What Does UK Law Say on Aid?: How New Development Secretary Mordaunt Can Meet her Aid Effectiveness Pledge

The new UK Secretary of State for International Development has committed to “find new ways to help other departments make their spend more effective” as one of her five pledges for UK aid. Here we look at why the law underpinning the UK’s aid expenditure is weaker on poverty and gender equality outside of the Department for International Development (DFID) and identify four things the government should do to improve aid effectiveness.

Aid spend beyond DFID

The UK government now spends over a quarter (£3.6bn in 2016) of development assistance outside of DFID. As well as Secretary of State Penny Mordaunt’s pledge, the UK Development Select Committee (a group of MPs selected by their parties to scrutinise the government) is looking into the definition and administration of aid by departments other than DFID. To inform that exercise, I started by reminding myself of the law.

What does the law say about UK aid?

There are four acts of Parliament governing international development. These are remarkably accessible to the layperson, even if their coherence has been questioned. They each refer only to “the Minister” which enables them to be robust to Departmental changes.

It’s well understood that the UK government must, by law, spend at least 0.7 percent of national income on overseas development assistance. However, the legal background highlights several less well-understood points.

Five things you may not know about UK aid

First, the development secretary’s spending must be “likely to contribute to a reduction in poverty” according to the 2002 act. However, beyond DFID, spend does not appear to be bound by this act and, to count toward the target, must only meet the definition of official development assistance (ODA) included in DFID’s annual report. This uses the OECD definition, where spend must be concessional and have the “economic development and welfare of developing countries as its main objective." Some government departments say they are using the 2002 act, though recent evidence to Parliament has shown that ODA qualification is often the only test. Neither “likelihood of poverty reduction” nor “main objective” are clearly defined, which gives wide discretion to ministers in how aid is spent in their department.

Second, on value for money, the development secretary is responsible for ensuring “the independent evaluation of the extent to which ODA provided by the UK represents value for money in relation to the purposes for which it is provided.” This is fulfilled by the Independent Commission on Aid Impact and applies across departments. This requirement sits alongside each department’s responsibility for value for money, which is the responsibility of the accounting officer (usually the permanent secretary).

Third, the development secretary is responsible for defining and reporting on all government ODA. She is responsible for deciding what counts as ODA. If she’s consulted early, this should give her leverage to shape other departments’ ODA projects to ensure they make the most of their “main” development impact. Still, on top of the ambiguity on what “main objective” means, the development secretary may be boxed into a corner. The government is trying to hit the 0.7 percent target so precisely (it is de facto a ceiling as well as a floor) that if she decides any substantial project is not ODA, then the 0.7 percent target is missed—or the chancellor must find additional spending.

Fourth, non-DFID ODA need not “have regard to the [likelihood of contributing] to reducing inequality between persons of different gender” in the way DFID’s spend must. It’s not clear then that there is any onus on departments to have regard to the gender impact of non-DFID aid spend, let alone to actively promote it.

Fifth, and perhaps most importantly, the development secretary shall report “on the effects of policies and programmes pursued by Government departments on— (a) the promotion of sustainable development in countries outside the United Kingdom, (b) the reduction of poverty in such countries.” This receives scant attention in DFID’s annual report—just one page out of 120. The government recognises that promoting development is about much more than aid, so this is a missed opportunity to assess how UK policy is contributing to, or detracting from, development. Remarkably, Parliament has done an indifferent job at holding past secretaries of state to account for this.

Are we talking Pergau dam here?

The Pergau dam project in Malaysia (widely considered an epic waste) was successfully challenged as it had no developmental impact—but it still went ahead on another department’s budget. The principles above should ensure that it could not go ahead as “ODA” today. But in practice, as long as the thresholds are unclear, similar projects with little or no developmental impact could still advance and ministers have little information or incentive to maximise development.

The UK has a strong record of spending aid relatively well—the UK scores highly on aid effectiveness measures (see QuODA) and aid is well-scrutinised by the National Audit Office and the Independent Commission on Aid Impact (ICAI), which look across all departments. But the NAO concluded last July that non-DFID spend meant greater complexity and left “gaps in accountability and responsibility [which] require more effort to manage,” and ICAI has confirmed that for some non-DFID aid “criteria focus primarily on meeting the ODA definition.”

Four ways to help departments make their spend more effective

Ministers are exercising an implicit choice on the extent to which ODA spend is for poverty reduction, and how much is for departmental objectives. That choice is obscured by the ambiguity in the application of ODA rules, and departments spending aid may not be doing all they could for either poverty reduction or gender equality.

There are four practical steps that the government should take to improve effectiveness:

First, the development secretary should chair a cabinet committee on development. This would replace the HM Treasury-chaired committee that is narrowly focussed on ODA and spend, and instead focus aid’s impact on poverty and gender—as well as on the “effects of policy” on development as the 2006 act envisaged.

Second, under her responsibility for evaluating value for money, the development secretary should ask and resource ICAI to articulate how they will assess value for money in relation to development being ODA’s “main objective.” This could establish guidance in HMT’s Green Book on appraising public spending proposals. It could even mimic the National Institute for Clinical Excellence by providing evidence-based guidance on aid effectiveness. This would inform departmental decision-making so that ministers can properly assess, ex-ante, the trade-off between development and their department’s objectives.

Third, the government should ensure the development secretary can halt spend which she does not deem ODA without missing the 0.7 percent target. This means early consultation with DFID to ensure aid impact supported by the above proposals. One other approach would be to budget to spend, say, 0.72 percent on ODA. This would create over £375m of headroom to halt, or reclassify, questionable projects anywhere in the ODA budget. This may seem politically difficult, but if the government intends to extend its “non-fiscal” spend (that is, investments in developing countries it expects to get back) it would not count as public expenditure.

Fourth, ICAI’s “independent” chief commissioner should be independently appointed by the International Development Select Committee, rather than the development secretary. This follows the model of the NAO’s Comptroller and Auditor General, who is appointed by the Public Accounts Commission. It would fulfill the legal requirement for “independent” evaluation in the 2015 act and avoid narrow political incentives in the appointment.*

The UK is rightly proud of its commitment, and track record, on aid, and the development secretary is right to prioritise its effectiveness beyond DFID. The government should stay true to aid’s real purpose, sharpen its tools for ensuring that, and raise its focus to policy beyond aid.

I am very grateful for comments from Ambreena Manji, Professor of Land Law and Development at Cardiff University, Owen Barder, and Paddy Carter for comments on an earlier draft of this blog. Of course, any shortcomings, errors, or omissions are entirely mine. 

*An earlier version of this blog incorrectly suggested the ICAI Chief Commissioner could be reappointed. They can serve just one fixed four-year term. It was also updated to clarify the acts of Parliament apply to any responsible Minister, rather than only the secretary of state for development.