Effectiveness of spend needs to be made clear
The government has done well to meet, for five consecutive years, its target to spend 0.7% of its gross national income on Official Development Assistance (ODA) – most recently over £14 billion a year. Over the same period, an increasing proportion of ODA has been spent by departments other than the Department for International Development. But government’s consideration of the effectiveness of this spending has not matched this achievement. HM Treasury has only just introduced a framework to assess progress against the 2015 UK Aid Strategy. But its approach does not allow for the consideration of value for money. Nor has it considered the impact of the expansion in other government departments’ spending of ODA on overall effectiveness. In addition, gaps in departments’ information mean they cannot always assess the performance of their ODA funded programmes.
Extensions require further value for money consideration
Before extending programmes, departments should consider whether they are delivering value for money. In the case of the ODA funded Newton Fund, for which the Department for Business, Energy & Industrial Strategy is responsible, funding was doubled to over £700 million despite a weak understanding of how funds had been spent, where and with what results. 10% of ODA expenditure is spent through EU institutions, which the Department for International Developments considers to be particularly high performing. If the UK leaves the EU without a deal, a significant risk to value for money is created as the government might need to identify, quickly, alternative ways to spend the money if it still to meet the 0.7% target.
Conclusions and recommendations
HM Treasury’s focus on the effectiveness and value-for-money of ODA expenditure has been weak. In spring 2019, more than three years after the UK Aid Strategy was introduced, HM Treasury introduced a framework for assessing progress against the Strategy. The framework captures examples of activities, outputs and outcomes against each of the Strategy’s four objectives. But these measures are not linked to expenditure, which is necessary to support an assessment of value for money. Nor has HM Treasury assessed the impact of the decision, in 2015, that more departments will have responsibility for ODA expenditure. Looking to the next Spending Review, DFID has encouraged the use of joint bids for ODA‑funded programmes as part of a more collaborative approach. At a departmental level, HM Treasury has not ensured that departments can measure the value for money of all of their ODA programmes. For example, a framework for assessing the value for money of the £735 million Newton Fund is currently being developed by the Department for Business, Energy & Industrial Strategy, five years after the Fund was established.
Recommendation: HM Treasury should take the following steps to ensure it is effectively overseeing the effectiveness of ODA spending:
- Develop its framework for monitoring progress against the Aid Strategy to incorporate value for money.
- Make sure that departments have set up frameworks for assessing value for money at the business case stage of new programmes.
- Complete a full assessment of the impact of other government departments having more responsibility for ODA expenditure in time for the next spending review.
- Allocate a significant proportion of ODA on the basis of joint bids.
It is not clear how HM Treasury will, in the future, make use of the Department for International Development’s expertise to support the allocation and oversight of ODA expenditure. Whilst the UK Aid Strategy placed an increased emphasis on other government departments ODA spending , DFID remains responsible for the vast majority of spending and has access to the widest range of channels to distribute ODA funding. It has in place strong monitoring arrangements, it provides support to other government departments, and is the only department which, currently, meets the government’s transparency target for 2020. HM Treasury is not yet clear how it would make use of the DFID’s experience to help it consider other departments’ bids for ODA budget as part of the next Spending Review.
Recommendation: Working with HM Treasury, DFID should set out the steps it will take to increase its involvement in allocating ODA expenditure and overseeing its overall effectiveness.
There will be a significant risk to value for money if last minute decisions to re-allocate ODA are made due to a no deal Brexit. In 2017, the UK contributed £1.4 billion of its ODA expenditure – 10% of the total – to the EU’s development budget and its multilateral organisations. If the UK leaves the EU without a deal, the government may need to redistribute quickly up to £1.4 billion to meet the ODA spending target in 2019 – a situation which would create a risk to value for money. DFID claims that it will be ‘ready for all scenarios’ to ensure that the Government’s policy of spending 0.7% of gross national income on ODA is met. Funding currently channelled through the EU could instead be disbursed through the World Bank and other multilaterals that DFID ‘know have a variety of ways of offering value for money’. DFID did not confirm whether it had approached these bodies about their ability to absorb additional funds in the event of a no deal Brexit, but said that it has ‘sufficient links in place’ with those institutions to work with them.
Recommendation: HMT and DFID should set out a clear plan of how they will make sure that the UK meets its legal obligation to the ODA target under a no deal scenario, ensuring that partners, such as the World Bank, are prepared to receive and spend additional funds at short notice and according to vfm principles.
Departments have not done enough to get measures and data in place to assess the impact of their programmes. We recognise departments work in, for example, fragile and conflict affected states, which can make the assessment of programme effectiveness difficult. But departments’ assessment of the effectiveness of their ODA‑funded programmes is variable. For example, some are limited to the use of case studies to describe activity; others focus more clearly on the outcomes from and impact of their programmes. DFID recognises that, because of the nature of the ODA target, the sector is focused on input measures, rather than outcomes. It is moving to focus its assessment of performance on outcomes or, where this is not possible, outputs rather than inputs. It committed to increase by 20% the number of programmes with outcome‑based targets over the next two years.
Recommendation: All ODA spending departments should report back to us in 6 months’ time on the extent to which they will increase the proportion of their ODA funded programmes that use performance measures based on impacts and outcomes.
There was no clear evidence to support the Spending Review decision to extend the Department for Business, Energy & Industrial Strategy’s Newton Fund and the doubling of its budget. The Newton Fund, launched in 2014, is an ODA funded research and development fund, managed by the Department for Business, Energy and Industrial Strategy (BEIS). The Fund looks to foster science and innovation partnerships between institutions in the UK and developing countries to promote, for example, economic development. In the 2015 UK Spending Review, HM Treasury agreed to extend the Newton Fund from a five-year, £375 million programme to a seven-year, £735 million programme without evaluating the impact of the Fund’s first year of operation. This extension preceded the mid-term evaluation, published in 2016, which concluded that BEIS had a weak understanding of how funds were spent, where and with what results and that BEIS should improve its approach to gathering evidence on the outputs and outcomes. Following this mid‑term evaluation, BEIS commissioned work to develop performance measures for the Fund in the form of a value for money framework. In 2019, five years after the Fund was established, this framework is still to be finalised.
Recommendation: Extensions to programmes should only be agreed if there is robust supporting evidence and evaluation of impact to date.
In line with the mid-term evaluation’s recommendations, BEIS should improve monitoring data based on outputs and outcomes generated and should gather evaluative evidence more regularly in the lead up to the final evaluation.
The dramatic increase in the FCO’s ODA spending raises questions about its focus and priorities. In 2013, the FCO spent £295 million on ODA expenditure (2.6% of the UK’s total ODA). In 2017, its spending had more than doubled to £627 million (4.5%). The FCO says that its total (i.e. ODA and non‑ODA) budget) has not increased, with the consequence that ODA is now a much larger proportion of its overall budget. In 2010, the FCO’s ODA budget was 6% of its total budget, while next year it will be 50%. The FCO is now incentivised to make sure that as much of its expenditure as possible can be classified as ODA. For example, it is focusing more of its expenditure on ODA eligible countries than it has done previously, including in its support for Chevening Scholarships to support overseas students, and it is now funding a lot of diplomatic activity through ODA.
Recommendation: The FCO should, in time to inform future spending allocations, complete a strategic review of the impact of ODA funding on its purpose and priorities.