FCDO and Treasury urged to start planning for increased aid spending

Imminent strategy eyes budget “rebalancing” towards bilateral programmes to give the UK more say on how cash is allocated
Foreign secretary Liz Truss. Screengrab: Parliament TV

By Jim Dunton

06 Apr 2022

The National Audit Office has called on the Foreign, Commonwealth and Development Office and the Treasury to boost their understanding of the impact aid cuts have had over the past year – and prepare for funding to be stepped back up again.

In a deeply unpopular move, the government last year rolled back on its commitment to spend 0.7% of the UK’s gross national income on Official Development Assistance, paring the proportion back to 0.5% in response to the financial impact of the coronavirus pandemic.

Badged as “temporary” by chancellor Rishi Sunak, the cut reduced ODA from £14.5bn in the 2020 calendar year to £10.3bn in the 2021-2022 financial year, which ended yesterday.

The National Audit Office said the short notice period for the cut, confirmed at 2020’s Spending Review, meant the newly-created FCDO had to “move quickly” from planning multi-year commitments to ongoing funding to delivering “significant” spending reductions within a year.

The public spending watchdog's head Gareth Davies said the FCDO and Treasury needed to do more work to better understand the impact of the cuts and prepare for funding to return to 0.7% of GNI, which could potentially happen in two years’ time.

“The Foreign, Commonwealth and Development Office took the lead in setting clear parameters for reducing the ODA budget while looking to local offices to make decisions about individual programmes,” he said.

“However, the speed and depth of reductions has had an immediate impact locally and the effect on long-term value for money is not yet known.

“FCDO must build its understanding of how the spending reductions have affected development outcomes to help it plan its approach to future budget allocations, including a planned return to the 0.7% ODA target.”

The NAO’s latest report says efforts to prioritise existing government spending commitments meant that bilateral aid programmes were disproportionately affected by the ODA cut, with the FCDO’S budget for them 53% lower in 2021-2022 compared with actual spending in 2020.

Bilateral spending allows the donor to specify where and on what the ODA is spent, and is usually given to specific countries, regions, or programmes. Multilateral spending goes via international organisations such as the World Bank, UN agencies and international charities. Many of those commitments were protected by legal or political commitments.

The NAO’s crunch of spending changes found FCDO reduced the 2021-2022 budget for 35 of the 44 country and regional offices with ODA programmes in the previous year. Of those, 15 involved reductions of more than 50% and a further three were cut entirely.

Although decisions on allocating the newly reduced budgets were led by local teams, ministers had oversight.

The NAO said that while the approach allowed local teams to respond to specific circumstances – and favour the highest value and highest priority programmes, the scale of the cuts meant some programmes had to be modified or stopped even if they were performing well.

The NAO said the FCDO had not taken steps to understand the overall impact of changes to its programmes on development outcomes and had also not assessed the impact of its changed portfolio on the overall value for money of its ODA spending.

MPs on the International Development Committee last year accused the FCDO of trying to hide the impact of ODA cuts by giving fewer details of spending decisions and contributing to further uncertainty in the sector.

Last month the committee published a document that it said demonstrated the department knew the cuts would affect programmes designed to help women, girls and the disabled the most.

The government has committed to return to the 0.7% GNI target when it is not borrowing for day-to-day spending and when underlying debt is falling. The scenario was expected to be reached in 2024-2025 at the time of the 2021 Spending Review, but the move is dependent on the performance of the UK economy.

The NAO said that despite the current economic uncertainty, it was imperative for FCDO and the Treasury work with other ODA-spending departments on a scenario for a return to the 0.7% target and consider how to improve the transparency of ODA spending decisions.

It said FCDO and other ODA spending departments should assess the impact of the reduction and reprioritisation of ODA spending on performance in the short-, medium-, and long-term, including a focus on the impact of bilateral spending.

The FCDO said its new International Development Strategy, which is due to be published this spring, would look to rebalance the nation’s aid budget towards bilateral programmes, giving the UK more control over exactly how its aid budget is spent.

The department said key priorities included green investment, promoting British expertise, supporting women and girls, and delivering humanitarian aid.

An FCDO spokesperson said the UK was one of the largest global donors and had spent more than £10bn in aid around the world in 2021.

“Our vital work continues to save lives, providing wide-ranging support, from urgent humanitarian assistance to investments in infrastructure,” they said.

“We are committed to protecting the world’s poorest and the most vulnerable, and will increase spending to 0.7% as soon as the fiscal situation allows.”

The department added that the NAO had recognised the clear approach taken to allocating the reduced budget in exceptional circumstances.

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