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Is the Tail Wagging the Dog? The 0.7% Aid Target and UK Foreign Policy

July 1, 2013

On Wednesday the Government updated spending plans out to the 2015-16 financial year.  There were cuts to the basic budgets to  all government departments except for Health (0.1%) growth over the previous plans, Department for International Development (1.1%) and the intelligence services (3.4%).  The FCO gets a cut of 6.3% and Defence 1.9%.

The document outlining the spending plans also says that there will be “a review of the operating model of the British Council to encourage greater self funding, reduce the burden on the taxpayer, and promote UK prosperity” which certainly raises the possibility of further cuts in the government grant to the Council.

But readers (particularly from outside the UK) may be a bit puzzled by something.  If all other government departments are being cut how come foreign aid is going up?  Surely that’s politics 101:  times are tough so cut the aid budget because foreigners don’t have votes.

When it came to power the Coalition Government announced that it was going to hit the 0.7% GNI target for Official Development Assistance that the UN has being promoting since the 1970s.  This will mean Britain joins Sweden, Norway, Denmark, Luxembourg and the Netherlands as the only countries to be doing this at present.  There are even proposals to make this legally binding.

Let’s start with the politics of this.  The commitment to the target was in the Conservative manifesto – which is surprising as back in the Thatcher/Major years aid was about 0.25%.    The reason for this change in the domestic political troubles of the Conservative Party.  While many voters liked Tory policies they had negative perception of the party’s brand.  Part of David Cameron’s strategy was to ‘detoxify the brand’ by ostentatiously adopting policies that underlined his party’s caring side.  Aid was one of the beneficiaries.  Hence the 0.7% figure represents a strong political commitment.

In this post I want to look at it a narrow foreign policy perspective because there is some evidence that the combination of expanding ODA target and funding combined with the overall spending squeeze is having unintended consequences on the rest of British foreign policy.

The definition for official development assistance is set by the Organization for Economic Cooperation and Development.

Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions. Lending by export credit agencies—with the pure purpose of export promotion—is excluded.

So you need to hit 0.7 in way that is consistent with this definition.  Who can you give the aid to?  Anyone except high income countries.

That might be a bit too easy so the UK has made things a bit harder.

A. under the 2002 International Development Act aid needs to be targeted on poverty reduction.

B. There’s a commitment to spend 30% of aid in fragile states and

C. There’s a strategic focus on a limited range of poor countries.

Given the focus on fragile states it’s important to note that with some caveats security or military type aid doesn’t count – so you may be in a situation where you have ODA money to spend but it’s not possible to spend it without substantial non ODA expenditure

So now we need to hit 0.7 but in a way that meets these requirements at the same time.  The problem is that there isn’t a big pot of money that says ODA (for instance the DFID budget) on it that is separate from all the other money that government has. Other departments have to pitch in to help.  The FCO has a target for ODA spend, part of which is passed on to the British Council – in the most recent Parliamentary Foreign Affairs Select Committee Report on the FCO it points out the difficulty for the BC because it’s grant is being cut but that grant then has to be used in ODA consistent ways.

I’m getting the impression from reading documents from the Independent Commission on Aid Effectiveness and the National Audit Office that it’s actually quite hard to spend enough to hit the 0.7 target and that the mix of activities that FCO/BC/MoD/DFID is actually doing is being shaped by this.  The consequence is that everything that isn’t ODA compliant is being cut back.

One clue to this in contained in some of the documents about the Conflict Pool.  This is a fund that is intended to be used to deal with conflict prevention tasks and which can be used by DFID, MoD and FCO.  This money pays for the Stabilization Unit.  This is one of the areas that British governments are very proud of because it shows joined up working.  Reading between the lines there are tensions here not just between the three departments but also along the ODA/non-ODA line.  The latest strategy document points out that one of the attractions of the fund is that it could use non-ODA money to support ODA spending – for instance security funding that can’t be classed as ODA.  The irony here is that it’s the non-ODA money that is short supply.

Not surprisingly DFID is focusing its resources in its priority countries and not dealing with small projects (too much management overhead) and we need to get the money out of the door.  As anyone who reads this blog will appreciate running a policy area by setting a spending target rather than a strategic objective is not the way that government is supposed to be run but seems to be precisely what is happening here.

What I’m picking up is that in some respects it is the ODA spend tail that is wagging the foreign policy dog. Or am I reading too much into this?

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