International Development (Official Development Assistance Target) (Amendment) Bill [HL]

Lord Hollick Excerpts

2nd reading (Hansard): House of Lords
Friday 18th November 2016 Lords Chamber

[Lord Hollick (Lab)]

My Lords, I, too, thank my noble friend Lord Lipsey for his great perseverance and for giving us the opportunity today to consider and discuss how effectively our development aid programme is being delivered, and what improvements might be made.

My noble friend Lord Lipsey and I were both members of the Economic Affairs Committee, which in 2012 published the report he referred to, entitled The Economic Impact and Effectiveness of Development Aid. The report was enthusiastic about the positive role of development aid. We concluded that aid should be increasingly targeted towards building stronger and sustainable economies if it is to help reduce poverty and improve the quality of life in developing countries. We recognised that development aid is of course a fraction of the private capital now flowing into developing countries, but that it can play a vital catalytic and enabling role in promoting prosperity.

Our report expressed concern that a sudden increase in funds available to DfID, and the requirement to spend those funds in one particular financial year, would place great pressure on DfID’s resources and might lead to unwise decisions being made about the deployment of those funds. Noble Lords will be aware that in any walk of life the requirement to spend funds within a short period of time and by a certain deadline can promote a very perverse and dangerous set of incentives. It can elevate the need to spend above the full and proper—and sometimes lengthy—consideration of how best to spend that money. It is a case of invest in haste and repent at leisure. This is not an approach well suited to deliver the wise investment of considerable sums of public money. Good opportunities for grant aid or investment do not march to the drumbeat of Her Majesty’s Government’s financial year. That is why the Bill’s modest proposition that replacing the rigid annual spending window with a cumulative five-year window is common sense and can help to promote better outcomes and better value for money.

Since the report was published, I have had the opportunity to see DfID’s work at close quarters and to better understand the process of designing and delivering development projects, large and small. In 2014, I was appointed, like the noble Baroness, Lady Nicholson, by the Prime Minister as a trade and investment envoy, to Kenya and Tanzania. I now work closely with DfID, the Department for International Trade and the Foreign Office to help to promote trade and investment into both countries. In a way, Dr Fox is my boss—and he is not unaware, I hope, that I like playing golf on Friday afternoons.

I have been very impressed by the range and quality of DfID’s work and by its deep knowledge of different sectors of the east African economy. It has wholeheartedly embraced the prosperity agenda and is becoming the partner of choice for government, civil society, local business, and international funders and investors. Its business model has evolved from the traditional donor model of cash grants, often made to host Governments and international intermediaries, to direct investment in partnerships with specialist venture investors to help fund early-stage business and co-operatives, or to fund the expansion of small social enterprises. Direct loans are made to support projects which improve the infrastructure, the skill base and the regulatory environment, all of which help the economy to flourish—and in some of the smallest and most remote communities in east Africa.

A not-for-profit venture which is successfully implementing this model is TradeMark East Africa. It was set up in 2010 and has already invested $550 million over the last five years. Its success has attracted funds from 10 other nations, and TradeMark will now invest $700 million over the next five years, with 60% of funding coming from DfID—or “UK Aid” as it is now rather more snappily branded. TradeMark is funding investments to improve infrastructure, to ease the crossing of land borders by introducing digital cargo tracking, to improve skills and to simplify taxation—something we might perhaps try to do here.

TradeMark used to receive an annual disbursement from DfID, but now capital is released by DfID only when investments and projects are fully evaluated and approved. This funding method concedes the principle underlying my noble friend Lord Lipsey’s Bill: namely, that funding and cash transfers should follow approved investments and not precede them. We need look only to DfID’s practices to understand the importance of the principle that lies behind the Bill.

This funding model mirrors the hard reality of project funding and investment: the funding arrives only if the project is viable and the sums add up. Large or small projects take time to design, test and gain approval, and the level of funding required is often lumpy and does not fit into the neat world of government’s annual cash accounting. It is a world where funding flows to rigorously reviewed projects, not one where there is a guaranteed level of funds available to invest by a deadline unrelated to the readiness of the project.

My noble friend Lord Lipsey’s Bill reflects the tried and proven structure of the commercial investment fund world. Investors place their money in a fund, either in one payment or in a number of them over several years, and then allow the fund to make the investment when the opportunities have been extensively evaluated and approved. In the private sector, the fund’s five-year investment period can be extended if not enough suitable investments have been identified. This type of patient capital investment has proved time and again to generate better outcomes than investments made in haste under the threat of arbitrary deadlines.

Although the Government may be reluctant—perhaps the Minister may surprise us—to align the legislation to the way the project-funding and investment world works on the ground, there is a ready-made administrative solution. They can establish a fund, centrally, which is funded annually in line with government accounting rules. That would address the concern raised by the noble Lord, Lord Judd, that underspending one year might somehow disappear in subsequent years. The holding fund can then disburse funds to the country or to regional funds—just in the way it is doing with TradeMark at the moment—when the investments have been approved. This approach could, and indeed should, become the funding model for the newly established and rather clumsily named Cross-Government Global Prosperity Fund, which will disburse £1.3 billion of ODA money over the next five years to promote economic growth.

As DfID’s prosperity agenda matures and develops, it is likely to fund an increasing number of projects with debt or equity. This is to be welcomed, for debt repaid and equity sold for value will replenish the funds and allow them to become more self-sustaining and evergreen. Annual ODA targets can then be met, supported with the benefit of the proceeds and repayments from successful investments made in prior years. For instance, if DfID had adopted that approach when it originally funded M-Pesa in Kenya and made it an equity investment rather than a grant, it would now be the proud part-owner of the world’s leading mobile banking and payment system, worth well over £1 billion.

International Development (Official Development Assistance Target) Bill

Lord Hollick Excerpts

Friday 27th February 2015 Lords Chamber

Moved by

[Lord Hollick]

22: Clause 5, page 2, line 35, at end insert “by the Independent Commission for Aid Impact”

[Lord Hollick (Lab)]

My Lords, we now come to the part of the Bill relating to scrutiny. It is particularly important because, as we discussed on the first amendment, there is no prior scrutiny by the Treasury of this expenditure. So I think that we all recognise that scrutiny after the event is of particular importance and this amendment seeks to answer the question of who is to provide the independent evaluation of official development assistance to ensure that it represents value for money.

The Bill gives the appointment of the independent evaluation official to the Secretary of State. We think this is wrong. We believe that the Bill should make it clear at this stage that independent evaluation should be provided by the Independent Commission for Aid Impact. This was established in 2011 as an independent body to scrutinise the impact and effectiveness of the UK aid budget on intended beneficiaries, to assess the delivery of value for money for the UK taxpayer and to provide important evidence-based feedback to Government decision-making and performance. Over the last three years the ICAI has accumulated a deep knowledge and understanding of the impact and effectiveness of aid programmes on a country-by-country basis. The House of Commons International Development Committee has praised the work of the ICAI. Its expertise, growing reputation and independence make it the ideal body to carry out the independent evaluation required by the Bill.

Clarity about who is responsible for oversight is critical both to the effectiveness and the authority of the evaluation process. Oversight by a number of different bodies in a piecemeal way—a sort of “flexible” approach—is a recipe for muddle, confusion and ineffective scrutiny. Institutions and corporations have learnt the hard way that clear lines of responsibility are essential to good governance. Flexible oversight is not good governance.

The noble Lord, Lord Purvis, and the Minister, the noble Baroness, Lady Northover, are correct to highlight the important role played by the NAO. Parliamentary oversight by the Public Accounts Committee and the International Development Committee will draw upon the work of the NAO, and in particular its assessment of the effectiveness of the ICAI itself, so we can be confident that there is effective oversight of the ICAI. The suggestion that the Secretary of State should decide which body should scrutinise the performance of his or her department and the effectiveness and value for money of its aid programme is surely completely out of place in a world where rigorous, arm’s-length and independent scrutiny is now the norm.

Michael Moore, when he introduced the Bill in the other place, said that we must all be conscious of the need to reassure the public that the large and increasing amount of overseas development expenditure is spent not only appropriately, but effectively and efficiently. The public today are deeply sceptical of the ability of institutions to do what they say they should be doing and to be effectively held to account. In order to pass Michael Moore’s test—an important test which I agree with—there must be complete clarity about who is responsible for oversight.

My noble friend Lord Collins made this very point with his characteristic succinctness when he said:

“As the aid budget rises, so must our ability to control it. That is why Labour strongly supports the Independent Commission for Aid Impact”.—[Official Report, 23/1/15; col. 1566.]

The Minister told us that when the Bill was introduced, there was considerable concern about duplication of responsibilities because the ICAI had also come into existence. She went on to say that it was “highly likely” that the ICAI would be the body appointed to be responsible for providing independent evaluation of the aid programme. We look forward to hearing her confirm that that will indeed be the case. I beg to move.

[Lord Lawson of Blaby]

My Lords, I shall speak mainly to my Amendment 24, which is grouped with the amendment that has just been proposed so ably by the noble Lord, Lord Hollick. However, I shall first say a few words about his amendment, for which a very strong case can be made. The Economic Affairs Committee of this House took evidence from representatives of the Independent Commission on Aid Impact, and I am glad to see that my noble friend Lord Tugendhat is in his place because he was a member of the committee at the time. The ICAI was a useful innovation which was introduced by Andrew Mitchell when he was Secretary of State. However, we did not find the evidence very impressive—but that was in late 2011 or early 2012, when the commission was very new. I hope that the commission has subsequently improved because a strong ICAI is badly needed.

--- Later in debate ---

[Lord Purvis of Tweed]

Ordinarily, I would give way but on the basis of that guidance and a reflection on the Companion, I regret that I will not.

But as my noble friend has drawn me, let me address his amendment. He was referring to whether it would be virtuous to establish a separate organisation to carry out this function. In Committee, I was very clear in citing from the Official Report when my right honourable friend Michael Moore lodged his proposal. I quoted that and need not do so now, but he lodged his proposal and consulted upon it. The Government put forward their reasoned argument with regard to effective independent evaluation. My right honourable friend accepted that argument and the Bill was sufficiently amended. I am therefore satisfied that the Bill as it stands is robust in that regard and does not require the creation of a wholly new and separate quango. We have a structure in place under the Bill that I believe calls for the points that the noble Lord, Lord Hollick, called for. On that basis—and, hopefully, clarification—I hope that he will withdraw his amendment.

[Lord Hollick]

My Lords, I thank all noble Lords who have spoken on this. There seems to be a large measure of agreement, and enthusiastic endorsement of the fact, that the ICAI is the body that is fit to do this. I was particularly grateful for my noble friend’s recommitment to the role that ICAI can play here. “Highly likely” falls somewhat short of a slamdunk, but at this stage it is probably satisfactory. We hope that the words both from the Front Bench and from the noble Lord, Lord Purvis, the proposer, will carry weight as we move forward on the Bill. I beg leave to withdraw the amendment.

Amendment 22 withdrawn.

EAC Report: Development Aid

Lord Hollick Excerpts

Monday 22nd October 2012 Lords Chamber

[Lord Hollick]

My Lords, I, too, would like to thank our chairman, Lord MacGregor, for leading us through this important review of overseas development aid and, somewhat to our surprise, leading us to unanimity. But that is where the evidence led us as well. In 2010-11, our gross spending on development aid was £9 billion, representing a 53% increase over four years. As a percentage of gross national income, aid increased from 0.43% to 0.56% over the three years to 2010. As noble Lords have said, the UK is the second largest provider of development aid in the world. DfID has been consistently held in high regard over the past 15 years. So the UK has much to be proud of in its commitment to alleviate poverty and despair in some of the least developed countries in the world.

The premise that economic growth is the most effective way of achieving a reduction in poverty is universally shared, but there is a wide divergence of views on the contribution that development aid makes, or does not make, to economic growth. The insurmountable difficulties of measurement make it unlikely that this debate can be resolved by conventional analysis, not least because, as the noble Lord, Lord Tugendhat, mentioned, development aid is but a fraction of larger private capital and trade flows. But there is a good deal of evidence that development aid is an important and vital catalyst in bringing about all the changes that are prerequisite to the flow of private investment and long-term economic growth, from improved healthcare and education to better governance, administrative capacity building and infrastructure investment.

It is possible to measure the impact and effectiveness of aid aimed at achieving many of these specific objectives and that must be the starting point of the value-for-money analysis to which DfID is committed in its business principles. That value-for-money analysis can be made only if the objectives of the project are clearly established at the outset and the outputs and impacts can subsequently be monitored and measured. Far too much development aid is channelled through multilateral organisations or direct budgetary support, where transparency is low or non-existent. DfID is to be commended for weeding out some of the worst offenders, but it needs to impose far tougher conditions of transparency on large multilateral organisations to establish whether its laudable operating objectives of making British aid more effective by imposing transparency and value for money are being met and met in all cases.

Are the objectives of multilateral organisations consistent with DfID’s objectives? For instance, is the European Commission’s support for Turkey, an increasingly wealthy country that can attract all the private capital it needs, a proper use of development funds aimed at helping the world’s poor? Helping accession countries to transition to full EU membership is itself an important objective, possibly worthy of EU support, but it falls well outside DfID’s objectives.

Aid transferred directly to Governments is too often general in its nature, can be spent on anything that the recipient Governments choose and can in turn undermine the legitimacy of those Governments while enriching their members. It is all but impossible for DfID to follow the money involved in these transfers and monitor value for money. Project finance, which has been reduced by DfID, provides greater transparency and less scope for manipulation. DfID should re-examine the merits of increasing project finance. As my noble friend Lord Boateng said, NGOs provide a higher level of transparency—I was very impressed by the evidence that we received about the general effectiveness of their work. I urge DfID to work more closely with NGOs and, in particular, to help them to scale up their activities.

Many of our witnesses were alert to the ever present risk of corruption, particularly in fragile states. Yes, it will always be with us and every effort must be made to eliminate or reduce the redirection of aid to private pockets. Of course, we wring our hands, but we should also take note of the uncomfortable fact, carefully documented by Transparency International and the Tax Justice Network, that many of the bolt-holes for funds obtained corruptly fly the Union Jack or have it incorporated in their national flag. Too many of our protectorates and former colonies, many of which continue to have close relationships with the City of London, operate as tax havens with high levels of secrecy, so let us look in our own back garden first and clear up some of the shortcomings there.

Transparency International also provides an invaluable analysis of illegal capital flight, which shows clearly that many countries that are major aid recipients, such as Ethiopia, also suffer from very high levels of illegal capital flight. DfID should pay close attention to Transparency International’s index and insist that improved governance and effectiveness at the recipient country’s central bank and more effective tax collection in the country should be preconditions to the receipt of development aid.

Visits that I made to Burma and Palestine this year provided further insight into the complexities of overseas aid. In Burma I met with people from Aung San Suu Kyi’s National League for Democracy to discuss election campaigning—she did not need much advice, as it was more of a coronation—and policy formulation. They were keen to secure support for Burma’s development from the outside world but warned against a sudden flow of funding, which they said would immediately be siphoned off into the wrong hands. Instead, they wanted to rebuild civil society, which has been hollowed out over the past 50 years, to ensure that the country has the professional and administrative skills and structure to cope with the anticipated rush of inward investment. They were in particular looking to Britain to provide that support and suggested that DfID might partner with UK professional bodies representing accountants, lawyers, engineers, tax experts and civil administrators to help to fill the capacity gap. This is a potentially fruitful co-operation which could deliver direct economic benefit to the UK—something that we should also bear in mind—without compromising the quality or effectiveness of what we offer to Burma.

The issue in Palestine was more deep-rooted and, I fear, more intractable. The UK gives some £86 million a year to Palestine, largely to support civil society, yet a World Bank analysis shows that Israeli policies to contain and control Palestine’s economy reduces its GDP to less than a quarter of the level it should be. Much of the GDP lost is in effect transferred to the benefit of the occupying power, so we have the absurd position whereby hard-pressed UK and EU taxpayers are providing development aid in effect to fund the gap in the Palestinian economy created by measures imposed by Israel and which in turn benefit Israel’s treasury. This is an unacceptable situation, which surely should be tackled at both UK and EU level.

The need to monitor and manage the complexities and to scrutinise funding before, during and after implementation demands skilled resources. DfID’s staff receive high praise, but a time when funding is increasing and there is a requirement to manage that funding on a more detailed basis is not the time to reduce staff. Indeed, more resources are needed if DfID’s business plan is to be met and implemented effectively. The committee’s encounter with the recently established Independent Commission for Aid Impact, set up to monitor the performance of aid programmes, was, if I can put it most diplomatically, underwhelming. It did not appear up to the important task that it has been set. Against that background, the planned reduction in staff is a very bad idea, which could increase the risk of ineffective outcomes or, worse, a scandal that could undermine the aid programme itself.

The evidence that we received showed that in general our money is being well spent and, indeed, better spent as the years pass, and that the monitoring of outcomes is improving. On that basis we should continue to support additional funding to meet specified demand, always assuming that it can be managed effectively. However, I remain unconvinced that a further substantial increase in funding to an arbitrary level of gross national income is either desirable or manageable. If such funds are available, I would prefer to see the proposed increase in funding, equivalent to between 1.5p and 2p on the basic rate of taxation, used to reduce the basic rate of tax in the UK to stimulate demand, reduce the burden of recession on the hard-working squeezed middle and stimulate growth, for in the longer term it is growth here that will help to fund an increase in the development funds that we send to the most needy in the world.