UK learns to manage 0.7% aid budget just in time for a potential cut

LONDON — The way the U.K. government manages its 0.7% overseas development assistance budget has become “increasingly effective” since 2013, according to the public body tasked with scrutinizing aid spending.

The findings from the Independent Commission for Aid Impact come a day before a spending review by Chancellor Rishi Sunak, with speculation that he could announce an end to the U.K.’s commitment to spending 0.7% of gross national income on ODA.

The spending target, which the U.K. has met since 2013 and has been enshrined in law since 2015, posed a “complex set of financial management challenges” for the government, according to ICAI’s report, with billions of pounds being spent on a multiplicity of projects.

But covering spending between 2013 and 2019, it found that improved coordination between ODA-spending departments and officials and better processes have led to more effective aid spending over time.

“Overall, the government has done well in managing this onerous and complicated challenge each year, while mitigating value for money risks,” said ICAI Chief Commissioner Tamsyn Barton. “Coordination between departments has been increasingly effective and, when economic conditions are stable, the processes they use are well-suited to the task.”

While the former Department for International Development was always the main spender of ODA, the cross-government aid spending strategy, introduced in 2015, saw the department’s share of the aid budget steadily decline until its merger with the Foreign & Commonwealth Office in September. The departments now work together as the Foreign, Commonwealth and Development Office.

Many departments with less experience in ODA than DFID struggled to spend the money well, according to ICAI, with much of it being rushed out in the final quarter of the year to hit targets, but the report found government processes for managing aid “had improved across all departments and funds.”

At the same time, ICAI said the “rigidity of the UK system” also posed challenges to spending aid when larger, more infrequent shocks happened. Barton said it was “clear that the system was never set up to handle the kind of economic volatility we have seen recently.” The aid budget suffered mid-year cuts this year as the economic value of the 0.7% commitment tumbled, causing massive disruption to programs that were already being implemented.

Barton added: “As the government considers its next round of spending allocations, we have recommended it takes a more flexible and tailored approach in future — which in turn will help ensure greater certainty and better value for money for both taxpayers and aid recipients alike.”

The report recommends that the Treasury implements spending targets for the first three quarters of the financial year; ensure a “sufficient share” of ODA is allocated to multilateral organizations; and establish a spending floor for FCDO aid “that gives it a degree of certainty over its share of UK ODA spending.”

ICAI also recommended greater flexibility over the 0.7% target, such as tolerating spending of 0.69% or 0.71%, or allowing the target to be spent as a three-year average, something that was also recommended by a recent peer review of the U.K. by the Organisation for Economic Co-operation and Development's Development Assistance Committee.

However, the lessons for managing the 0.7% budget may have arrived too late, with media reports suggesting the government may be planning to scrap the target, either temporarily or permanently. More details are expected from the Nov. 25 spending review.