International Development Select Committee

The FCDO’s approach to displaced people - Bond Submission

1. Executive Summary

1.1 Bond is the UK network of over 350 UK organisations working in international development, peacebuilding, and humanitarian assistance. Our membership ranges from large organisations with a worldwide presence, to small and specialist charities working on specific programme issues or in specific locations.

1.2 Bond’s submission to the IDC Select Committee into the FCDO’s approach to displaced people focuses primarily on the FCDO’s approach to poverty and climate as drivers of displacement, and how corresponding funding trends are undermining the UK’s efforts to address poverty and climate as drivers of displacement. This submission also provides evidence on the extent to which UK ODA spent on housing displaced people within the UK represent poor value for money and proposed alternatives.

1.3. Plan International is a member of Bond and Bond fully endorses their submission to this IDC Inquiry.

1.4 Poverty can be both be a driver and result of conflict and destabilisation and as such has a key role to play in preventing displacement. The legal mandate of UK ODA is to contribute to reducing poverty, however over recent years we have seen a clear trend within UK ODA of a declining focus on poverty reduction, both in terms of ODA going to least developed countries and basic needs sectors crucial to the eradication of poverty and inequality. To prevent the drivers of displacement the Government must refocus its attention and ODA on alleviating poverty and inequality.

1.5 It’s crucial that the government supports refugees and asylum seekers in the UK as those primarily affected by displacement. However, the current approach of sourcing these funds from the ODA undermines the FCDO’s efforts to address displacement and its drivers in the long run. In addition, the current approach to housing displaced people in the UK presents poor value for money. This submission outlines why the current approach of housing refugees and asylum seekers in hotels is poor value for money and creates unpredictability for the ODA budget. It also outlines steps for the UK government to address its  maximalist approach to counting all eligible in-donor refugee costs as ODA which offers poor value for money and diverts ODA from crucial overseas programmes which may be able to prevent drivers of displacement, diminishing its value for money.

2. Where could the Government better focus its attention and ODA to prevent the drivers of displacement, including conflict and destabilisation? 

2.1 Poverty as a key driver. In its report ‘Extreme Poverty and the Sustainable Development Goals’ the International Development Committee concluded that “extreme poverty drives conflict, displacement and migration.”[1] Poverty can be both be a driver and result of conflict and destabilisation and as such has a key role to play in preventing displacement.

Conflict, fragility and poverty have always been closely linked. The World Bank estimates that a total of 324 million extremely poor people live in 33 countries classified as fragile and conflict affected.[2] It is a vicious circle in which poverty drives conflict, conflict drives displacement and displacement drives further poverty. Marginalised people, such as children[3], older people[4], women and girls[5], and people with disabilities[6] are particularly vulnerable to poverty, conflict and displacement and make the ‘leave no one behind’ (LNOB) principle of the Sustainable Development Goals (SDGs) all the more important.

The International Development Act 2002 mandated that UK ODA must “contribute to a reduction in poverty”[7] – a commitment that was reaffirmed in 2023 in the White Paper on International Development. As such it is crucial that the Government has the eradication of poverty and inequality at the centre of its development policy and ODA allocation, ensure that poverty as a driver of displacement is addressed at the root, with a special emphasis on LNOB.

2.2 A decline in poverty focus of UK ODA. In recent years we have seen a clear trend within UK ODA of a declining focus on poverty reduction and an erosion of the UK’s hard-won reputation as one of the most poverty-focussed donors.[8] 2023 saw the lowest level of UK ODA going to LDCs, both in overall spending terms (£1bn) and as a share of country-allocated bilateral ODA (47%), for more than a decade.[9] As a result of the much-reduced level of UK ODA to LDCs, the UK no longer meets the OECD DAC target to deliver 0.15%-0.2% of donor country GNI as ODA to LDCs, with the UK only providing 0.08% of GNI in 2023.

ODA to basic needs sectors, which are crucial to eradicating poverty and inequality, have also seen a decline over recent years. In 2023, UK bilateral ODA for:

• humanitarian support fell to £878 million, a decrease of 21% compared to 2022, 43% since 2020 and its lowest level since 2014
• health fell to £764 million, a decrease of 21% compared to 2022, 52% since 2020 and its lowest level since 2014
• education fell to £346 million, a marginal decrease compared to 2022, but a decrease of 64% since 2016 and its lowest level since 2009
• water and sanitation fell to just £38 million, a decrease of 17% compared to 2020, 82% since 2018 and its lowest level since 2009

Humanitarian assistance plays a crucial role to support displaced people, whether internally displaced or fleeing to neighbouring countries. In the decade before 2021, the share of humanitarian assistance in UK bilateral ODA was consistently above 14%. However, it dropped to 10.3% in 2021, 11.5% in 2022 and just 8.8% (£878mn) in 2023. This decline is of great concern and stands in stark contrast to the increase of the use of the ODA budget for housing asylum seekers and refugees inside the UK.

This is exacerbated by the trend toward ODA increasingly being spent by departments other than the FCDO. For example, as a result of the increasing share of ODA allocated to support refugees and asylum seekers in the UK (categorised as in-donor refugee costs), the Home Office has become a significant spender of the UK’s ODA budget. In 2023, the Home Office alone was allocated nearly £3bn (19.2%) of total ODA, up from £2.4bn (18.7%) in 2022. Since 2020 the allocation of UK ODA to the Home Office has increased by nearly 395% (£2.4bn). At the same time, the Foreign Commonwealth and Development Office’s (FCDO) share has steeply declined, falling below 60% in 2022 with a small increase to 61.5% in 2023. This raises questions around the ways in which the poverty focused mandate of UK ODA is being implemented and monitored across government departments.

2.3 Ringfencing ODA for poverty reduction. If the Government wants to address the drivers of displacement it must ringfence ODA for poverty reduction and addressing inequalities and reverse trends of recent years which have deprioritised funding to LDCs and basic needs sectors. We recommend that the government take the following steps:

• Sustainably scale ODA financing to the level required for a modernised approach to international development and to address today’s complex, global needs, including the drivers and consequences of displacement.
• Reform the methodology the government has inherited for reporting ODA spending on refugees to make it more ‘conservative’. Over the long-term, fund vital support for refugees from other budgets outside of ODA to free up vital resources for poverty and inequality eradication.
• Harmonise the fiscal tests for a return to 0.7% GNI with general fiscal rules and ensure that the rules are fair, transparent and achievable, allowing ODA to be scaled up as progress is made towards meeting them.

• Restore the core mandate of ODA by ensuring that all UK ODA is bound by the 2002 Act’s commitment to “contribute to a reduction in poverty”, not just FCDO spend.
• Reverse trends of recent years that have deprioritised funding to LDCs, and rapidly ensure that the UK once again meets the commitment to deliver 0.15%-0.2% of GNI as ODA to LDCs.
• Maintain the focus on providing the vast majority of UK ODA through grants, given the increasing debt crisis amongst many LDCs and LICs and the negative impact this has on countries’ capacities to provide basic services which further exacerbates poverty and displacement
• Scale up efforts to deliver universal basic services by supporting the development of more resilient, equitable and sustainable health, education, social protection, energy, water, sanitation and hygiene systems, and nutrition.

We recognise that climate change is another important driver of displacement and will only increase to drive displacement as the climate crisis intensifies. It is important that the government provides new and additional resources for meeting global climate finance commitments.

3. To what extent does ODA spent on housing displaced people within the UK represent value for money? 

3.1 Rules for ODA spent on housing displaced people. The Organisation for Economic Co-operation and Development’s Development Assistance Committee (OECDDAC) allows donor governments to count as ODA certain categories of spending in their own countries to support refugees and asylum seekers in first 12 months of their arrival. This is termed ‘in-donor-refugee costs’ or IDRCs. The OECD-DAC’s guidance requires donors to apply a ‘conservative approach’ to reporting IDRCs as ODA to avoid overcounting this support and to prevent ODA being diverted to IDRCs from other important needs, especially in low- and middle-income countries.

3.2 Increase in IDRC. In recent years, the proportion of the total UK ODA that is reported as IDRCs has increased rapidly, driven by a dramatic rise in the number of refugees arriving in the UK and a significant increase in the amount spent on each refugee. Between 2019 and 2021, the UK reported the highest spending on IDRCs per refugee among G7 governments, which is equivalent to three times the average reported by OECD-DAC countries.[10] As a result, the volume of UK ODA reported as IDRCs rose from £0.6bn in 2019 to £4.3bn in 2023 (28% of total UK ODA). While support for refugees and asylum seekers in the UK is vital, it is counterproductive for this to come out of the ODA budget because it diverts money from crucial overseas programmes which might help prevent displacement in the first place.

3.3 Criticism of UK approach to counting IDRC. The OECD-DAC has criticised the UK government for not applying a conservative methodology to reporting IDRCs. The Independent Commission for Aid Impact (ICAI) has also been critical of this “maximalist” spending approach, which it describes as one “that seeks out and includes every type of cost that can be deemed to be ODA-eligible”.[11] ICAI has further criticised that this maximalist approach is “not good value for money.”

3.4 Poor value for money. The UK spends over two-and-a-half times more ODA per refugee and asylum seeker than any other G7 economy[12], mainly due to the large costs of housing refugees and asylum seekers in hotels. Last Summer the Institute for Fiscal Studies also highlighted the Home Office’s mismanagement and overspending of the asylum budget[13], which not only creates great unpredictability for the ODA budget but also is not good value for money.

High costs of accommodating refugees and asylum seekers in hotels have been a main driver of spiralling IDRC and ICAI noted “serious shortcomings in the Home Office’s management of the large-value asylum accommodation and support contracts (AASC) and raised concerns about the department’s insufficient oversight of safeguarding.” Charities such as Refugee Council[14] and IPPR[15] have already created useful analysis and recommendations for the reform of the asylum system to create better value for money and make the system safer for people seeking protection in the UK. Both are calling for an end to the costly private contracts for housing asylum seekers and instead propose to decentralise budgets and powers to regional bodies and local councils, who are much better placed to provide value for money.

ICAI also stated that this maximalist approach “undermines the integrity of the ODA concept, which is about supporting development and reducing poverty in developing countries.”[16] While allowed by OECD DAC rules, the maximalist counting of all eligible IDRC as ODA diverts budget from crucial overseas programmes which may be able to prevent drivers of displacement, diminishing its value for money.

3.5 Ways to improve value for money. The current system effectively gives the Home Office free reign to use the ODA budget for housing asylum seekers and gives no incentives to reduce in-donor refugee costs. The Government’s commitment to reduce asylum costs is welcome and will free up some of the ODA budget but there is currently limited detail publicly available on how the governments intends to meet this commitment. Above mentioned analysis by Refugee Council and IPPR have already set out important recommendations to reform the asylum system to make it more effective, while ensuring that refugees and asylum seekers receive the support they are entitled to.

However, the government must also reform the methodology of counting IDRC as ODA, with the longer-term intention of phasing out the use of ODA for supporting asylum seekers inside the UK, and restore the poverty focus to ODA spend which the UK previously championed. In the interim, three potential options to bring down the IDRC reported as ODA should be considered: 

• Apply a cap to the share of UK ODA reported as IDRCs to reduce its level and promote predictability in the rest of the ODA budget. Following the example of the Netherlands, a cap of 10% could be applied to the proportion of UK ODA that will be reported as IDRCs.

• Remove or reduce the volume of spending reported through virtual budgets, i.e., areas of spending without dedicated resources for refugees. For example, there are no additional dedicated resources provided for education and health services, and this element of IDRCs is purely an accounting measure.

• Report IDRCs per refugee at the level of the average OECD-DAC donor (£7,400).