CDC's projections
[...] If during the course of the year we see that something like
that could happen, we ought to have plenty of time to adjust'.[17]
Overall, the Permanent Secretary was confident that the Department
was able to manage its finances flexibly and deliver results.[18]
12. We
welcome the decision to retain the 0.7% target, but note that
there will be some difficulties in meeting it. The Department
has limited control of some items of ODA which will affect the
0.7% target (specifically CDC and Gift aid). We recommend that
if the expenditure of 0.7% of GNI on ODA becomes a legal requirement:
- DFID ensure
it has good financial information about non-Departmental ODA,
including CDC, gift aid and other variable items of expenditure
so that it has time to adjust other expenditure if necessary to
meet the target; and
- The Government
ensure there is sufficient flexibility to achieve the 0.7% target.
5 The proportion of bilateral and multilateral expenditure
is based on the 2010-11 Statistics for International Development. Back
6
In addition, 3 % of the Department's expenditure was spent on
operating costs. Back
7
NAO, op.cit., para 1.3 Back
8
Q9 Back
9
Contingency is money held back for unforeseen events that may
occur in-year. In addition, the Department has set aside £90
million of 'performance funding' for multilateral organisations
for 2013-14 and 2014-15. Challenge Fund refers to money that is
currently unallocated, but is held back to meet future priorities. Back
10
Q 2 Back
11
Q 3 Back
12
Q 4 Back
13
HM Treasury, Autumn statement 2011, p24, 47 http://cdn.hm-treasury.gov.uk/autumn_statement.pdf Back
14
Qq 6,8 Back
15
Ev w 30-32 Back
16
QQ5-6 Back
17
Q 6 Back
18
Qq 5, 8 Back
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