Report

by the Comptroller
and Auditor General

International Development Committee

Managing the Official Development Assistance target – a report on progress

HC 243 Session 2017–2019 18 July 2017

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Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 17 July 2017

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

This report looks at the government’s management and oversight of the Official Development Assistance (ODA) target and departments’ and others’ progress in managing their ODA expenditure.

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The National Audit Office study team consisted of:
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Key facts

Summary

1 In 2010, the coalition government committed to spend 0.7% of UK gross national income on overseas aid – known as Official Development Assistance (ODA) – from 2013 onwards. 0.7% is the proportion of a nation’s income that the United Nations has said developed countries should aim to spend on overseas aid.

2 In 2015, ODA expenditure was £12.1 billion, 0.7% of gross national income. The United Kingdom therefore met the target for the third year in a row, having met the target for the first time in 2013.1 Because of increases in gross national income, the UK had to spend 3.7% more than in 2014 to meet the target, and 6.4% more than in 2013. As part of the Spending Review 2015, the government estimated that ODA expenditure will be £16.3 billion by 2021. It updates this figure if there are significant changes to economic forecasts.

3 The Department for International Development has always spent the majority of ODA expenditure (just over 80% in 2015). The remaining fifth is made up of spending by central government departments (such as the Foreign & Commonwealth Office and the Home Office), cross-government funds (such as the Conflict, Stability and Security Fund), and by other payments and attributions.

4 There have been two important developments since the UK first achieved the target in 2013:

In June 2015, the International Development (Official Development Assistance Target) Act came into effect. This enshrined the 0.7% ODA target into legislation. The government is now legally obliged to meet the target.

In November 2015, the government published a new aid strategy. The strategy proposed that while the Department for International Development would remain the UK’s primary channel for overseas aid, a greater proportion of it would be administered by other government departments and through cross-government funds. The government expects that the proportion not spent by the Department for International Development will represent up to 30% by 2020, compared with 20% when the strategy was published. In practice, this means that while the number of departments with spending that counts as ODA will remain about the same, they will be managing larger budgets and may be involved in new areas of activity.

Scope of this report

5 In 2015, we reported on the Department for International Development’s management of its increased budget to meet the ODA target. We identified some steps that the Department for International Development had taken to prepare for the increase in its budget. We also identified a number of challenges that it had, at that point, to overcome.

6 Given the increased emphasis on ODA spending by other government departments this report takes an early look at government’s preparedness for, and progress in, managing this new landscape for ODA expenditure.

7 This report supports the work of the International Development Committee. Specifically we examined:

government’s management and oversight of the ODA target; and

progress by government departments in managing their ODA expenditure.

8 We have not looked at the effectiveness of ODA expenditure. We have however considered whether departments and other bodies with such expenditure have mechanisms in place to measure effectiveness.2

9 Appendices One and Two explain our audit approach and evidence base. Appendix Three explains the sources of ODA expenditure outside the Department for International Development. Appendix Four sets out a timeline of how the Department for International Development managed delivery of the 2015 and 2016 target. Appendix Five sets out trends in ODA expenditure.

Key findings

Government’s management and oversight of the ODA target

10 The new UK Aid Strategy changed the focus of ODA expenditure in two ways. First, it established four objectives – for example, ‘Strengthening global peace, security and governance’ and ‘tackling extreme poverty and helping the world’s most vulnerable’ – for the UK’s spending on overseas aid. It stated that ODA expenditure would be aligned to these objectives. Second, it set out that more expenditure would come from departments and cross-government funds, with less in relative terms from the Department for International Development (paragraphs 1.2 to 1.4).

11 With only one of the four of the UK Aid Strategy’s objectives supported by measurable targets, it is not possible to assess progress in its implementation. The government can measure progress against aspects of its objective of ‘tackling extreme poverty and helping the world’s most vulnerable’. However, it cannot do the same for its other objectives, for example, ‘promoting global prosperity’. The absence of measures across the strategy limits the government’s ability not only to assess progress but also to consider the coherence of its ODA expenditure (paragraphs 1.5 and 1.6, and Figure 1).

12 The government has yet to decide how it will assess whether it has met its commitment to improve the transparency of its ODA expenditure. The UK Aid Strategy sets out the aim for “all UK government departments to be ranked as ‘Good’ or ‘Very Good’ on the international Aid Transparency Index, within the next five years”. However, the Department for International Development was the only department to receive a rating in 2016. The organisation that maintains the Index no longer assesses organisations with annual expenditure under $1 billion (or £833 million), excluding all UK government departments apart from the Department for International Development and the Foreign & Commonwealth Office. The Department for International Development has set aside some funding for an assessment of departments’ transparency but it has not yet decided what form this assessment might take (paragraphs 1.7 to 1.10).

13 Since 2013, the government has met the ODA target. Over that period, sources other than the Department for International Development have contributed an increasing proportion of total ODA expenditure. The amount of ODA attributable to the Department for International Development fell from almost 88% in 2013, when the target was first met, to just over 80% in 2015. Expenditure by other government departments, cross-government funds, and other sources increased. Like the Department for International Development, this expenditure might be on programmes or payments to multilateral organisations. HM Treasury is responsible for making a number of ODA payments that are not considered departmental ODA expenditure. This includes, for example, the relevant part of the UK’s contribution to the European Union (EU) budget that is spent on overseas aid (paragraphs 1.18 to 1.20, and Figures 4 and 5).

14 The Department for International Development and HM Treasury have taken steps to develop cross-government working to support meeting the 0.7% target, ultimately underwritten by the Department for International Development’s status as spender of last resort. Responsibilities for the target are fragmented across government. For example, HM Treasury is responsible for allocating ODA budgets to departments; and each department’s accounting officer is responsible for the proper stewardship of the ODA funding allocated to their department. The Department for International Development therefore does not control all of the expenditure that contributes to meeting the target, for which in practice it is responsible. HM Treasury established a Senior Officials Group to support the management and delivery of the ODA target, and it issued jointly with the Department for International Development guidance to all departments and cross-government funds to support their approach to managing ODA expenditure. The Department for International Development has typically spent the difference between other departments’ expenditure and the total required to meet the 0.7% target (paragraphs 1.11 to 1.17, 1.21, and 1.29 to 1.34, and Figures 2 and 3).

15 Despite government’s efforts to coordinate its approach, we have identified two gaps in responsibility and accountability.

The UK Aid Strategy was jointly produced by the Department for International Development and HM Treasury. Their strategy did not identify which part of government – either on its own or jointly – has responsibility for implementing it or for checking on its progress, or is ultimately accountable for its delivery (paragraph 1.15).

The Department for International Development and HM Treasury monitor other government departments’ and funds’ ODA expenditure. And each department has a responsibility to make sure all of its expenditure, including ODA, secures value for money. But no single part of government has responsibility for monitoring the overall effectiveness and coherence of ODA expenditure (paragraph 2.15 and Figure 2).

16 HM Treasury took an evidence based approach to allocating ODA budgets but did not assess fully departments’ capacity to manage increased expenditure. As part of the Spending Review 2015, HM Treasury asked departments to look at their existing expenditure to see what might be eligible as ODA. It also asked departments to bid for new activities that might be funded through ODA. HM Treasury collected evidence from departments on their planned ODA expenditure – details of the programmes planned, their objectives, and ODA eligibility. However, it did not request information on each department’s capacity and capability to manage the increased expenditure, either as part of initial bids or in subsequent requests for more details on departments’ spending plans (paragraphs 1.22 to 1.25 and Figure 6).

17 For 2016, HM Treasury put in place a target that requires other government departments to spend 90% of their financial year ODA allocation within the calendar year. HM Treasury sets such a target each year. This approach has the benefit of encouraging departments to meet their spending targets. It also creates a risk that expenditure might be rushed, potentially undermining value for money. In August 2016, HM Treasury relaxed the target based on departments’ and funds’ monitoring returns and because it was too challenging for some departments to meet, given their lack of capacity and progress with projects (paragraphs 1.27 and 1.28).

18 The Department for International Development has supported other government departments as their budgets have increased. The Department for International Development expanded its central ODA team to increase its capacity to support other government departments on eligibility issues. This team has provided advice, workshops and tailored training to other government departments on several occasions. The Department for International Development has also provided support to other government departments to build their project management capability (paragraphs 1.31 and 1.34).

Progress by government departments in managing their ODA expenditure

19 The Department for International Development has improved its management of its ODA budget. For example, we previously reported that the Department for International Development spent 40% of its ODA in November and December in 2013. Its spending profile is now smoother. Also for 2014, 2015 and 2016, the Department for International Development had a pipeline of projects the value of which exceeded its budget for those years, creating choice and more opportunities to consider value for money. This contrasts with its position between 2011 and 2013, when planned project expenditure was less than the budget (paragraphs 2.3 and 2.4, and Figure 7).

20 The continued growth in the balance of outstanding promissory notes could undermine the credibility of the ODA target. Promissory notes – a legally binding agreement to provide funding at some point in the future – accounted for 19.8% of the government’s ODA in 2015, similar to the amounts in previous years. Promissory notes can enable multilateral organisations to enter into commitments with those organisations that will implement programmes on their behalf. However, this does mean that the year in which the money is actually used for beneficial purposes is not necessarily the same as the year in which the money counted as ODA. The value of uncashed promissory notes issued to multilateral organisations has increased. In March 2014,3 uncashed promissory notes totalled £4.3 billion. At the end of December 2016, they totalled £8.7 billion (paragraphs 2.5 to 2.7 and Figure 8).

21 Departments’ governance arrangements for their ODA expenditure developed alongside rather than in advance of planned increases in their budgets. During 2016, all government departments with significant ODA programme expenditure established boards that are responsible for overseeing the department’s ODA spending across their various policy areas. All departments also reported their actual and forecast ODA expenditure to HM Treasury and the Department for International Development (paragraphs 2.8 to 2.10 and 2.15).

22 Departments have taken positive steps to build their capacity to spend larger ODA budgets. For example, most departments built their capacity to assess eligibility for ODA expenditure and identified the need for an expanded team with responsibility for that expenditure. Some departments have also started to use the Department for International Development’s approach to monitoring and measuring impact, although progress is varied across programmes (paragraphs 2.11 to 2.13).

23 Other government departments and cross-government funds are experiencing similar challenges to those the Department for International Development faced in 2013. For example, five of the 11 bodies we looked at spent more than half their 2016 calendar year budget in the last quarter of the calendar year. And only two of the 11 bodies were able in August 2016 to forecast within 10% accuracy what their spending in the last quarter of 2016 would be (paragraphs 2.14 to 2.18 and Figures 9 and 10).

24 Some departments struggled to spend their 2016-17 ODA budgets. A number of projects that were due to start in 2016 were delayed. We identified two reasons for this (paragraphs 2.19 and 2.20, and Figure 11):

There was a short time span between the Spending Review settlements being finalised and the need to spend money for it to count as ODA expenditure in the same calendar year.

Departments underestimated the time it would take to set up new international projects, which required the recruitment of specialist skills and coordination with other departments overseas.

25 Other government departments and cross-government funds have developed monitoring and evaluation arrangements that will enable them to measure the effectiveness of their ODA expenditure. Departments that have been managing significant amounts of ODA expenditure previously, such as the Department for Business, Energy & Industrial Strategy, already had monitoring and evaluation arrangements for ODA expenditure in place before the Spending Review. Other departments designed them as part of their bids and spending plans submitted to HM Treasury. For some new ODA programmes there is not yet a plan in place for how the programme will be evaluated, but we did not identify any instances of programmes not being monitored against their objectives (paragraph 2.23).

Conclusion

26 The government has decided that departments and funds other than the Department for International Development should have responsibility for expenditure which contributes to meeting the 0.7% aid target. The landscape for meeting the target has become more complex as a consequence and a number of gaps in accountability and responsibility have appeared. To date the focus, both centrally and in departments, has been on establishing appropriate governance and reporting arrangements so that progress towards meeting the target can be monitored. HM Treasury and the Department for International Development, together with other relevant bodies, should focus on developing ways of capturing the overall effectiveness of ODA expenditure and assessing its coherence across government. Doing so will help them to demonstrate that ODA is being used to achieve the UK Aid Strategy’s objectives.

1 In April 2017, the Department for International Development published provisional ODA statistics that estimate the UK government has met the target in 2016 as well.

2 Through our programme of value-for-money work we do look at the effectiveness of expenditure in government departments. The Independent Commission on Aid Impact, which reports to the International Development Committee, also has a role in scrutinising the UK’s overseas aid budget.

3 Data on encashments of promissory notes are currently only available on a financial year basis in years up to 2016.

Part One

Government’s management and oversight
of the Official Development Assistance target

1.1 In this part of the report we examine:

the impact of the introduction of the UK’s new aid strategy;

responsibilities across government for meeting the target;

distribution of Official Development Assistance expenditure across government;

allocating Official Development Assistance expenditure as part of the Spending Review 2015; and

supporting other government departments with increased Official Development Assistance expenditure.

Introducing a new aid strategy

1.2 In November 2015, the Department for International Development and HM Treasury published a new strategy for the UK’s spending on overseas aid: UK aid: tackling global challenges in the national interest.4 The strategy aimed “to align the government’s global efforts to defeat poverty, tackle instability, and create prosperity in developing countries”. The strategy had four objectives.

Strengthening global peace, security and governance.

Strengthening resilience and response to crises.

Promoting global prosperity.

Tackling extreme poverty and helping the world’s most vulnerable.

1.3 In the new Aid Strategy the government stated that it would “shape” ODA expenditure according to these four objectives. It also made a commitment that both existing and new ODA expenditure would be value for money. In addition, more aid would be administered by other government departments. It emphasised that departments would need a plan to make sure that they had procedures in place to support international best practice in areas such as programme design, monitoring and evaluation. Departments would also have to show how they would use evidence to support spending decisions. The strategy stated that the Department for International Development would provide support to other government departments in this regard.

1.4 The strategy did not set out by how much the Department for International Development’s ODA budget would decrease or which other government departments and funds would see their budget increase. This was done as part of the Spending Review, which HM Treasury published concurrently with the new Aid Strategy. We cover the Spending Review in paragraphs 1.22 to 1.28.

1.5 In the new Aid Strategy, the Department for International Development and HM Treasury did not, for each objective, set measurable targets or specify the outcomes they wished to achieve from the strategy’s successful implementation. Instead, the strategy sets out a number of activities government will undertake, illustrations of which are set out in Figure 1. It also sets out the government’s 2015 manifesto commitments with regard to aid expenditure. Progress against some of these can be measured. For example, to immunise 76 million children against killer diseases, and to help 60 million people get access to clean water and sanitation.

1.6 Some, but not all, of the activities set out in the strategy are included in the Department for International Development’s Single Departmental Plan covering the spending review period 2015 to 2020.5 However, like the Aid Strategy, the plan does not include measurable targets against which progress could be measured. Single Departmental Plans for the other government departments with ODA expenditure did not refer to the strategy. HM Treasury told us that it is working with other government departments to include references to ODA expenditure in their Single Departmental Plans and annual reports and accounts.

1.7 The strategy also set out an aim that all UK government departments would by 2020 be ranked as ‘good’ or ‘very good’ under the international Aid Transparency Index – an assessment of donor transparency. Responsibility for achieving this aim rests with individual departments. The Index is maintained by Publish What You Fund. The assessment is based on information submitted by the bodies concerned.

1.8 The coverage of UK departments with ODA expenditure by the Index has been and remains limited.

The Department for International Development was the only department to receive a rating in 2016 – ‘very good’, the highest rating possible (which it also achieved in the previous three years).

The Foreign and Commonwealth Office and the Ministry of Defence were included on the index in 2012, 2013 and 2014. The Foreign & Commonwealth Office was rated ‘poor’ in each of those years whereas the Ministry of Defence was rated ‘poor’ in 2012 followed by ‘very poor’ in 2013 and 2014.

No other government department has received a rating.

1.9 In 2015, the organisation that maintains the international Aid Transparency Index decided that it would no longer assess organisations with annual spending under $1 billion (or £833 million), therefore excluding all UK government departments apart from the Department for International Development in 2015 and the Department for International Development and the Foreign & Commonwealth Office in 2016 from its assessment.

1.10 In response, the Department for International Development approved a business case in December 2016 to fund, among other things, an assessment of government departments’ data against the international Aid Transparency Index by 2020 (see paragraph 1.7). It has yet to decide how, by whom, and when the assessment will be conducted. Until it completes this work, it will not be possible to assess government’s progress against its transparency commitment in the Aid Strategy. However, all government departments told us that they had already or were currently taking steps towards improving the transparency of their ODA expenditure.

Responsibilities across government for meeting the target

1.11 The International Development (Official Development Assistance Target) Act 2015 made meeting the 0.7% target a legal obligation for government. It sets out a number of duties for ‘the Secretary of State’, in practice the Secretary of State at the Department for International Development (although the Act does not specify this). An example of the duties required is that the Secretary of State must make sure that the target for ODA is met by the United Kingdom and, if it is not, explain to Parliament why this is the case. The legislation does not impose any duties on any other part of government, such as HM Treasury and other government departments.

1.12 Against this legislative background, we have identified four separate parts of central government that need to work well individually and collectively to make sure that the UK meets the ODA target each year. These are:

the Department for International Development;

HM Treasury;

other government departments; and

cross-government funds, which are the responsibility of the National Security Council (the main forum for collective discussion of the government’s objectives for national security and how to deliver them, including strategies for countries and regions at risk of instability).

1.13 Figure 2 explains the role and responsibilities of these four components.

1.14 Figure 2 shows that the responsibilities and accountabilities for meeting the target are not aligned. For example, while in practice the Secretary of State for International Development has a duty to make sure the target has been met, HM Treasury is responsible for allocating budgets for ODA to departments. Those departments are in turn responsible for making sure that they spend the money properly, in line with Managing Public Money.6 As a consequence, the department ultimately accountable for meeting the target – the Department for International Development – does not control some of the expenditure that contributes to meeting that target.

1.15 In addition, it is not clear which part or parts of government are responsible for making sure the UK Aid Strategy is implemented, or for measuring progress in its implementation.

1.16 Government has put in place a number of mechanisms to help the four separate parts of government work together. HM Treasury increased the size of its team responsible for ODA expenditure issues by one. It also established a cross-department and fund group of senior officials which reports to ministers (see paragraph 1.29). And jointly with the Department for International Development it issued guidance specifically intended to support departments with ODA expenditure (paragraph 1.34). Parliament, the Comptroller and Auditor General and the Independent Commission on Aid Impact scrutinise aspects of effectiveness and value for money of UK aid expenditure.

1.17 In February 2016, we published Accountability to Parliament for taxpayers’ money.7 In that report, we concluded that any system of accountability must have four key features. Figure 3 describes the system of accountability for ODA expenditure in this context. This shows that there are some weaknesses in three of the four areas.

Distribution of ODA expenditure across government

1.18 The UK has relied on expenditure from a range of sources to meet the ODA target. In 2015, the Department for International Development was responsible for 80.5% of ODA expenditure.8 Other government departments (such as the Home Office and Foreign & Commonwealth Office) and cross-government funds (the Conflict, Stability and Security Fund),9 and other payments and attributions (for example, to the International Monetary Fund’s Poverty Reduction and Growth Trust and to the European Union (EU) made up the remaining 19.5%, split respectively 13.2% and 6.3% (Figure 4).10 In 2013, the first year the target was met, this proportion was 12.2%. Appendix Three provides more detail on the individual sources of ODA expenditure.

1.19 In 2015, 12 government departments other than the Department for International Development and one cross-government fund, the Conflict Stability and Security Fund, were responsible for 19.5% of ODA expenditure (Figure 5). Across these,

six saw their ODA expenditure increase by more than 50% compared with 2014 (ranging from 64% to 335%);

one saw its ODA expenditure increase by 7%; another by 8%

one saw its expenditure decrease by 1%; and

four had not reported any ODA expenditure in the previous year.

1.20 In 2016,11 five of the 12 departments saw their expenditure increase by 50% or more again compared with 2015 (Figure 5). This trend is set to continue during the Spending Review 2015 period12 as HM Treasury has allocated seven of the 12 departments incrementally increasing budgets each year until 2020.13

1.21 Within the landscape of expenditure set out above, the Department for International Development is the ‘spender of last resort’. In order to make sure the legally binding commitment to meet the target is met, it must spend the difference between ODA expenditure by, for example, other government departments and the total required to meet the 0.7% target.

Allocating ODA budgets as part of the Spending Review 2015

1.22 As part of the Spending Review 2015, HM Treasury allocated ODA budgets to departments and cross-government funds for each year from 2016-17 to 2020-21 (in some cases the allocation was from 2016-17 to 2019-20). It asked departments to consider whether they could increase the amount of their ODA expenditure. Specifically, it asked each department with existing ODA expenditure to:

determine whether any existing activity could be classified as ODA; and

submit bids for new activities it would like to undertake that are eligible as ODA.

1.23 HM Treasury received 61 bids with a value of £18 billion,14 some of which were for existing activity not previously classified as ODA, over the Spending Review period to 2021 from 12 departments. A ‘challenge panel’ made up of HM Treasury, the Department for International Development (to consider, for example, whether the bids were ODA eligible) and the Major Projects Authority (which focused on whether the proposed project could be implemented) considered each bid. Each bid was supported by an evidence note from each department, which set out details on the project’s objectives and costs, its fit with the department’s and government’s strategic objectives, its eligibility as ODA expenditure, and which providers would implement the programme. HM Treasury did not ask for details of departments’ capacity and capability to implement their proposed projects or their plans for monitoring and evaluation of the projects’ outcomes. While departments were not asked to provide this information, we found that some did highlight these issues, while others did not or gave variable levels of detail (Figure 6). HM Treasury told us that it did consider capacity and capability issues where this information was available. The challenge panel did not follow up on these areas in its feedback to departments.

1.24 Although the challenge panel did not decide on the allocations, HM Treasury told us that all projects recommended by the panel were ultimately selected by HM Treasury and treasury ministers. In January 2016, HM Treasury informed each department of its budget for each year in the period 2016-17 to 2020-21, including how much was allocated as ODA.

1.25 In the final settlement letters in January 2016, HM Treasury required each department to submit a more detailed plan for their ODA expenditure by September 2016. In particular, HM Treasury requested more in-depth information on the planned ODA expenditure (such as the spending profile) and internal processes (such as governance arrangements) to support it. It asked for details of monitoring and evaluation processes but did not request information on the department’s capacity and capability.

1.26 HM Treasury also asked each department for confirmation of the legal basis for each department’s ODA expenditure. Each department is responsible for making sure that there is a legal basis for its expenditure and that the expenditure is compliant with relevant legislation. Across nine spending plans, we identified two instances where departments did not identify in their submission to HM Treasury a legal basis, and four further instances across two departments where a project team within a department did not do so. Where this information was not initially presented to HM Treasury, it subsequently satisfied itself that all expenditure has a legal basis and is compliant with it. HM Treasury told us that it took departments some time to understand that the International Development Act was more restrictive than the ODA rules, but that this did not lead to any consequences for programmes.

1.27 In the final settlement letters to departments, HM Treasury also put in place a target for departments to spend 90% of their 2016 ODA budget before 31 December 2016 (HM Treasury sets a target each year). HM Treasury told us that the spending target should:

provide a reasonable degree of certainty about one key variable in the ODA target and lower the risk of not meeting the target;

incentivise departments to begin delivering programmes as soon as feasible; and

decrease the cost to the exchequer over the Spending Review 2015 period of meeting the ODA target, all things being equal. This is because of the interaction of calendar year and financial year budgets – higher financial year budgets would be required to lower the calendar year spending target and continue to meet the 0.7% target.

1.28 In 2016, however, HM Treasury did not hold departments to the 90% spending target. This was, in part, because its estimate of the amount needed to meet the ODA target reduced (based on the monitoring returns it received from departments and funds). It was also because HM Treasury and departments had overestimated at the Spending Review how much departments would be able to scale up to and spend in 2016. This became clear to HM Treasury when departments submitted their spending plans (see paragraph 1.25 above). As HM Treasury did not want to incentivise poor value for money of expenditure in order to meet the 90% target, it amended each department’s target to the forecast set out in their August 2016 submissions. For the 2017 calendar year, HM Treasury has set other government departments a target of spending 85% of their ODA budget for 2017-18 by December 2017.

Supporting other government departments

1.29 In May 2016, HM Treasury established the Senior Officials Group, comprised largely of directors responsible for ODA expenditure in their department or for their cross-government fund, to support the management and delivery of the ODA target. The group, which reports to ministers (who have met twice since the Spending Review to discuss ODA-related matters), focuses on two issues.

Supporting departments and funds to demonstrate that their ODA expenditure met the highest standards of value for money.

Delivering the 0.7% target by ensuring effective cross-government spending control.

1.30 The group met for the first time in May 2016, and has met five times since, in line with their terms of reference. The meetings have focused on issues such as the management of underspending against departments’ ODA budgets and the options for oversight of the UK Aid Strategy. The group has not yet focused on issues such as how to assess the effectiveness and coherence of ODA expenditure across government departments, and how to consider progress against the UK Aid Strategy.

1.31 The Department for International Development has acknowledged that departments with increased ODA budgets to manage might face the same challenges it encountered in 2013 when its budget was increased by a third. It therefore expanded its team with responsibility for ODA expenditure. In summer 2016, it established a new role with the key responsibility of helping departments build their capacity to determine independently whether their programmes are eligible as ODA, and to monitor and report their ODA expenditure. The team has provided ad hoc advice, consultations, workshops, and tailored training to other government departments and cross-government funds.

1.32 The Department for International Development also planned for an increased workload for its Better Delivery team – responsible for maintaining and developing best practice standards for programme delivery within the Department. In 2015, the team focused mainly on the Conflict, Stability and Security Fund and the Prosperity Fund. It also discussed with HM Treasury programme management approaches for other government departments with ODA expenditure.

1.33 During 2016, the team received an increased number of requests for support from departments. At the same time, the team also identified more opportunities to help other government departments. The team provided six bespoke pieces of support in 2015-16 (such as sharing the Department for International Development’s guidance on delivering programmes); this increased to 15 in 2016-17. All departments we asked told us that any training or workshops they had attended, which were hosted by the Department for International Development, were useful.

1.34 HM Treasury and the Department for International Development have also developed joint value-for-money guidance for UK ODA expenditure, intended to complement Managing Public Money (see paragraph 1.14). It sets out broad requirements and guiding principles that should inform departmental decisions related to and processes for ODA expenditure. Specifically, the guidance covers issues such as governance, approval processes, financial management, and reporting. It was shared with other government departments in November 2016. HM Treasury and the Department for International Development do not plan to publish their guidance.

4 HM Treasury and Department for International Development, UK aid: tackling global challenges in the national interest Cm 163, November 2015 (available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/478834/ODA_strategy_final_web_0905.pdf)

5 Single Departmental Plans describe the government’s objectives for 2015 to 2020 and how departments are fulfilling their commitments.

6 HM Treasury’s Managing Public Money sets out principles and guidance for departments and other central government bodies as to how they should manage public resources. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/454191/Managing_Public_Money_AA_v2_-jan15.pdf

7 Comptroller and Auditor General, Accountability to Parliament for taxpayers’ money, Session 2015-16, HC 849, National Audit Office, February 2016. Available at: www.nao.org.uk/wp-content/uploads/2016/02/Accountability-for-Taxpayers-money.pdf

8 In the Department for International Development’s provisional ODA statistics, published in April 2017, it estimated that in 2016 it was provisionally 74.0% of ODA expenditure.

9 The Conflict, Stability and Security Fund is the responsibility of a cross-government secretariat.

10 These payments are the responsibility of HM Treasury.

11 Based on provisional Official Development Assistance statistics published by the Department for International Development in April 2017.

12 The Spending Review 2015 covers the period 2016-17 to 2020-21. Departments’ settlements may change as a result of, for example, a Budget.

13 The Prosperity Fund is not included in these 12 as it did not have any expenditure before 2016. It has, however, also been allocated incrementally increasing budgets by HM Treasury in each year until 2020.

14 The value of bids received exceeded the amount available for allocation as new funding over the Spending Review period to March 2021, which was £7 billion.

Part Two

Progress by government departments in managing their Official Development Expenditure

2.1 In this part of the report we examine:

the Department for International Development’s progress managing its Official Development Assistance expenditure;

the development of other government departments’ governance arrangements in response to increased Official Development Assistance expenditure;

departments’ steps to assess and improve their capacity and capability to manage their Official Development Assistance expenditure;

departments’ profile of Official Development Assistance expenditure and their approach to forecasting; and

departments’ approach to delivering programmes and measuring results.

Changes in the Department for International Development’s performance

2.2 The government’s commitment to spend 0.7% of gross national income on Official Development Assistance (ODA) from 2013 led to a 33% increase in the Department for International Development’s budget from £7.862 billion in 2012-13 to £10.439 billion in 2013-14. In 2014-15, 2015-16 and 2016-17, the Department for International Development’s budget was also around £10 billion. Appendix Four sets out how the Department for International Development managed its budget to make sure the 0.7% ODA target was met.

2.3 In our 2015 report Managing the Official Development Assistance target we set out how the Department for International Development had managed its substantial increase in budget.15 For example, it had completed preparatory work to strengthen many of its business objectives, increased its capacity, and improved its focus on capturing the results of its spending.

2.4 We also identified a number of areas on which the Department for International Development needed to focus to improve its performance. In particular, we identified it was spending 40% of its budget in the last two months of the calendar year in order to meet the target. We also noted that the Department for International Development’s spending forecasts had weaknesses. And that it did not have a pipeline of projects with a total value in excess of its available budget. This limited its choice of projects to pursue and therefore the opportunities for securing value for money. Figure 7 shows the Department for International Development’s progress in addressing these concerns.

2.5 The majority of the UK’s 2015 ODA expenditure were payments made during 2015. The government also made commitment of £2.4 billion in 2015 to pay multilateral organisations for future activity. These commitments are called promissory notes and are legally binding. In line with the Organisation for Economic Co-operation and Development’s rules for ODA eligibility, promissory notes count towards the ODA target in the year in which they are raised. This is typically two years or more before they are cashed. Uncashed promissory notes can enable multilateral organisations to enter into commitments with those which will deliver activity on their behalf.

2.6 In 2015, 19.8% of the UK’s ODA expenditure was accounted for by promissory notes (approximately the same proportion as in 2013 and 2014). Three departments – Department for International Development, the Department for Environment, Food & Rural Affairs and the (then) Department of Energy & Climate Change – made use of promissory notes. In each of the three years the UK met the ODA target, the Department for International Development was responsible for the majority of expenditure through this channel – ranging from 83% to 90% of the total expenditure through promissory notes (Figure 8).

2.7 The value of promissory notes issued by the UK has remained largely the same for each of the three years the target was met (Figure 8 shows it increased from £2.2 billion in 2013 to £2.4 billion in 2015). At the same time, the value of uncashed promissory notes issued to multilateral organisations has increased. For example, as at March 2014, uncashed promissory notes totalled £4.3 billion.16 At the end of December 2016, they totalled £8.7 billion. This means that the UK has substantial and increasing amounts of ODA expenditure which qualifies as having been spent under the ODA rules but which may not be spent by the recipient body or reach a beneficiary for some time.

Establishing governance arrangements in other government departments

2.8 When HM Treasury allocated increasing or new ODA budgets to other government departments in the Spending Review 2015, it did not provide any guidance or advice on the appropriate corporate governance arrangements for controlling and securing value for money from ODA expenditure. The Senior Officials Group (paragraph 1.29) at its first meeting in May 2016 concluded that for most departments appropriate corporate governance would mean including management information on ODA expenditure in board reports. However, it recognised that other arrangements might be appropriate – for example, where ODA expenditure was a very small proportion of the department’s total budget.

2.9 All other government departments with ODA expenditure in excess of £10 million a year and which manage multiple programmes have set up departmental boards responsible for overseeing their ODA expenditure. For example, in response to increases in their ODA budgets,

the (then) Department for Business, Innovation & Skills set up a Research and Innovation ODA Board (with representatives from the department, its delivery partners, HM Treasury, and the Department for International Development) to oversee, for example, its science and innovation partnerships with other countries; and

the Home Office merged its board responsible for the oversight of its ODA expenditure with its International Strategy Board with the intention of improving oversight across the policy areas with ODA expenditure.

2.10 We found that departments had set up oversight boards even when their ODA expenditure was a relatively small proportion of their total expenditure. For example, the Department of Health’s 2016 ODA budget was only 0.13% of its total budget. This reflects departments’ views that this expenditure was new or unfamiliar. It therefore required a level of oversight greater than that which might be implied simply from looking at the amount of expenditure involved. This is consistent with HM Treasury’s view – it categorises ODA expenditure ‘novel and contentious’ for many departments.17 In such circumstances, it requires the department to produce a business case for new projects, which HM Treasury then approves (usually, delegated limits for departmental expenditure apply to ODA expenditure).

Increasing capacity and capability

2.11 At the time HM Treasury allocated ODA budgets to other government departments, most recognised that there was a need to increase the number of staff with responsibility for an increased level of ODA expenditure, and that different skills were required. However, none had made an explicit assessment of what was required in practice. During 2016, departments took steps to acquire or recruit people. We identified only two examples of departments – the Department for Business, Energy & Industrial Strategy and Department of Health – which were still looking to fill a small number of vacancies.

2.12 To build their capacity, most departments attended training sessions on ODA management and eligibility provided by the Department for International Development. Several departments, such as the HM Revenue & Customs and the Department of Health, explained to us that they have forged good working relationships with both the Department for International Development’s central ODA team and relevant policy teams. These relationships allow departments to draw on the Department for International Development’s expertise.

2.13 For some teams in government departments it is not relevant to link with a policy team in the Department for International Development because the latter does not have any relevant expertise. This is the case for the Department for Culture, Media & Sports’ ODA expenditure, for example, as the Department for International Development has no expertise within cultural protection.

Year-end expenditure and forecasting accurately

2.14 In our report Managing the Official Development Assistance target, published in January 2015, we reported that the Department for International Development spent 40% of its 2013 calendar year budget in the last two months of the year. We examined other government departments’ and funds’ spending data to see if this was an issue for them. Of the 11 other government departments or funds we examined, five spent half or more of their calendar year expenditure in the last quarter (Figure 9).18

2.15 As part of the Spending Review settlement HM Treasury required departments and cross-government funds to inform it and the Department for International Development of underspends against forecasts. The Department for International Development introduced a template to help departments and cross-government funds to do so. This information replaced the more limited information previously collected (when other government departments’ contribution to ODA was less significant). Departments were asked to provide forecasts at regular intervals, initially monthly but increasing as the end of the calendar year drew closer for departments which had outstanding expenditure. Neither the Department for International Development nor HM Treasury requested information on programme performance or the outcomes achieved.

2.16 During 2016, other government departments’ forecasts of actual expenditure were generally optimistic. In August 2016, the month in which they put together their spending plans for HM Treasury (paragraph 1.22), only two of the 11 departments and funds we looked at were able to forecast within a 10% accuracy their spending in the last quarter of 2016 (Figure 10). For example, the Prosperity Fund, set up in 2015, forecast it would spend £45 million, but only spent £24 million; whereas the Foreign & Commonwealth Office forecast it would spend £134 million, but actually spent £154 million.

2.17 In some circumstances, departments were forced to amend their forecasts due to events that were difficult to control and predict. This was the case for ODA spent on in-country asylum seekers.

The cross-government methodology for calculating the number of asylum seekers in the system was streamlined across government under recommendation from the Home Office which leads in this area. The change of counting asylum seekers by night rather than by year led to a reduction in forecast spend for the Department of Health of around £15 million.

Similarly, the number of asylum seekers entering the country and claiming support in the second half of 2016 slowed relative to the first half. This led to a reduction in actual expenditure on or attributable to asylum seekers by the Home Office, Department of Health, and Department for Education, the impact of which was unclear for one or two months after the quarter had ended due to the lag in data availability.

2.18 In other circumstances, forecasts tended to overestimate expenditure. We identified two reasons for this. First, by overestimating the likelihood of projects scaling up sufficiently towards the end of the year. Second, because procedures for forecasting ODA expenditure were not sufficiently clear or coordinated between the department’s central ODA reporting function and its programme teams.

Delivering programmes and measuring results

2.19 Several programmes that were due to start or scale up activity in 2016 were delayed. This meant that some departments struggled to spend up to their projections of 2016 ODA expenditure set out in their spending plan submission to HM Treasury. Where we were able to identify individual programmes within departments, eight out of 10 departments had at least one programme that underspent against its spending projection (Figure 11). For example, the Home Office underspent against its plans in three out of four of its new direct delivery projects; and the Department of Health was unable to initiate its new global health research programme as quickly as it had intended.

2.20 We identified two reasons for the delays to the programmes:

A short time span between the Spending Review 2015 settlements being finalised and the need to spend money for it to count as ODA expenditure in that calendar year.

Departments underestimated the time it would take to set up new international projects, which required the recruitment of specialist skills and coordination with other departments overseas.

2.21 We also examined whether departments have considered a pipeline of programmes to fund or deliver over the Spending Review period to 2020. All departments were able to provide us with some evidence they had considered this issue. The Department for International Development’s experience is that it required considerable, sustained effort to deliver a credible pipeline of programmes against an increasing budget.

2.22 The nature of pipelines varied significantly across departments. For example, some departments cannot develop a pipeline of programmes to implement because they fund projects within one overall programme that is already designed in response to bids from delivery partners. This is the case for the Department for Culture, Media & Sport’s Cultural Protection Fund and for the Department for Business, Energy & Industrial Strategy’s Global Challenges Research Fund. Other departments have programmes which necessitate a thorough approach to developing a pipeline, such as the Department for Environment, Food & Rural Affairs and the Department for Business, Energy and Industrial Strategy with respect to their International Climate Fund programming. For example, the Department for Business, Energy & Industrial Strategy has a pipeline of projects for each year up to 2020 with a total value in excess of its available budget. This is in line with the Department for International Developments’ best practice as described in paragraph 2.4 and Figure 7.

2.23 Some departments have adopted the Department for International Development’s approach to monitoring and measuring impact. This involves creating a log frame, a tool that sets out milestones for outcomes and impact against which programme managers can monitor progress; carrying out annual reviews; and commissioning external independent evaluations of the programme. Evaluations should be considered at the design stage of a programme to ensure that the most appropriate data are collected and monitored throughout the life of the programme. However, we identified a number of programmes that have yet to put in place evaluation plans.

15 Comptroller and Auditor General, Department for International Development: Managing the Official Development Assistance target, Session 2014-15, HC 950, National Audit Office, January 2015. It is available at: www.nao.org.uk/wp-content/uploads/2015/01/Managing-the-official-development-assistance-target.pdf

16 Data on encashments of promissory notes are currently only available on a financial-year basis in years up to 2016.

17 According to Managing Public Money, there is a category of expenditure commitments for which HM Treasury cannot delegate responsibility. It is transactions which set precedents, are novel, contentious or could cause repercussions elsewhere in the public sector. HM Treasury consent to such transactions should always be obtained before proceeding, even if the amounts in question lie within the delegated limits.

18 We have excluded from this analysis those departments whose ODA expenditure consists solely of a one-off subscription – see note 1 of Figure 9.

Appendix One

Our audit approach

1 This report supports the work of the International Development Committee. Specifically we examined:

government’s management and oversight of the Official Development Assistance (ODA) target; and

progress by government departments in managing their ODA expenditure.

2 We have not looked at the effectiveness of ODA expenditure. We have however considered whether departments and other bodies with such expenditure have mechanisms in place to measure effectiveness.

3 Our audit approach is summarised in Figure 12.

Appendix Two

Our evidence base

1 We have reached our independent conclusion on government’s management and oversight of the Official Development Assistance (ODA) target and departments’ and others’ progress in managing their ODA expenditure following our analysis of evidence between January and June 2017.

2 Our approach is outlined in Appendix One. Our main evidence sources were:

Semi-structured interviews with departments and others managing ODA expenditure, including senior responsible owners and finance representatives in:

Department for International Development

HM Treasury

Foreign & Commonwealth Office

Department for Business, Energy & Industrial Strategy (formerly Department for Business, Innovation & Skills and Department of Energy & Climate Change)

Home Office

HM Revenue & Customs

Ministry of Defence

Department of Health

Department for Education

Department for Culture, Media & Sport

Department for Environment, Food & Rural Affairs

Prosperity Fund

Conflict, Stability and Security Fund

Analysis of the Statistics for International Development 2016 covering 2015 data and Provisional UK Official Development Assistance as a Proportion of Gross National Income 2016 covering 2016 data.

A review of key departmental documents, including: settlement letters and spending plans for the Spending Review 2015; monthly finance reports from the Department for International Development; papers supporting ODA-eligible projects run or initiated in 2015 and 2016 in ODA-spending departments; and papers relating to the development of departments’ ODA-related business processes.

A review of Parliamentary reports, including:

the Independent Commission for Aid Impact’s report on the cross-government Prosperity Fund.

the Joint Committee on the National Security Strategy report on the Conflict, Stability and Security Fund (CSSF).

Analysis of key departmental data sets, including: 2016 spending forecasts from the Department for International Development; pipeline data from ODA-spending departments; and the composition and profile of ODA-spending in 2015 and 2016 in these departments.

A review of past National Audit Office reports and work, including published briefings for the International Development Committee.

Appendix Three

An overview of Official Development Assistance expenditure

1 Figure 13 provides an overview of which departments have Official Development Assistance (ODA) expenditure, a description of what the department spends this money on, actual expenditure for 2015 and 2016, and planned expenditure for the period covered by the Spending Review 2015 (2016 to 2021). HM Treasury’s financial settlement with departments and cross-government funds may change in the future.

Appendix Four

The Department for International Development – delivering the Official Development Assistance target in 2015 and 2016

1 The design of the UK’s ODA target means the Department for International Development (as the spender of last resort) must manage its calendar year spend carefully. Each month it forecasts the amount it needs to spend over the remainder of the year for the ODA target to be met. It then adjusts its spending plans when necessary. To do this, it estimates the target value using economic data and forecasts, and tracks the level of non-Department-managed ODA. Figure 14 provides a timeline of key events for the Department for International Development as it worked to hit the ODA target in 2015 and 2016.

Appendix Five

Trends in Official Development Assistance expenditure

1 In November 2016, the Department for International Development published statistics on the levels of UK Official Development Assistance (ODA) between 2011 and 2015,19 and in April 2017, it published provisional statistics for 2016.20 We have examined these statistics, and summarise them under the following four headings.21

Total UK ODA

Multilateral ODA

Bilateral ODA

UK ODA compared with other donors

Total UK ODA

How has UK ODA grown?

2 In 2013, the UK committed to meet the international target of spending 0.7% of its gross national income (GNI) on aid annually – known as Official Development Assistance (ODA). It met the target in 2013 and has met it each year since. In March 2015, Parliament passed the International Development (Official Development Assistance Target) Act which enshrined the 0.7% ODA target into law.

3 Total UK ODA expenditure in 2015 was £12,138 million, which represented 0.7% of GNI. This was an increase of 3.7% or £437 million on 2014. Total UK ODA expenditure has increased every year since 2009. The largest increase was between 2012 and 2013 when the 0.7% target was met for the first time. Growth between 2014 and 2015 has been driven by the UK’s GNI increasing.

Who spends UK ODA?

4 The Department for International Development spends the majority of ODA. It accounted for 80.5% of total spend in 2015, which was £9,767 million.22 Since meeting the ODA target in 2013, its proportion of ODA expenditure has decreased by 7.3 percentage points. The reduction in the Department for International Development’s share of ODA has been greater than the increase in gross national income. This resulted in the Department for International Development spending £249 million less on ODA in 2015 compared with 2013.23

5 A new UK Aid Strategy was introduced in November 2015. It meant that an increasing proportion of aid, rising from 12% in 2013 to 30% in 2020, would be spent by other government departments or cross-government funds rather than by the Department for International Development. This new direction can be seen in the increase in ODA spending outside of the Department for International Development increasing to 19.5% in 2015, which represented £2,370 million (Figure 15).24

What is the composition of ODA not spent by the Department for International Development?

6 In 2014, 72% of ODA not spent by the Department for International Development was accounted for by the sums attributed to other government departments for the European Union’s (EU’s) development expenditure and expenditure by the Foreign & Commonwealth Office (FCO), the Department of Energy & Climate Change (DECC), and the Conflict Pool (Figure 16). In 2015, this proportion had declined to 66%, largely for two reasons. First, there was a large increase to the Department for Business, Innovation & Skills (BIS) ODA spending, up 158% to £191 million. Second, in 2015, the UK contributed for the first time to the International Monetary Fund Poverty Reduction and Growth Trust.25,26 Details of other changes in 2015 are set out below.

The largest ODA element other than spending by the Department for International Development remains unchanged as EU attribution. At £509 million this represented 21% of all non-DFID ODA in 2015. There had been an increase of £294 million in the amount attributed to EU’s development spending between 2013 and 2014. This was due to changes in HM Treasury’s approach to splitting the UK’s contribution between UK departments. Between 2014 and 2015, the growth was £91 million.

The FCO contributed the highest amount of ODA in 2015, spending £391 million. However, its ODA spending increased by 6.8%, compared with the increase in overall non-DFID ODA of 46.7%. The FCO’s ODA expenditure included: over £135 million on education projects globally; over £50 million to promote human rights democracy and the role of civil society around the world; almost £10 million on projects aimed at preventing and resolving conflict; and almost £6 million on projects to tackle climate change.

DECC was the second largest government department that contributed to ODA outside of the Department for International Development. The FCO had overtaken it as the highest spender of ODA. In 2015, the DECC spent £336 million, which was predominantly channelled through the International Climate Fund for climate mitigation, primarily through low carbon development.

ODA spending by the Conflict, Stability and Security Fund (CSSF) – was £324 million in 2015, up from £180 million in 2014.27 The CSSF is a joint fund that delivers through multiple departments, such as the Department for International Development, the Home Office and the Foreign & Commonwealth Office, which bid for funding. The fund provides the UK’s contribution to peacekeeping, security, and defence activities.

7 As part of ODA expenditure incurred outside of the Department for International Development, one element that straddles five departments is in-donor refugee costs. In-donor refugee costs are defined as official expenditure for the sustenance of refugees in the UK during the first 12 months of their stay and can be classified as ODA. Sustenance includes estimates of the Home Office’s costs to support refugees and included, for the first time in 2015, departmental costs to provide education and health services. The Home Office’s ODA expenditure has increased from £33 million in 2013 to £222 million in 2015 mainly due to changes to the range of Home Office refugee-related activities that could be included as ODA. This followed a review carried out by the Department for International Development and the Home Office in 2014 and advice by the Organisation for Economic Co-operation and Development (OECD).

What ODA is spent through the Department for International Development’s priority countries?

8 In 2011, the Department for International Development decided that it would focus its bilateral aid on 28 priority countries with the aim of targeting its support where it would make the biggest difference.28,29

9 In 2015, the UK spent £5,624 million in these countries, up from £5,520 million in 2013, through bilateral and multilateral routes. The Department for International Development itself spent the majority of this – £5,047 million in 2015, down from £5,199 million in 2013. Throughout the period 2013 to 2015, its expenditure in priority countries has accounted for around half of its total expenditure each year.

10 Most of the Department for International Development’s spending through its 28 priority country programmes is concentrated on a small number of countries (Figure 17). In 2015, 40% of the £5,047 million that the Department for International Development spent in its 28 priority countries went to the top five countries by value; 63% went to the top 10 countries. These values were almost identical to those in 2013: the top five countries received 40%, and the top 10 countries 64%.

11 Four countries have been in the Department for International Development’s top five countries by value in each of the past three years: Bangladesh, Ethiopia, Pakistan and Nigeria. Five other countries have been in its 10 largest countries by value in each of the past four years: Afghanistan, Democratic Republic of Congo, India, Kenya and Tanzania.

What ODA is spent in fragile states?

12 From 2010-11, the Department for International Development’s priorities have included strengthening governance and security in fragile and conflict-affected countries. It was also responsible for managing the government’s target to spend 30% of total UK ODA in fragile and conflict-affected states by 2014-15. The Department for International Development publishes a list of states it considers fragile and conflict-affected, on which the target is based. In 2015, the UK spent £5,624 million in these states, the equivalent of 46% of its total ODA expenditure. The UK therefore met this target.

13 In 2015, the UK Aid Strategy (see paragraphs 1.2 and 1.3) announced that the UK’s new target for ODA expenditure in fragile and conflict-affected states would only focus on the Department for International Development. The strategy states that 50% of the Department for International Development’s budget should be spent on these states in each year of the current Parliament. In 2015, 57.1% of the Department’s total ODA expenditure was spent in fragile and conflict-affected states, up from 48.2% in 2013. The Department for International Development therefore met this target.

14 The Department for International Development classifies 22 of its 28 priority countries as fragile.30 In the three years to 2015, its spending in the 22 fragile states rose by 6.4%, from £4,118 million in 2013 to £4,383 million in 2015 (Figure 18). In 2015, fragile states accounted for 86.8% of the Department for International Development’s total expenditure in its 28 priority country programmes, up from 79.2% in 2013.

15 The World Bank also publishes a list of states that it considers fragile and conflict-affected. According to this list, 15 of the Department for International Development’s 28 priority countries are fragile. In the three years to 2015, the Department for International Development’s expenditure in its priority countries in these 15 fragile states dropped by 4.4%, from £1,864 million in 2013 to £1,782 million in 2015 (Figure 19). In 2015, fragile states accounted for 35.3% of the Department for International Development’s total expenditure through its 28 priority country programmes, down from 35.9% in 2013.

Multilateral ODA

How much ODA goes to multilateral organisations?

16 Multilateral ODA is the core funding that the UK provides to multilateral organisations. Each multilateral organisation determines how it uses the core funding it receives from donors such as the UK, in ways that are in line with its mandate and agreed by its governing body.

17 In order to meet the 0.7% target, multilateral spend increased to 41.1% of total ODA spend in 2013 and 41.7% in 2014 (Figure 20). However, in 2015, multilateral spend decreased to 36.9%, which was a decrease of £405 million (to £4,473 million).

18 The EU is the largest recipient of UK multilateral ODA, accounting for £1,327 million in 2015 (Figure 21). The main elements were:

the UK’s contribution to the EU’s development budget (£935 million in 2015) – the size of which the Department for International Development does not control; and

payments by the Department for International Development to the European Development Fund (£392 million in 2015).

19 The World Bank received £1,263 million in 2015, 28% of the UK’s total multilateral ODA, down from 34% in 2014. The Department for International Development was responsible for all of the UK ODA that went to the World Bank in 2015, with £1,137 million (90%) going to the International Development Association.

Bilateral ODA

How is bilateral ODA spent?

20 Bilateral aid is spending that is earmarked for a specific country, region or project. It is a mix of humanitarian assistance and development assistance. Bilateral ODA was £7,664 million in 2015 (Figure 20), 63% of total UK ODA up from 58% in 2014.

21 The UK delivers its bilateral development assistance through a number of routes. More of its bilateral development assistance goes via multilateral organisations than any other route. In 2015, multilateral organisations received £1,564 million to run development programmes out of £4,656 million.31

22 The figures the Department for International Development publishes on which organisations spend the UK’s total bilateral ODA are only available for 2015 and not previous years. The analysis below, therefore, only covers the Department for International Development’s bilateral spending. Data on the Department for International Development’s bilateral spending is available for the period up to 2014-15, where it accounted for £5,449 million. This is a 30.7% increase in bilateral spend between
2012-13 and 2014-15. Multilateral organisations received £1,286 million of this spend to run development programmes in 2014-15 (Figure 22).

23 The two routes for delivering bilateral development assistance that grew quickest between 2010-11 and 2013-14 were:

technical cooperation, which reached £1,003 million in 2014-15 (up more than 11% from 2013-14) – technical cooperation is often provided by contractors;32 and

humanitarian assistance, which reached £1,072 million in 2014-15 (up 24% from 2013-14 and 125% from 2012-13 reflecting the increasing number of humanitarian crises happening around the world).

24 The total amount of bilateral development assistance that the Department for International Development provided through developing countries’ governments has reduced slightly between 2010-11 (£1,195 million) and 2014-15 (£903 million). It provides assistance through governments in two ways:

Budget support (£435 million in 2014-15): contributions to developing countries for them to spend in support of government policy and their expenditure programmes whose long-term objective is to reduce poverty. Funds are spent using the overseas governments’ own financial management, procurement and accountability systems to increase ownership and long-term sustainability.

Other financial aid (£468 million in 2014-15): funding of projects and programmes, such as sector-wide programmes, not classified as budget support.

What is the income level of countries that receive UK bilateral ODA?

25 In 2014, the previous International Development Committee recommended that the percentage of ODA that goes to low-income countries should rise over time provided those countries are capable of absorbing it.33 In 2015, 59.9% of the UK’s country-specific bilateral ODA went to low-income countries, according to the current country classification. This was below the level in 2014 (63.6%) and every year since 2011.

26 In 2011, the income classifications of several countries changed. The countries included three of the Department for International Development’s priority countries – Pakistan, Nigeria and Ghana – which graduated from low-income to lower-middle-income status. The changes resulted in a large reduction in the reported proportion of UK country-specific bilateral ODA going to low-income countries. In 2010, 75% of country-specific bilateral ODA went to countries classified as low-income at that time. Based on the current income classifications of countries, 58% of country-specific bilateral ODA went to low-income countries in 2010.

27 In 2015, the UK gave £4,622 million in country-specific bilateral ODA. Some £2,766 million (59.9%) of this ODA went to low-income countries, of which £2,505 million went to the least developed countries.

28 In 2015, the Department for International Development gave 65% of its country-specific bilateral ODA to low-income countries (Figure 23), down from 68% in 2014. In the same year, 32% of country-specific bilateral ODA not spent by the Department for International Development went to lower-middle-income countries; a further 36% went to upper-middle-income countries.

How does the UK compare internationally?

29 Only five of the other 27 national members of the Organisation for Economic Co-operation and Development’s (OECD) Development Assistance Committee (DAC) spent more than 0.7% of their gross national income on ODA in 2015 (Figure 24).

30 The other five OECD-DAC countries which met the 0.7% target spent their ODA in similar ways to the UK (Figure 25). For example, in 2015, they spent from 22% to 47%, averaging 35%, on social and administrative infrastructure, which includes expenditure on health and education.

31 In paragraph 23, we explained that the UK’s spending on humanitarian aid had increased since 2012. According to OECD data, humanitarian aid represents 11% of total UK ODA in 2015, compared with 5% in 2012. Of the other five OECD-DAC countries, four increased their proportion of ODA spent on humanitarian aid by 1%–7%, whereas one decreased its proportion by 3%. Across all OECD-DAC countries, the average proportion spent on humanitarian aid increased from 2012 to 2015 from 5% to 8%.

32 In paragraph 7, we explained that the UK’s spending on in-donor refugee costs had increased in line with OECD advice. The UK spent 2% of its ODA on refugees in 2015 according to OECD data. This contrasts with the majority of other countries meeting the 0.7% target. Sweden spent 34%, the Netherlands spent 23%, Denmark spent 15% and Norway spent 11%. Luxembourg spent 0%.

19 Statistics for International Development 2016 published by Department for International Development on 17th November 2016. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/572063/statistics-on-international-development-2016a.pdf

20 Provisional UK Official Development Assistance as a Proportion of Gross National Income 2016 published by Department for International Development on 5th April 2017. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/606290/Provisional_UK_Official_Development_Assistance_as_a_Proportion_of_Gross_National_Income_2016.pdf. The provisional data is a shorter version of the Statistics for International Development’s complete version. As a result we could not do all the analysis in this section with the 2016 provisional data, but have made reference to it where possible.

21 This section also draws on other publicIy available material where relevant, for example, from the Organisation for Economic Co-operation and Development (OECD).

22 This has fallen provisionally to 74% in 2016.

23 In 2016, the Department for International Development’s expenditure has provisionally increased by £107 million to £9,874 million.

24 This has provisionally increased to 26% in 2016, representing £3,474 million.

25 The International Monetary Fund (IMF) provides low-interest loans under the Poverty Reduction and Growth Trust (PRGT) to support poverty reduction in its poorest member countries.

26 As part of the machinery of government changes in Autumn 2016 DECC was merged with BIS to become the Department of Business, Energy & Industrial Strategy (BEIS). For the purposes of ODA reporting 2015, however, they are still treated as separate departments.

27 In 2014, the CSSF was known as the Conflict Pool.

28 Initially, 27 countries were identified as priority countries. When South Sudan was created, it was added to this group.

29 The Department for International Development has told us it is moving away from the term ‘priority countries’.

30 In 2015, the six countries that were not fragile were: India, Ghana, Malawi, Mozambique, South Africa and Kyrgyz Republic. Prior to 2015, the six countries were different: Tanzania, India, Ghana, Mozambique, Zambia and South Africa.

31 Only this part of the UK’s bilateral expenditure can be classified by delivery channel as the publication only provides information on delivery channel for the bilateral expenditure that was allocated to a specific country. This excludes regional expenditure, core expenditure to NGOs, specific programmes or funds managed by international organisations, project-type interventions and in-donor expendtiure.

32 Technical cooperation includes activities designed to enhance the knowledge, skills, expertise or productive capability of people in developing countries. It also covers funding of services that contribute to the design or implementation of development projects and programmes.

33 House of Commons International Development Committee, Department for International Development’s Performance in 2012-2013: the Departmental Annual Report 2012-2013, Tenth Report of Session 2013-14, April 2014.

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