Farewell Foreign and Commonwealth Office, Welcome Foreign, Commonwealth and Development Office

From the independence of the UK's African colonies in the late 1950s and early 1960s until 2010, the ministerial organisation of international development was one of the clearest dividing lines between the UK’s political parties. When Labour returned to power in 1964 under Harold Wilson, one of its first acts was to create a Ministry of Overseas Development with a seat in Cabinet and a growing budget. Edward Heath reversed this policy in 1970, only for a Ministry of International Development to be recreated when Wilson returned for a new term in 1974. In 1979, Margaret Thatcher stayed true to party tradition, demoting the minister, cutting the aid budget in half as a proportion of GDP, and focusing much of what remained on support for British exports. In 1997, Tony Blair reversed the policy again, creating the new Department for International Development (DFID) with a seat in Cabinet and a strong commitment to increased expenditure.

The New Consensus

When David Cameron came to power in 2010, however, a new cross-party consensus appeared at last to have been created. With strong support from Chancellor George Osborne, Cameron not only maintained DFID as a separate and powerful ministry; his government also ordered continuing sharp increases in the DFID budget, bringing aid up to the UN target of 0.7% of gross national income for the first time ever. The commitment to DFID and to 0.7% was part of Cameron’s wider effort to move the Conservative Party to the centre ground of British politics. But it also helped create a powerful new asset for UK foreign policy, allowing the country to punch above its economic weight in discussions on international development and responses to new emergencies. The UK’s position as the only G7 state to meet the 0.7% target, with the third-largest aid budget in the world, continues to be a source of pride for many. The Cabinet rank of the minister for international development, and the resulting independent DFID seat at the table at multiple working-level national security discussions, has helped to ensure a strong voice for development issues both internally and internationally.

Yet large parts of the Conservative Party, especially on the Eurosceptic right, have always hankered for a return to a more traditional Thatcherite approach, and are fundamentally sceptical of what they see as an extension to the international sphere of the excessive focus on poverty reduction that they oppose at home. One plausible political interpretation of the prime minister’s 16 June announcement is that it is designed to appease these aid sceptics. If this interpretation were to gain ground, it is likely to be used by Keir Starmer, the opposition leader, to argue that, just as Labour moves back to the mainstream on foreign policy, this government is shifting decidedly away from it.

Such an interpretation is still premature. Despite the gathering economic storm, the prime minister has made clear that the government remains committed to meeting the 0.7% objective. The aim of the new structure is therefore, he argues, not to cut aid spending below this level, but to ensure it is less constrained by DFID’s traditional focus on poverty reduction in Africa and Asia (though these will remain important), and more able to be used to support wider economic, strategic and conflict prevention aims.

Yet this explanation presents a puzzle. The 2015 Aid Review, and accompanying Spending Review, had already addressed this concern by shifting a large part of the Official Development Assistance (ODA) budget from DFID to other government departments and cross-government funds – for example the Conflict, Stability and Security Fund (CSSF). This allowed a rapid growth in ODA spending on areas – such as security sector reform and climate change projects – that might have struggled to be funded directly through DFID. If the government had wished to do so, therefore, it could have ordered a further shift of resources to other government departments (perhaps through the CSSF and the Prosperity Fund) to ensure adequate priority was given, for example, to the need for more support for Ukraine and the Balkans to which the prime minister alluded in his statement.

Instead, by creating a structure in which the Foreign and Commonwealth Office (FCO) will have a near-monopoly of ODA spending, the government may be creating new problems in the effective delivery of the UK's external efforts. Students of management know that there is usually a trade-off between cohesion and overload when considering the integration of siloed activities. While the new integrated structure is likely to improve the cohesion of policy between diplomacy and development aid, therefore, it could also risk overloading the managers, at every level, who must now combine the responsibilities previously held by two separate chains of command.

Who is Taking over Whom?

This points to a paradox. Once the merger is completed (likely in September 2020), around 96% of the total Foreign, Commonwealth and Development Office (FCDO) budget (amounting to some £14 billion) will be ODA – up from some 75% for the FCO alone in 2020/21. At least in spending terms, the FCDO will therefore be primarily a development ministry. In contrast, FCDO spending on non-development functions – the bulk of the diplomatic network, policy support in the FCDO’s headquarters, consular assistance for UK citizens – is due to take only some £600 million of the annual budget.

In contrast to previous Conservative governments, which retained a separate Overseas Development Administration as a separate agency within the FCO, this government has decided to create a fully integrated FCDO structure. There will be no development minister in Cabinet, where the foreign secretary will lead on development issues. There will be no permanent secretary for international development, so the head of the diplomatic service, currently Simon MacDonald, will be responsible for all activity across the FCDO. Similarly, both in missions overseas and in the organisational structure in London, there will be a full merger of existing separate desks and units.

The consequence of this radical integration – in addition to the extra investment needed to level up pay and allowances – will be that managers at every level will have a broader span of responsibility. The foreign secretary and the head of the diplomatic service will be directly responsible to the prime minister, the Treasury and to Parliament for the management of the development budget. Heads of missions in key developing countries will need to spend more time overseeing programmes that had previously been managed by DFID. Career paths in a fully integrated FCDO will become much more focused on showing an ability to contribute to the effective management of the programmes that will make up the bulk of the work of the new department.

While there is a risk that (as in the Ministry of Defence) a focus on delivery of programmes leaves an increased ‘strategic gap’, much of strategic decision-making in foreign policy already resides in the National Security Council and associated structures, which can more easily integrate expertise across Whitehall in ways that the FCO cannot. Connoisseurs of foreign policy will, in any case, note that most of the key Cabinet Office officials working on foreign and security policy have spent a large part of their careers in the FCO or the security agencies.

The Spending Crunch

The government will soon need to announce a timetable for the next Spending Review. It remains to be seen whether this is going to be a single-year exercise focusing only on 2021/22 or a multi-year exercise setting out the government’s priorities through to 2024. Nor is it yet entirely clear whether the Integrated Review will be completed this year, though this seems more likely than it did during the height of the coronavirus pandemic. In either case, it will be the foreign secretary who will go into bat for the development budget in the bilateral discussions with the Treasury.

The prime minister has said the government remains committed to the 0.7% target and has expressed his pride in the UK’s status as the world’s third-largest aid spender. The coming recession means that some savings can be made while still meeting this target. But most if not all of this saving can be realised by the imminent end to the UK's obligation to contribute to EU development funds.

Some aid sceptics may argue that the UK can meet the 0.7% target by re-categorising parts of defence and security spending as ‘aid’. But such an approach is unlikely to lead to more than marginal gains, while remaining within international guidelines. In the end, this year or next, the government will need to make hard budgetary choices.

When the time for austerity does arrive, the FCDO will face an old danger in a new guise. Over the last decade, the FCO has faced repeated cuts in its non-ODA budget (down 15% in real terms since 2015 alone) even as its ODA budget has grown (up by 45% between 2015 and 2020). There is a danger that the Treasury will once again argue that it is being generous to the FCDO by funding a large ODA budget, while further reducing the money available for core non-ODA activity.

Conclusion

The prime minister’s announcement, at first glance, would appear to be about the FCO swallowing DFID. If the Spending Review leads to a further shift in FCDO resources to ODA, however, it may be more appropriate to see it as opening the way to the transformation of the FCO into an organisation that focuses mainly on development programmes, albeit with (increasingly underfunded) side-lines in consular activity and diplomacy. Although this was not the intention of those who have campaigned most strongly for a merger, it seems the most likely outcome of these proposals as they currently stand.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.