Global poverty amid plenty is a moral scourge. British policy to address it is failing. Figures we publish today show irrationality and waste in spending on foreign aid. Priti Patel, the development secretary, faces questions from MPs today when she appears before the international development select committee. She will need to give convincing answers on how to reform the Department for International Development (Dfid). Since her appointment to the post in July she has given few signs of having any.
Ms Patel has admittedly been vocal in decrying her department’s profligacy with taxpayers’ money. The poor quality of spending is compounded by a lack of transparency. Huge sums are being channelled by Dfid into trust funds held at the World Bank for lack of any more coherent scheme of what to do with the money. Over the past five years these deposits have amounted to some £9 billion spread across 219 funds. World Bank accounts show that an aggregate £17.5 billion is currently sitting in its trusts, of which Britain’s share is about £4 billion.
Failing to put this money to work is scandalous enough. Yet the dysfunction of Dfid’s disbursements runs deeper. First, the government pays fees for the fund administration. Those charges are so high that, if they were implemented in the retail investment industry, they would be investigated as anti-competitive. Fees can range even as high as 10 per cent. That is money given directly by British taxpayers to fund an international bureaucracy, as the fees contribute to the administration costs and salaries of the World Bank.
Second, shunting the money into the World Bank’s funds is the predictable consequence of maintaining a misguided annual target for aid spending. David Cameron counted as one of his greatest achievements the maintenance of a target for aid spending of 0.7 per cent of GDP. That target was achieved in 2013 and met again in the past two years. In 2015, Britain spent £12.2 billion on foreign aid, of which 69 per cent was bilateral. It is well intentioned but it creates perverse incentives. Instead of spending the money well, Dfid’s main aim is just to spend the money. By depositing large funds with the World Bank, the department can count the allocation as part of aid spending.
This is not the only aspect of aid spending that defies any conception of prudent management. Ms Patel has the urgent task of formulating a better strategy. She has not so far given any indication of having one. She has confirmed that the spending target remains, and her pronouncements appear to elide the distinction between aid and promoting the export of British goods and services. This is doubly misguided.
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There is a strong economic as well as humanitarian case for foreign aid but mixing it up with the interests of particular industrial concerns has a bad record. Providing export credits as part of an aid package encourages corruption in the recipient country and the export of goods and services that are only loosely connected with economic development. That is not the way to go. Ms Patel should instead be concentrating on a strategy to help poor countries develop a thriving market economy with all that underpins it — infrastructure, education and legal institutions. That in turn will help the world trading system on which Britain’s future economic performance depends.
Aid should be a complement to, not a substitute for, private-sector activity. And there must be an economic calculation of whether the aid works. Mr Cameron’s humane intentions for aid spending are in that respect akin to Jeremy Corbyn’s plans for the domestic economy: they focus on arbitrary targets for spending rather than on identifying projects that will generate an adequate real return on investment. Ms Patel’s department is urgently in need of reform and she will be judged on it.