CONFIDENTIAL
25 February 1972
I am very sorry that my visit to the Caribbean and then the need for a fresh look at the aid framework has delayed my reply to your letter of 21 January.
I am grateful for your offer that up to £10 millions of the likely overspending in the present financial year need not be offset in a later year. We are doing all we can at this late stage to keep down the total outturn but the latest forecast is still ver £260 millions. Some carry-over beyond the agreed £5 millions may therefore be necessary.
My main conce has now shifted from the present year to 1972/73. In order to allow for slippage in expenditure, I am sure that you know that the aid programme is over-committed each year through the device of an estimating adjustment. The size of this adjustment is agreed with the Treasury. On the experience of the underspending of previous years, the present estimating adjustment is a quarter of the programme total. Allocations, including a sum for contingencies, are made within the aid framework up to a gross total, which is equal to the programme figure plus the estimating adjustment. In the past, this has produced by the end of the financial year an outturn close to the approved programme.
It was on this basis that the aid framework paper was submitted late last year to the Defence and Overseas Policy Committee. Since then, the returns have begun to show for 1972/73 a much smaller slippage than we had expected when the estimating adjustment was fixed. Several factors combine to produce this result. Inflation is eroding the value of the programmes. Staff therefore cost more to employ and projects more to complete. We are allocating more money to purposes like relief. The money is quickly spent, and there is little or no slippage; finally, after years of underspe..ding the allocations, both my Department and some overseas governments have developed a greater capacity for spending.
CONFIDENTIAL
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