Can the UK become a development superpower again? Stefan Dercon’s memo to the new Development Minister

November 1, 2022

     By Duncan Green     

Great, pull-no-punches twitter thread from Stefan Dercon in response to the new UK Government’s decision to appoint Andrew Mitchell as Minister for Development (still within the merged FCDO though). Here’s an edited version, with his permission.

Welcome Mr Mitchell, but you have your work cut out.

All eyes will be on the budgets. They are in an absolute mess. A first priority will have to be to bring sanity, as they no longer serve development, nor make any sense from a value-for-money point of view. And this is not simply about 0.3, 0.5 or 0.7. At DFID, Andrew Mitchell focused strongly on results for the poor, and value for money – at the moment, the way budgets are handled delivers neither. 

Within the fixed 0.5 ODA budget, the UK is now spending more of its development budget inside the UK than inside poor developing countries. One area in which costs of ODA are soaring are refugee and asylum seekers costs, mainly for Ukraine. Likely at least £3bn for 2022 if not up to £5bn, all of course from within 0.5. Of course, we should help them, but entirely on the back of the poor in Africa and Asia? 

The development spending experts inside FCDO, whose expertise was built up during Mr Mitchell’s stint as Development Secretary, have no say over this at all – the Treasur charges it all to ODA, and it is the Home Office’s (poor) management of accommodation costs in the UK that made these costs escalate. 

But again, why do this at the expense of the poor in Africa or Asia? 

Then, we have made ourselves a global laughing-stock in the development community by using accountancy tricks to ensure we spend less on actual development than we claim – for example, charging all costs to ODA of the Homes for Ukraine programme -we are the only G7 country to charge this against aid. Or for example, counting Special Drawing Rights as ODA – again likely the only G7 country doing this.  And then endless attempts to charge most of our foreign policy budget in low and middle income countries to the aid budget, eg. for UK trade and business promotion, diplomats’ wages, or even for security cooperation (the US never charges this to ODA!) 

The final way in which the ODA budget has been butchered is by the insistence of giving far too much as capital and ‘financial transactions’ –with the latter, largely in the form of capital to CDC (renamed BII these days). By the way: I think CDC has done a rather good job, and they have a role. But this use of capital within ODA budgets is not driven by some genuine commitment to invest, but a trick to make it look good on the books of the UK. I have never seen a proper value-for-money calculation to show why this large share is optimal for the UK’s development spending. 

The problem is that it leaves little cash for things you really need now to make a difference: economic reform programmes that the poorest economies need to adjust, spending on education or health, climate resilience programmes, and humanitarian programmes in Africa and Asia. Without concerted action now, it will mean more cuts to humanitarian spending for African and Asian crises, and less for those things the UK built a reputation for doing well. 

So what to do:

Principle 1/ Get a defined and protected development budget that is focused on the poorest countries, and that can be fixed in ways so that it will not be further cut even if there are ‘extra’ needs such as humanitarian costs.

Development spending requires longer term commitments with partner governments, and partner organisations – that is the way to build strong relationships and deliver long-term results for the poor. 

Principle 2/ Get a humanitarian budget that is elastic, well-funded to start with, but commit to expand if Ukraine and similar costs escalate. This is really key: you cannot handle contingencies on the scale of Covid or Ukraine within a fixed budget without dramatic inefficiencies. 

Principle 3/ Make support to Ukraine an explicit, positive budgeted decision to help, and expand if required, not one that persistently leads to cuts to humanitarian and development budgets for the African and Asian poor. 

Principle 4/ Make explicit value for money calculations for capital and financial transactions, not some accounting trick to keep the reported fiscal deficit or debt down. (HMT show me your workings…) 

Principle 5/ And for f**k sake, fund foreign policy properly, and don’t try to squeeze it into the aid budget.
The UK needs a budget for trade promotion, for national security, for geopolitics, for climate deals with richer countries, for genuine soft power objectives as in BBC or British Council. By trying to charge this to ODA, unlike US, we deliver poor value for money for our objectives.

Principle 6/ Drop the obsession with charging anything that moves to ODA. OECD DAC does not force you – it is UK-HMT spin that it has to charge all to ODA.

That obsession was not there when Andrew Mitchell was Secretary of State – it was invented after his time. 

How best to spend the budget then?

point 1/ As in my book, spend generously on supporting those poorer countries that are trying to develop and grow – support them to build their systems to help them deliver results and value for money; 

point 2/ Spend cautiously and much less in countries where elites don’t care about development, but don’t give up there. Don’t assume every health, education or tax programme will make a difference; even they can make things worse. 

point 3/ Always think carefully about politics, and how we may inadvertently make problems worse as an aid community. 

point 4/ Use the same principles with climate finance. Don’t assume it will be spent well, support countries that want to use it well, and keep a focus on poorer countries helping to adapt and respond to climate disaster – that is where grant ODA is really filling a gap.  

point 5/ Empower the development experts Mr Mitchell cultivated and encouraged: they should make spending decisions and manage budgets inside FCDO, not the nice and smart foreign policy wonks with little experience in spending even a penny. 

Bring back some of the actual development experts FCDO lost!

I don’t call for a repeat of 0.7 v1, as v1 did not work: it created endless incentives for other departments and HMT to charge and charge to the aid budget things that could be charged but had nothing really to do with development. And even if we had kept annual 0.7, it would not have worked countercyclically – it would have been cut during COVID’s recession even as needs expanded. 

If we go for a new 0.7 – it has to be version 2, v2, which is not about accounting tricks but is genuinely about spending in the spirit of the international development act. Far more safeguards required. 

But even if we don’t go for 0.7, UK development will be far more effective spending somewhat less than 0.7 really well with those committed to real development in charge across FCDO, Whitehall, HMT, and in politics, than with 0.7 v1 with the accountants, vultures and political scavengers in charge. 

So Mr Mitchell and Mr Cleverly, just as this government is entrusted to restoring some sanity in economic policy making, please rebuild the UK’s global reputation for sanity in development spending and accounting. We may yet become a superpower in development again.

November 1, 2022
Duncan Green