Briefing Note: The Effect of the UK Comprehensive Spending Review on ODA

Summary

The Comprehensive spending Review (CSR) announced on the 20^th October 2010 solidified the UK Government’s promises to protect the aid budget from the cuts inflicted on other government departments.  The announcement also set out the Government’s plans to achieve the goal of increasing the UK’s ODA to 0.7% of GDP by 2013.

Although the DFID budget is protected, and indeed is set to substantially increase in the coming years, it is worth remembering that DFID has recently accounted for 84%-88% of the UK’s ODA with the rest coming from other government departments and government-funded agencies.  For example, the Foreign and Commonwealth Office (FCO), which is set to have its budget cut by a quarter, contributed over $200million to the UK’s total ODA in 2008.

In light of this, it is well worth noting the fact that the CSR document highlights a commitment to protect or increase, not only DFID’s budget, but also the ODA element of the FCO budget and that of the Department of Energy and Climate Change (DECC).

The fact that DFID’s budget is increasing whilst other departmental budgets are being cut inevitably means that DFID will, in the short term at least, have to shoulder an even greater proportion of the UK’s total ODA.  The figures in the CSR appear to bear this out, at least until 2012.  If DFID’s proposed budget is converted to a calendar year basis, to allow comparison with the projected ODA figures, it is clear that DFID’s share of ODA is set to rise over the next two years, probably peaking at around 95% in 2012.

ODA increases in 2013

After 2012, the situation regarding DFID’s share of UK ODA looks set to change once again with the proportion of the UK’s ODA provided by DFID reducing to around 90%.

This coincides with a large increase in DFID’s budget, planned for the 2013-14 fiscal year, which will be necessary if the Government’s stated aim of contributing ODA equivalent to 0.7% of GDP by 2013 is to be achieved.  The CSR shows that ODA will rise by 32% in 2013 in order to meet this commitment.  However DFID’s budget in 2013-14 is set to increase by 28% which, although substantial, falls short of the 32% increase in overall ODA needed to meet the 0.7% commitment.  The clear implication is that, after 2012, other government departments and agencies besides DFID will need to make significant increases in the amount they contribute to ODA.  The question of how this will be achieved, given that the CSR outlines a programme of cuts that extends into the 2014-15 fiscal year, remains unanswered as yet.

Other potential causes for concern stem from the sheer scale of the ODA increase planned for 2013.  The need to find almost £3bn of increases in ODA between 2012 and 2013 may lead to a temptation on the part of the UK Government to boost the ODA figures by including elements such as imputed student costs or first year refugee costs in their ODA calculations.  On the other hand if the UK ‘engineers’ some large ODA disbursements in 2013 (for example by backloading multilateral replenishment commitments – such as IDA – and choosing that moment to make large payments) in order to achieve the 0.7% goal in that year, this would raise questions about how this level of aid could be sustained in the longer run.

Departmental Highlights

As previously noted, DFID and two other government departments (FCO & DECC) are mentioned in connection with ODA levels in the main CSR document.  Below is a brief summary of the key points relating to ODA from each of these departments:

Department for International Development (DFID)

• DFID’s budget is to grow by £3.7billion, or 47% by 2014-15, compared with current financial year
• A 28% increase in budget is planned for 2013-14 alone
• A new, independent Commission on Aid Impact is to ensure value for money in aid spending
• Development policy to focus on booting economic growth and wealth creation
• Running costs will be reduced to 2% of total spending by 2015
• Commitment to spend up to £500 million per year on malaria by 2014-15
• The UK will contribute £2.9billion to International Climate Finance over the period of the review, this will be funded jointly by DFID, DECC and DEFRA (It remains unclear whether this climate financing is ‘additional’, and how much of this will count as ODA. Gordon Brown previously committed to restrict the UK’s aid budget contributions to climate financing to no more than 10 percent – will the current government continue with this?)
• 30% of ODA will be used to support fragile and conflict-affected states by 2014-15. The Strategic Defence and Security Review records current levels of 22%. (it is worth noting that, in 2008, 35% of UK bilateral ODA already went to countries on the list of fragile states)
• DFID will close its programmes in China and Russia

Foreign and Commonwealth Office

• The overall budget of the FCO reduces by approximately one-quarter in real terms
• However, the CSR documentation states that the review “provides for an increase in the FCO’s ODA spending to help meet the Government’s commitment to dedicate 0.7% of GNI to ODA.” (It is not clear whether this would include reclassifying some existing activities as ODA rather than diverting money away from other activities).
• A ‘separate settlement’ has been reached for the Conflict Pool, a fund that exists to help prevent conflict and support post-conflict stabilisation, which is funded jointly by DFID, the FCO and the MoD.  A percentage of contributions to this fund are counted as ODA.  No details were made available of this settlement, but it is possible that the FCO’s contribution to this fund will be lower in the future, with more funding provided by DFID.
• The British Council, responsible for a large part of the FCO’s ODA, will “continue to make a major contribution to the UK’s international presence”.

Department of Energy and Climate Change

• Spending on ODA by the DECC “is protected” according to the CSR documentation
• As noted above, DECC will contribute toward the £2.9billion that the UK has committed to spend on International Climate Finance

Resources

The 2010 Comprehensive Spending Review can be downloaded here here.

The 2010 Strategic Defence and Security Review can be downloaded here