Two steps forward one step back on FCDO spending ambitions

Last week FCDO published its Annual Report and Accounts for 2023/24.

This provides us with important insights into the priorities emphasised by the outgoing government (from actual spend in 2023/24) and how they might be evolving under the new government (from planned spend in 2024/25). Bond’s analysis of this information reveals some valuable changes in ambition and strategic direction, but also some concerns about sectors that lost out in 2023/24 and an apparent scale back of ambitions on development in 2024/25.

What did the outgoing government prioritise through FCDO ODA spending in 2023/24?

FCDO ODA spending increased significantly in 2023/24.

As was already apparent from the provisional Official Development Assistance (ODA) figures published for 2023, FCDO’s ODA spending on programmes increased significantly in 2023/24.
Excluding spending on the Conflict Stability and Security Fund (CSFF) (for which the split between ODA and non-ODA spend was not reported in 2022/23), FCDO’s ODA spending on programmes increased just over a quarter, from £6.91bn in 2022/23 to £8.72bn in 2023/24. (Taking CSSF into account it would be £9.08bn).

Despite an increase in FCDO ODA spending, its regional bilateral spending fell in 2023/24.

Despite this significant overall increase in FCDO’s ODA spending, FCDO’s regional bilateral spending fell by 3% in 2023/24 and by 15% in Middle East and North Africa, with spending on bilateral programmes in Africa increased marginally by 4%. This was in contrast to FCDO spending on core multilateral programmes, which increased by £2.18bn (or 79%) in 2023/24.

FCDO spending increased on climate & environment and health departments (primarily through multilateral programmes), International Financial Institutions and British International Investment (BII). FCDO spending decreased in the education, gender and equality and humanitarian, migration and food security departments

Some of the clear sector winners of the FCDO’s ODA budget increase in 2023/24 were International Financial Institutions department (a huge increase of 170%, to £2.3bn), Climate Finance and International Systems Department (an increase of 100%, to £579mn) and Global Health Institutions Department (an increase 73%, to £1.77bn), supported by large increases in spending on relevant core multilateral programmes. In addition, FCDO spending through British International Investment (BII) increased by £433mn, or 49%, in 2023/24.

However, other sectors prioritised in the White Paper seem to have lost out in 2023/24, with FCDO central spending on Humanitarian, Migration and Food Security programmes falling by £92m (25%) and FCDO central spending on Education, Gender and Equality programmes falling by £6mn (4%).

What is the new Government prioritising for planned FCDO spending for 2024/25?

This years’ Annual Report and Accounts also presents FCDO’s planned spending for 2024/25. This 2024/25 budget is detailed across a small number of aggregated budget lines, but does not detail planned FCDO ODA spend or planned spend across countries and thematic departments, likely because the new government is yet to make more detailed budget decisions. Nevertheless, some trends in planned ODA spend and emerging government priorities are apparent, raising some key questions about the government’s development ambitions.

Previous plans to increase the FCDO budget in 2024/25 have been dropped, with FCDO spending planned to fall marginally in 2024/25, with greater reductions likely for FCDO ODA spending.

Perhaps the most notable finding from this years’ Annual Report & Accounts is that FCDO’s newly confirmed planned budget for 2024/25 – £11.87bn – represents a reduction of £552 million (4.4%) compared to the previous government’s plans for FCDO spending in 2024/25 published in last years’ Annual Report and Accounts.

This also represents a reduction of £221mn (1.8%) compared to FCDO outturn spending in 2023/24. The Annual Report indicates that this overall reduction has been driven by the continued high levels of ODA spending on refugees in the UK, but is also likely to be linked to the fact that the UK ODA budget is currently expected to return back towards 0.5% of gross national income in 2024 after reaching 0.58% of GNI in 2023.

Revised FCDO spending plans for 2024/25 uplift bilateral and central programmes significantly, dramatically reduce core multilateral programmes and protect spending on FCDO operating costs, frontline diplomacy and overseas network.

The revised FCDO budget for 2024/25 confirms significant and welcome increases in spending on ‘regional bilateral programmes’ (by £1.55bn or 89%), ‘centrally managed programmes’ (by £635mn or 69%) and ‘other central programme and technical costs’ (by £318mn, or 157%) are planned, following significant cuts in these areas in recent years. These increases do though seem more modest than was previously planned, likely because of the overall cut in FCDO’s budget. In addition increases in these parts of the FCDO budget are balanced by significant planned reductions in spending on ‘core multilateral programmes’ (by £2.57bn or 52%).

The revised FCDO budget for 2024/25 also allocates an additional £433mn towards funding FCDO’s ‘operating costs frontline diplomacy and overseas network’ – predominantly funded through non-ODA resources – compared to the FCDO budget for 2024/25 published in last year’s Annual Report & Accounts, allowing FCDO to protect this area of its budget from cuts (at £2.07bn).

What we make of the report

It is clear that the highly constrained overall ODA funding context is contributing to renewed pressures on the FCDO budget, especially in relation to ODA-funded areas. However, it is also the case that the decision to protect the FCDO’s operating costs, frontline diplomacy and overseas network in 2024/25 have further deepened these pressures and are likely to lead to significant FCDO ODA spending cuts.

This decision is highly concerning, given it fails to reflect significant and growing global development needs and it lacks consistency with the government’s commitment to ‘rebuild Britain’s reputation on international development’.

The upcoming budget in October 2024 provides an opportunity for the government to live up to its commitments and to ensure that cuts in overall and FCDO ODA are avoided in 2024/25. This should involve Treasury allocating additional ODA for 2024/25 above the 0.5% target (as was agreed for 2022/23 and 2023/24) and by agreeing to apply a more conservative approach to reporting ODA spending on refugees in the UK, as recommended by the OECD-DAC and ICAI.