DFID and FCO merger: Implications for international development

Anna Dickson; Philip Brien

The Prime Minister announced plans to merge the Department for International Development (DFID) with the Foreign Office (FCO) on Tuesday (16 June).

The merger would create a “super-department” potentially responsible for around 80 percent of UK aid spending. It comes at a time when the UK is seeking to forge a place on the international stage independent from the EU, including its development cooperation programmes.

This Insight looks at the implications of the merger for international development spending.

A history of mergers and splits

There is a history of these departments being merged and subsequently split. The current Department for International Development (DFID) was established in 1997 by the incoming Blair Government. Headed by a Cabinet Minister, DFID replaced the Overseas Development Administration which had operated within the FCO since 1979.

DFID’s primary mandate, subsequently entrenched in the 2002 International Development Act, was defined as poverty reduction. Labour claimed that under the previous Conservative Government, the Overseas Development Administration had focused excessively on economic development.

Response to the merger

The Prime Minister told Parliament that combining DFID with the FCO would “super-department” uniting “our aid with our diplomacy.” He said the “long overdue reform” would ensure “maximum value” for taxpayers. The decision follows a review of UK aid expenditure by Lord Bew, a crossbench peer.

In response, Labour leader Sir Keir Starmer said the merger would “diminish Britain’s place in the world.” He also raised concerns over the timing of the announcement, saying it was designed to divert attention away from the current economic downturn and the high death toll from Covid-19.

Former Foreign Office Minister, Tobias Ellwood, said the integrated foreign policy, defence and security review [now paused] should come first.

That security review is designed to: “reassess the ways in which we engage on the global stage, including in defence, diplomacy and our approach to development, to ensure that we have a fully integrated strategy.”

The current Chair of the International Development Committee (IDC), Sarah Champion MP also criticised the decision. The Committee had recently published a report recommending that the two departments remain separate.

Three former Prime Ministers have criticised the decision, with David Cameron saying it will diminish the UKs international standing.

Speaking in the debate, Jeremy Hunt, the former Foreign Secretary, told the Commons that the merger was the right thing to do. He stressed the need for the UK to ‘speak with one voice.’

Charities working in the sector have expressed dismay at the decision and its timing, calling it ‘political vandalism.’ The non-governmental organisation, ONE, said:

[it] “is a loss for global Britain and the world’s poorest people […] It’s perplexing that the government chose the middle of a global pandemic to merge these two departments”.

The Government plans to set up the new joint department—to be known as the Foreign, Commonwealth and Development Office—by September. It will be led by the current Foreign Secretary, Dominic Raab, with decisions on aid spending overseen by the National Security Council.

Implications for development spending

DFID has consistently spent a large majority of UK aid. However, following the publication of an updated aid strategy in 2015, this has started to change.

As the chart below shows, the proportion of aid spent by departments other than DFID (including the FCO) has begun to increase.

Chart showing DFID’s proportion of all aid spending decreasing from nearly 90% in 2009 to just over 70% in 2019. The FCO’s proportion has increased slightly, but has always been around 2-4%.

The FCO is currently responsible for about 4%of the UK’s aid spending, compared to DFID’s 73%. The merger will reinforce this trend and see the new Department responsible for the majority of the UK’s aid spending.

What does FCO and DFID aid-funding focus on?

The Prime Minister said that he wanted to increase coherence between the two departments in “foreign capitals,”, and this decision would make the UK’s international presence “more than the sum of its parts.” He said the UK was one of the few donor countries which had a separate government department for aid.

The focus of the FCO’s spending is generally different to that of DFID. In 2018, the top three aid sectors that DFID spent money on were humanitarian aid, health, and economic infrastructure and services. This made up just over half of all the spending that could be identified with a particular sector.

The FCO, on the other hand, spent almost half of its aid allocation on administrative costs, with the next highest sectors being multisector or cross-cutting projects and government and civil society.

This reflects the fact that the FCO spends much of its aid allocation on “frontline diplomatic activity”– costs associated with diplomatic administration connected to development.

In September 2018, the International Development Committee (IDC) inquiry into the definition and administration of official aid) reported the Committee was concerned the use of Official Development Assistance (ODA) for administrative purposes is “misdirected” and in some cases “existing diplomatic activities are being badged as ODA without any additional targeting to lead to a reduction in poverty.”

Reprioritisation of aid

The Prime Minister indicated a reprioritisation of aid spending:

We give as much aid to Zambia as we do to Ukraine, though the latter is vital for European security and we give ten times as much aid to Tanzania as we do to the six countries of the western Balkans, who are acutely vulnerable to Russian meddling.”

He said the UK must use its “aid budget and expertise to safeguard British interests and values overseas.”

The IDC has warned that the closer alignment of aid with foreign policy goals and the national interest risked damaging the UK’s “soft power.”

What does this mean for the International development Act?

The Prime Minister said the merger represented an opportunity to put “the tackling of poverty and deprivation at the very heart […] of UK foreign policy.”

The poverty-reduction priority of the 2002 International Development Act is a legal obligation for DIFD. Other government departments are not bound by this requirement. This legislation is therefore likely to require amendment as a result of the merger. There were press reports of this in January.