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Managing reductions in Official Development Assistance spending

The speed and scale by which the government reduced its Official Development Assistance (ODA) spending, from 0.7% to 0.5% of gross national income (GNI), meant that it had to make compromises and take difficult decisions across all of its programmes, according to a report by the National Audit Office (NAO).

Since 1970, the United Nations has endorsed a target for countries to spend 0.7% of their GNI on overseas aid spending, known as ODA. The UK made the 0.7% target a legal requirement in 2015. In the November 2020 Spending Review, the government announced that it would only spend 0.5% of GNI on ODA in 2021, because of the continuing economic impacts of the COVID-19 pandemic, and its assessment of the impact of this on public finances. This reduced the ODA budget announced in the 2020 Spending Review for the financial year 2021-22 to £10.3 billion, compared with spending of £14.5 billion in the 2020 calendar year. The government has set out an ambition to return to the previous target of 0.7% “when the fiscal situation allows”.1

Reducing the ODA budget with a very short time for allocation decisions meant that the Foreign, Commonwealth & Development Office (FCDO) had to move quickly from planning a multi-year continuation of ODA programmes to planning for a significant reduction in spending in the coming year. The speed at which it had to make decisions limited its ability to complete a thorough review of the impact of the allocations or on long-term value for money.

FCDO had a clear, centralised approach to allocating the reprioritised and reduced ODA budget. FCDO led a three-stage approach, starting with ringfencing significant long-term commitments and multilateral payments2, followed by allocating funding to other government departments, and finally allocating the remaining budget across FCDO. The approach focused on the government’s new seven strategic priorities3 and two geographic priority areas for its aid spending4.

Prioritising some existing government spending commitments meant that FCDO’s budget for its bilateral programmes5 was disproportionately affected by the reduction in ODA spending. Many multilateral spending commitments were also protected due to legal or political commitments. FCDO’s 2020-21 bilateral programmes budget was therefore 53% lower than in 2020.

FCDO reduced the budget for 35 of the 44 country and regional offices with ODA programmes in the previous year; 15 of these saw reductions of more than 50% and a further three were cut entirely. Decisions on allocating the newly reduced budgets were led by local teams, with oversight by ministers.

Local teams were responsible for evaluating their own programmes to determine which were best to deliver priorities. They balanced a range of criteria to make these decisions, including programme performance, where it was in its lifecycle, the impact of closing or amending it on delivery partners, and whether other donors could take on responsibility for the work. This approach meant teams could factor in their local knowledge and respond to specific circumstances in their countries. This allowed for prioritisation of the highest value and highest priority programmes. However, the scale of the budget reduction meant that some programmes had to be modified or stopped ahead of schedule even if they were performing well.

FCDO has a well-established approach for assessing its programmes. It reviews them on an annual basis and brings this information together to assess how well they are performing against FCDO’s global priorities. However, it has not taken steps to understand the overall impact of changes to its programmes on development outcomes. It has also not assessed the impact of its changed portfolio on the overall value for money of its ODA spending.

Stakeholders and delivery partners were critical of the lack of transparency around the changes to ODA, which contributed to uncertainty in the sector. Whilst the autumn 2021 Budget provides some clarity for ODA spending in the medium term, departments need to plan for potential scenarios for a return to 0.7%. The government says it intends to return to this target when, on a sustainable basis, it is not borrowing for day-to-day spending and when underlying debt is falling. In the 2021 Spending Review, the government expected this to be in 2024-25, but this is dependent on how the UK economy performs.

The NAO recommends that FCDO and HM 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. 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 which has been affected the most by budget reductions.

“The Foreign, Commonwealth & 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.

“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.”

Gareth Davies, the head of the NAO

Notes for Editors

  1. The government has said it intends to return to a target of 0.70% when two fiscal tests are met – when fiscal forecasts confirm that, on a sustainable basis, the government is not borrowing for day-to-day spending, and when underlying debt is falling.
  2. Multilaterals refer to international organisations such as the World Bank, UN agencies and international charities, supported by multiple donors.
  3. Seven global priorities for aid spending: climate change and biodiversity; COVID-19 and global health security; girls’ education; humanitarian preparedness and response; science, research and technology; open societies and conflict resolution; and trade and economic development.
  4. Geographic priority areas: East Africa and the Indo-Pacific.
  5. Bilateral spending is earmarked spending where the donor has specified where and on what the ODA is spent, and is usually to specific countries, regions, or programmes.
  6. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

About the NAO

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it uses its insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and reports on the value for money of how public money has been spent.

In 2020, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £926 million.

Contact

NAO Press Office
+44 (0)20 7798 7400 or email pressoffice@nao.org.uk