Britain is “dumping” billions of pounds in overseas aid money into obscure World Bank trust funds in an apparent attempt to meet the country’s controversial annual target, The Times can reveal.
The government is the second largest contributor to the funds, which were set up to distribute finance to the developing world but have been repeatedly criticised for a lack of transparency and effectiveness.
Over the past five years, Britain has channelled at least £9 billion into 219 different trusts, more than any country apart from the United States. The World Bank charged British taxpayers at least £241 million in administration fees over that period.
Aid insiders claimed that the Department for International Development (Dfid) was transferring money into the trust funds to fulfil Britain’s requirement to spend 0.7 per cent of national income — or £12.2 billion — a year on aid.
“Dfid dumps large sums into trust funds and accounts for it as spent against a given year’s UK aid budget,” James Morton, a senior consultant who has carried out numerous evaluations for both the World Bank and Dfid, said. “Judging by the large balances the World Bank and the United Nations hold, some of the money then sits there for years.”
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About £17.5 billion is sitting in World Bank trusts to which Britain has contributed. Of this, Britain’s share is about £4 billion, according to an analysis of its accounts.
Priti Patel, the international development secretary, will face questions from MPs today over how British aid money is spent. An investigation by The Times revealed this month that Dfid’s spending on consultancy services had doubled to £1 billion a year.
Following the unprecedented analysis of more than 72,000 aid transactions, which revealed that some Dfid contractors were quoting £10,000 to produce a single blog post, Ms Patel wrote to dozens of British foreign aid contractors asking for assurances that money was being spent effectively.
“This has been brought into sharp relief by recent allegations in the media,” she said. Aid tenders were suspended for two weeks before the letter was sent out on Friday.
Contractors now have 30 days to reveal the precise proportion of revenue coming from British taxpayers. It is not clear whether this will cover the billions of pounds in British aid distributed to these companies indirectly, through third party organisations such as the World Bank and the UN.
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Members of the international development committee are expected to press Ms Patel today on how to increase transparency over aid money spent through the World Bank, which last year received £3.3 billion from Britain, a quarter of the aid budget.
Many trusts run by the bank continue to accept donations despite retaining a large proportion of their funds, an analysis shows. In 2004, Britain gave $15 million to a trust set up to fund small businesses in Iraq, while the US gave $10 million.
More than a decade later, half of the funds remain in the trust with no money having been paid out for at least five years. Dfid said most of its own contribution was returned in 2010 after security in the country broke down.
Funds which are not handed out are invested by the World Bank. However, the money has earned on average less than 1 per cent interest per year over the past five years, which is reinvested into the funds.
Meanwhile, World Bank officials are charging an average of £176 million a year in fees to administer the funds. As the second largest contributor, Britain has paid approximately £241 million in fees over the last five years.
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Trust funds were first set up by the World Bank in the 1960s. They operate separately to the bank’s main activities and each is governed by bespoke agreements between donors.
The fractious nature means that administration fees range from 2 per cent to up to 10 per cent of the fund’s value.
In 2011 the World Bank’s independent regulator warned of “significant shortcomings” in the way trust fund resources were distributed.
Evaluators said that while some trusts were effective, many “lacked clear objectives”. Often funds were allocated “using a lengthy and unpredictable process” that generated “inefficiency and weak accounting for results”.
They reported that Britain was among countries that contributed to the funds to maintain its “high target for aid” while holding down “their [own] aid administration budget.”
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A year later, Britain’s own aid watchdog lambasted Dfid for “allocating a significant amount of resources to trust funds on a fragmented basis with no overarching strategy and limited oversight”.
The Independent Commission for Aid Impact (ICAI) found that trusts could be set up by small divisions within Dfid with “limited scrutiny”. A later ICAI report found that Dfid had developed a coherent strategy to deal with trusts and there was “early evidence” to show that staff attitudes towards managing trust funds was changing.
Last week The Times revealed that Dfid did not hold information on how at least £274 million of money given to the Strategic Climate Fund, a major World Bank trust fund, was spent. Dfid said it approved every project that the SCF invested in. Many other funds do not disclose the final recipients.
A Dfid spokeswoman said that the World Bank had the “reach and expertise to reduce poverty around the world”. However, she added: “It must work harder and smarter to achieve maximum impact for UK taxpayers.”
A World Bank spokesman said that multi-year funding was “crucial for effective development”. From January 2016, he said that the bank had charged fees only when funds were disbursed.