EAC Report: Development Aid

Baroness Northover Excerpts

Monday 22nd October 2012 Lords Chamber

[Baroness Northover]

My Lords, I start by thanking the Economic Affairs Committee for undertaking this investigation, and for the debate this evening. I found the evidence that it received and the evidence sessions extremely informative and interesting, even though this amounted to 700 pages of reading this weekend. I strongly recommend that Members of this House do as I did, as I am not entirely sure that I would have reached the same conclusions on the basis of this material.

As a former academic, I am glad that I went back to the original material to see how the Select Committee reached the conclusions that it did. While many of the cogent points put by the noble Lords, Lord Stern, Lord Hannay and Lord Crisp, and other noble Lords, are indeed woven through the evidence taken by the Select Committee—and I find it persuasive—so too are the challenges, which are especially strongly flagged up by the committee in its report.

I welcome all the contributions to the debate tonight. It is, of course, absolutely vital that we are kept on our toes and that we achieve the very best value for the assistance that the United Kingdom offers through its aid budget. As the right reverend Prelate the Bishop of Leicester, the noble Lords, Lord McConnell, Lord Phillips and Lord Roberts, and other noble Lords have argued, there is a moral case for aid. There is also the case that it is also in our interests.

I agree with the Select Committee, and many contributors to its sessions and to the debate today, that economic growth is the only sustainable road to poverty reduction. It is surely right that sustainable growth is central to our development agenda. However, it would be a gross oversimplification to reduce the role of aid in growth to simply the transfer of money. Growth surely depends on creating the conditions for wealth creation, as other noble Lords have said. I argue, as other noble Lords have done in this debate, and as many did in their evidence to the Select Committee, that aid can and does play a role in building the institutional capacity of Governments, improving the policy environment, strengthening the macroeconomic conditions and providing key public goods that underpin other drivers of growth. We know that those who are looking to invest, for example, in various African countries are indeed looking at these areas.

The noble Lord, Lord MacGregor, mentioned foreign direct investment. That often follows improvements in the human development index. Of course, as the noble Lord, Lord Tugendhat, said, there is a range of drivers for development. We know that. We also recognise that economic growth in the developing world is not only good for poverty reduction but good for Britain. It is this growth that will build our trading partners of tomorrow. In 2011, the UK’s exports of goods to China and India were worth £15 billion to our economy.

Poverty is closely linked to conflict, as Paul Collier and others have said in their evidence, and it is in all our interests to reduce such conflict. I agree with the noble Lord, Lord Lawson, on this point when he said that policies must be judged by their outcomes. That is what this is all about.

The committee has argued that the evidence that aid makes a contribution to growth is inconclusive. The noble Lord, Lord Stern, said with stunning clarity just how one can evaluate aid and what effect it has. If you read the material submitted to the committee, you will see much support for that position. It seems to me that sustained rapid growth in developing countries has only occurred in the context of impressive rates of public investment in infrastructure, education, and health. In low-income countries, aid plays an important role in helping to deliver these.

Our aid is very much focused on the very areas identified by the committee as being important for growth. DfID invests significantly in the legal, institutional and macroeconomic environment, human capital, and infrastructure, increasingly in collaboration with the private sector. For example, we know that education matters, and that educating girls matters even more. I can assure my noble friend Lady Hussein-Ece and the noble Lord, Lord St John of Bletso, that we put women and girls at the centre of our policies. Educating girls is intertwined with all aspects of the development process—social, political, and economic—as well as being an end in itself. Its effects last across generations and enable changes in development paths, shaping societies and institutions to allow for long-run change. In Kenya, for example, where women have been educated in a household, the family is more likely to hold bank accounts. Therefore they are better able to participate in the economy. It can be seen that where family size is reduced, as my noble friend mentioned, more girls are in education and the family is more prosperous, which contributes to the prosperity of the community and the society.

Honouring our commitments to the world’s poorest to spend 0.7% of our gross national income on ODA simply does not prioritise the amount of aid spent over the results achieved, as the noble Baroness, Lady Royall, has also reiterated. There are huge disparities of wealth across the world, and the figure of 0.7% has served over the years to galvanise action and responsibility. I thank the noble Earl, Lord Sandwich, and others for their congratulations on our being on course for meeting 0.7%. My noble friend Lady Jenkin rather put it in context with the comparison with expenditure on cosmetics.

DFID’s focus on improving results and delivering value for money has intensified, and is entirely consistent with the increased budgetary allocation. The landmark bilateral and multilateral aid reviews moved the focus of development evaluation away from inputs and towards results. That applies not only to DfID’s spending but also to spending by our partner agencies. In this context, I say to my noble friend Lady Falkner that the multilateral aid review put the Commonwealth Secretariat into special measures and we are closely monitoring its progress against clear recommendations on what is required for it to be effective. That is how things should be.

Our commitment to spending 0.7% of our GNI on aid also provides an example to others to do likewise. Of course, as my noble friend Lord Shipley says, it is not an end in itself; it never has been. As we are meeting our aid commitments, we are able to lead by example and hold others to account for meeting their commitments too. A recent appeal to increase Germany's aid to 0.7%, signed by 372 members of the German Parliament, explicitly cited the UK Government's commitment as a positive example to follow.

Of course there are other sources for funding, such as remittances, which we have heard about. Of course we welcome the arrival into the field of philanthropic foundations such as the Gates Foundation. Maybe it would have been good to invite them to contribute to the Select Committee's deliberations. If ever there were an organisation that is about the levering effect, monitoring exactly what results may flow from inputs, it is the Bill and Melinda Gates Foundation, with whom we work very closely and who express great admiration of what DfID does.

I note with some interest and slight amusement that various speakers had very good suggestions for how our aid budget might be spent and expanded; for example, the noble Lord, Lord Lawson, suggested the education of students from developing countries, and the noble Lord, Lord Boateng, mentioned health, science, technology, innovation and the British Council, although I note that the budget has almost doubled there and DfID has just appointed a head of innovation. It seems that noble Lords have countered the Select Committee’s implicit case that perhaps too much is being spent on aid—as did many of those who gave evidence.

Over the long term, poverty will increasingly be concentrated in fragile states. The noble Lord, Lord Hannay, and others emphasised how important it is to support these countries. It is no coincidence that no fragile state has yet achieved a millennium development goal. Engagement with fragile states undoubtedly comes with additional challenges, as my noble friend Lord Phillips and others have said. However, to leap from that to a conclusion that we should not be working in these contexts would be to misunderstand the relationship between risk and return. These circumstances are precisely the ones where the return to aid spending can be highest, especially when we consider the long-term costs of non-engagement, whether that be in terms of immigration or threats to our national security.

Noble Lords heard of the risks but also the rewards of working in these states, and it is important to note the reduction in conflict in Africa over the past 20 or 30 years as development has taken place. In that regard, I dispute one of those who contributed evidence to the Select Committee who seemed to argue that aid promoted conflict.

In its 2004 report, the UN High-Level Panel on Threats, Challenges and Change, of which the noble Lord, Lord Hannay, was a leading member, noted this interconnectedness. It commented:

“Development and security are inextricably linked. A more secure world is only possible if poor countries are given a real chance to develop. Extreme poverty and infectious diseases threaten many people directly, but they also provide a fertile breeding-ground for other threats, including civil conflict. Even people in rich countries will be more secure if their Governments help poor countries to defeat poverty and disease by meeting the Millennium Development Goals”.

As my noble friend Lord Phillips said, fragile states present challenging circumstances. That is why these countries are poor and that is why we need to work with them.

Noble Lords spoke of cross-departmental working. Sometimes I think that I personally am joined-up government—DfID, Defra, DCMS, DH and so forth. However, I hope that noble Lords will be reassured about the co-operation that is occurring. It is clearly far more cost-effective to work with the Foreign Office and the Ministry of Defence to counter potential sources of instability early on than to deal with the consequences later. That is why the tri-departmental Conflict Pool effectively combines expertise to deliver value for money. I want to point out that £742 million of ODA was spent by other departments, including DECC, DH, DCMS and Defra as well as the FCO and MoD, and that DfID has a joint policy on trade with BIS.

From the start of its inquiry the Select Committee flagged fraud and corruption and of course it is right that it did. We will face risks of fraud and corruption and we will not tolerate corruption or misuse of taxpayers’ funds in any form. These risks are faced not only by DfID but by every citizen and entrepreneur surviving each day in these environments. It is, of course, a brake on their ability to lift themselves out of poverty, and that is why it is extremely important that this is systematically addressed. DfID has put in place systems and procedures that enable it to manage risk, deliver results and achieve value for the taxpayer despite the additional challenges of working in fragile states. We will continue to build on what has been learnt and, through transparency, audit and other checks, drive this forward.

The Government have put transparency at the centre of our aid agenda. In answer to my noble friend Lady Falkner and others, we are working to deal with illicit capital flight as part of the G20 Anti-Corruption Working Group, and implementing the Bribery Act 2010. Just this month, the Publish What You Pay fund released its second Aid Transparency Index, which ranked DfID first among 72 aid-spending organisations worldwide. The Independent Commission for Aid Impact has been put in place to monitor UK aid impact and effectiveness. It does not answer to DfID but to Parliament through the International Development Select Committee. It is now bedding in and is making a useful impact, as other countries acknowledge, and we will learn from its work. Having more people see how we make decisions and where we spend money is a crucial plank in achieving better development results, and Britain is leading the way on this. My noble friend Lord Shipley asked about the audit of multilateral aid. I can assure him that this was a major consideration of the multilateral aid review.

When we think about aid, we must understand that healthier, better educated societies are attractive to the investors that drive growth and can deliver a sustainable end to poverty. Aid can and does help in the delivery of these prerequisites, and we should not recoil from doing so in the fragile states where they are most lacking. The UK delivers aid well. We are a global leader in the field of development—here I thank my noble friend Lord Tugendhat and others for making the point—and abiding by our international commitment to 0.7% will serve to strengthen this position.

Perhaps I can be extremely clear. First, our aid makes critical contributions to achieving the conditions necessary for the growth that can end poverty. Secondly, meeting our commitments to 0.7% will not compromise the quality of our aid. Thirdly, what we are buying with UK aid spending represents exceptionally good value for taxpayers. The noble Lord, Lord Hannay, flagged up the MDGs, the goals for the relief of poverty largely drawn up by our colleague, the noble Lord, Lord Malloch-Brown. The whole world now knows about the significance of these goals and they have spurred action, just like the 0.7% target. As the noble Lord, Lord Stern, and others have said, they have focused attention. Not enough progress has been made against them, but quite a considerable amount has. It will be a challenge to take the goals forward, given the spotlight that so many countries now place on them. However, we are determined to do so, and transparency and accountability will be integral to that. I look forward to future discussions as to how it is taken forward. Aid is not static, and I too pay tribute to Andrew Mitchell for his forensic focus and his emphasis on the role of private investment, which has been key. Assessing whether countries should “graduate” away from aid resulted in a dramatic reduction in the number of countries being assisted. That process will continue, and the growth in Asian countries, I can assure my noble friends Lord Bates, Lord Tugendhat and others, we note. Of course, in some states it is necessary to work through NGOs, as the noble Lord, Lord Hollick, would wish, but NGOs are not necessarily themselves incorruptible. We have to be vigilant in whatever way we act.

In conclusion, we welcome the Select Committee’s report. We do not agree with all of its conclusions, as noble Lords will have gathered, but it is right that the committee should challenge us to say why we are doing what we are doing. I think that most noble Lords in this debate agree that the work that DfID does is of exceptional importance and I thank them all for their support in this work.