FCDO has ‘reduced’ development capacity since merger, watchdog warns

FCO-DfID merger has had some benefits but major problems remain, NAO report finds
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By Jonathan Owen

25 Mar 2024

The Foreign, Commonwealth and Development Office's “development capability has reduced” since the merger of the FCO and DfID, according to the National Audit Office.

But the NAO's latest report also notes that there has been "substantial progress" with the merger. 

The public spending watchdog’s report on progress with the merger of the Foreign and Commonwealth Office and the Department for International Development reveals a decidedly mixed picture.

It finds there is a lack of evidence that the merger has provided value for money; that churn has hindered progress; and that a discrepancy in pay between official overseas and at home urgently needs to be resolved. But it also notes there have been positive consequences of the "more integrated approach" and states that the merger is "back on track"  after the department reworked its "unrealistic" plans.

On the reduction of development capability, the report warns that the loss of dedicated senior development roles has "reduced capacity and undermined FCDO’s credibility and accountability for Official Development Assistance spending.

It points to the number of expert development adviser roles falling by 14% between 2019 and 2022. The FCDO has also lost development capability around programme management for its ODA programmes, with 25% such positions in the Government Major Projects Portfolio reported as vacant in January 2024, the report found.

The FCDO "has been aware of the risk of not sustaining its international development skills and expertise, which it currently rates as 'severe', and is working to mitigate this risk", the report adds.

The NAO report draws on around 40 interviews with FCDO staff, input from the Treasury and the Infrastructure and Projects Authority, data from across FCDO and the Cabinet Office, and feedback from bodies such as the Independent Commission for Aid Impact.

It states that the FCDO “does not know the full costs of the merger and has chosen not to systematically track its benefits”. The report adds that “with unclear objectives, and the absence of mechanisms to track full costs and identify benefits, there is insufficient evidence to conclude on the value for money of this merger".

The FCDO spent “a minimum” of £24.7m on the merger between 2020-21 and 2022-23, excluding indirect costs, the report says. “The estimated direct costs of the merger are small compared to the overall expenditure of the department, but the indirect costs in terms of disruption, diverted effort and the impact on staff morale should not be under-estimated."

“Implementing the merger during the Covid-19 pandemic made organisational change more difficult, and managing further crises and reductions to the aid budget also affected progress,” it adds.

The report argues that the Cabinet Office should “provide guidance for departments on how to track costs and monitor the benefits of machinery of government changes, and provide longer-term support and guidance to departments facing significant organisational change”.

A high level of churn among both ministers and senior officials has not helped matters, the report says.

There have been four foreign secretaries since the merger was announced in June 2020.

“The frequent turnover in political leadership has hindered progress by creating uncertainty and instability around the department’s size, structure, and priorities," the report says. 

And between July 2020 and August 2023, there were seven transformation directors and four senior responsible owners of the change portfolios. “A high turnover of senior leadership slows progress, and also risks the loss of corporate knowledge and expertise,” the report says.

This comes just weeks after David Cameron, the foreign secretary, told the Foreign Affairs Committee in his new role as foreign secretary, that he had been “disappointed” by the creation of the Foreign, Commonwealth and Development Office.

"We’re making the merger work better than it was. I’d like that to take a bit of time, to see how it’s bedding down, see how it’s working,” Lord Cameron told MPs.

A year after the merger took place, a survey by the FDA union revealed that just 7.5% of respondents viewed it as a success. And last year ICAI, the aid watchdog, claimed the merger had resulted in “disruption and losses” to the UK's aid programme.

However, the NAO report outlines a number of areas where there has been positive progress. Successes include “bringing the merger back on track by scaling back original plans which were “unrealistic in scope and timing”.

In addition, “teams across FCDO have drawn on the strengths of the former departments to develop new ways of working, adapting where necessary to better suit the needs of the new organisation”.

A more “integrated approach” to development and diplomacy has improved the FCDO’s ability to respond to international crises and events. The response to the Ebola crisis in Uganda, as well as support for delivery of Covid vaccines globally, are examples “where a more integrated approach had led to a better response and likely improved outcomes”.

The merger has also “made it easier to present a joined-up UK government position, to deploy both development and diplomatic levers in a coordinated way, and influence externally”.

While FCDO “did not do enough in the early stages to set out a clear vision and direction for the department,” staff engagement and views on leadership have improved, it adds.

And the creation of three new senior development posts, including a director general for humanitarian and development, a second permanent under-secretary responsible for aid spending, and a cabinet-level minister for development, has “increased the accountability and visibility of international development since the merger”.

However, “wider cultural change continues to be a work in progress” and more work is needed to resolve outstanding HR and IT issues and clarify capability needs.

The FCDO has not completed the work needed to “align home and overseas allowances for former FCO and DFID staff”, the report says. It warns: “This affects trust in the organisation, as it has taken longer than anticipated, and how staff work together, as those doing a similar job may have very different pay and allowances.” The report recommends that FCDO complete the alignment of allowances for staff working overseas “as a matter of urgency” and prioritise work “to resolve remaining issues with the basics of HR, IT and corporate services”.

The report urges the department to "accelerate its work on culture change”. The FCDO has said embedding an integrated culture could take up to a decade to achieve.

NAO head Gareth Davies said: “FCDO has made substantial progress with its merger against a challenging backdrop of COVID-19, international crises and cuts to the aid budget. It took sensible action to get the merger back on track when it was clear it could not be delivered to the original plan.

“However, more than three years on from the merger, there is still work to do to resolve remaining issues, ensure the basics are delivered and achieve the long-term benefits of a fully integrated department."

He added that there is also a wider need across government to “understand the costs of such major change, including the disruption and consumption of management capacity, and weigh these carefully against the anticipated benefits".

An FCDO spokesperson said: “The merger has given us the integrated capability needed to grow, and drive our foreign policy, national security and international development objectives in a more effective and joined-up way.

“As the report notes, we have made significant progress in our aims, bringing together our expertise to tackle crises and further UK interests. 

"We know there is more to do, and remain committed to the mission of the FCDO. Our recent actions, such as the appointment of a second permanent under-secretary with a focus on development, have allowed us to better bring together diplomacy, consular support and development to achieve more for the UK.”

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