EAC Report: Development Aid

Lord MacGregor of Pulham Market Excerpts

Monday 22nd October 2012 Lords Chamber

Moved by

[Lord MacGregor of Pulham Market]

That this House takes note of the report of the Economic Affairs Committee, The Economic Impact and Effectiveness of Development Aid (6th Report, Session 2010–12, HL Paper 278).

[Lord MacGregor of Pulham Market]

My Lords, I have great pleasure in moving the Motion that stands in my name. Before I attempt to summarise some of the key themes in our report I would like to make three preliminary points. First, I hope the House will conclude that it is a thorough piece of work. Our inquiry took nine months. We had, altogether, 30 sets of oral witnesses and written evidence from many more. Our report contains 28 conclusions and recommendations. I warmly thank our specialist adviser, Christopher Adam, Professor of Development Economics at St Cross College, University of Oxford, and our Committee Clerk, Bill Sinton, and his team for all their hard work, assistance and support to us.

Secondly, our report does not cover humanitarian aid for emergency relief following natural disasters, conflicts or social breakdown. We fully support Governments and NGOs in their responses to humanitarian emergencies which are no more than 10% of DfID’s budget. Our report focuses only on development aid which is nine-tenths of the official budget.

Thirdly, development aid is an emotive subject. There are many different views, strongly held. The members of our committee, who span the political spectrum and are members of all parties and of none, also hold strong views. I was anticipating an interesting and challenging chairmanship. In the event our report was unanimous, even on what we anticipated would be some controversial conclusions. I believe that that is because we based our report, as Lords’ reports do, on the evidence before us and the responses to the many questions we raised. I am delighted to see the interest that it has aroused, not least judging by the number of your Lordships who wish to speak in this debate. I anticipate that there will not be unanimity in the Chamber—indeed, the Government have already disagreed in part with our report—but I repeat that we were unanimous.

As the first words of our report say:

“One in five of the world’s population still lives on less than $1.25 a day. This poverty is a source of great human misery, and, if effective ways can be found to reduce it which are acceptable to the taxpayers of the developed world, then reduce it we should”.

In other words, the aim of our report is to see how best donors, and in particular the British Government, can deploy aid to reduce poverty and promote sustainable development while getting value for taxpayers’ money. We set out to look beyond the total money spent to assess the impact, effectiveness and outcomes of aid programmes as well as their cost.

It is worth putting development aid in a wider economic context. Official aid from OECD member states and international organisations to developing countries has, as we all know, grown fast over the past 50 years. In 2010, official aid was about $130 billion in total, but private capital flows to developing countries were vastly greater—more than $1 trillion in total, made up largely of foreign direct investment, remittances and portfolio investment. Put another way, private capital flows to developing countries are about 10 times official aid flows. To this should be added developing countries’ export earnings, which in 2010 were more than 40 times official aid flows. In summary, official aid is about 2% of financial flows from developed to developing countries. As Professor Paul Collier wrote:

“Aid is almost a sideshow in the portfolio”.

The global picture shows that trade and capital flows, not aid, are the real external drivers of economic progress in the developing world.

It is also worth recording, particularly in the context of the 0.7% target, just how relatively well the UK does in aid spending compared with most other countries. In terms of actual amounts, as figure 3 in our report shows, we are the second largest donor, with only the US ahead of us. We compare equally well on the proportion of our gross national income spent on aid. Indeed, all of the six countries ahead of us contribute much smaller amounts of total aid, with the possible exception of the Netherlands. On this measure, the proportion of GNI, the US is well down the list.

To put aid in a broader financial context is not to dismiss its importance. The global figures mask a greater degree of aid dependency in some of the poorest developing countries, which struggle to attract private financial flows. Official aid is the direct contribution on behalf of their citizens which Governments, including our own, make to development. The sums involved are very substantial and growing fast. For example, DfID’s programme increased by more than half in four years to £7.7 billion in 2011 and will rise to £12 billion by 2013. This rate of growth is in striking contrast to the restraint imposed in current economic circumstances on most other public spending programmes. Our report is largely about the aid budget’s impact on development and how far it represents value for money.

An evaluation of the effectiveness of the aid programme needs to start from its aims and the means deployed to achieve them. The basic aim of aid, as set out in the International Development Act 2002, is to reduce poverty by promoting sustainable development. We fully support this aim. We are less clear about means. We are glad that DfID enjoys a high reputation as an aid agency, and that came out clearly in evidence to us. However, directly funded aid projects are now rare. DfID aid goes mainly on financial support for programmes devised and managed by host Governments in, say, education, health or training. The DfID contribution is increasingly made through multilateral organisations such as the European Commission or one of the UN bodies. As a result, DfID is often not in full control of its spending programmes and their effectiveness and value for money or otherwise depends largely on the efforts of others.

We welcome the review of bilateral aid carried out by the Government and the decision of the previous Secretary of State to run down bilateral aid programmes in various countries including China, and to concentrate bilateral aid on 27 countries. Indeed, at this point, let me stress that we strongly supported in many of our recommendations the new directions and policies being pushed through with such vigour by the previous Secretary of State. However, more needs to be done and many of our recommendations follow that course. Let me touch on some of them.

The Government should prepare an early exit strategy from the very substantial bilateral aid programme for India. It is true that India’s impressive economic growth and technological attainments coexist with widespread extreme poverty, but British development aid to the poorest Indian states may provide a perverse incentive to the Indian Government to use less of their own resources to relieve poverty. We recommend that the Government should make plans to run down the British bilateral programme in India.

We also welcome DfID’s recent decision to cease funding some ineffective multilateral programmes, but here again more needs to be done. We advocate reduction of DfID funding of aid programmes run by the World Bank and the UN Development Programme, at least until a revaluation of their work is carried out.

We support DfID’s commitment to reduce general budget support—that is, support that can be spent in any areas—in the coming years, but are concerned that while budget support for specified sectors is to increase, much of DfID’s funding of aid programmes by multilateral agencies goes to budget support. The trouble with budget support is that money spent in that way is difficult to monitor and account for, and therefore does not help build the British taxpayer’s confidence that aid funds are being well spent.

We fully support and endorse the high priority that the Government give to the fight against corruption, but they need to make a greater impact on this front, where the level of fraud identified by DfID in use of its aid funds—which it has assessed at a little over £1 million a year—seems paltry and implausibly low. Given the critical reports of the National Audit Office, the Independent Commission for Aid Impact and some of our expert witnesses, we believe that DfID must make much more stringent efforts to detect and deal with corruption—not least because, as we have seen recently, it is increasingly becoming the focus of some parts of the media. The spotlights that are being shone on some of these issues will increasingly undermine public confidence in an expanding aid budget. We welcome the focus that the previous Secretary of State put on this and his setting up of the independent commission. However, I have to say that the commission was not among our most impressive witnesses, and it seemed to be seriously underresourced.

There is much to commend in the Government’s new approach to running the aid programme. As well as the range of issues of which I have spoken, there is the Government’s commitment to disperse more aid via the private sector and to badge British aid more clearly, which we welcome. Time prevents me from dealing with other important recommendations in our report, which I hope other noble Lords will comment on. For example, the Government should do more to explore with other G20 countries the scope to discourage illicit capital flight from developing countries. We also have recommendations on the quality of aid through multilateral agencies, which I have briefly mentioned, including the World Bank, the UN Development Programme and the European Commission’s aid programmes—including the fact that much of the funding of those agencies may be used for general budget support. I have noted the Government’s response on this point, which I welcome. We also comment on the vital role of the private sector.

I come now to possibly the most controversial aspect of our report and our recommendation. The committee parts company decisively with the Government over their commitment rapidly to reach the UN target of spending 0.7% of gross national income, or about £12 billion a year, on aid. Whatever its merits when it was adopted in 1970, we do not accept that meeting the UN target by 2013 should be the main yardstick of British aid policy. This part of our report is so important that it is worth quoting our main reasons from the report itself. In summary, we gave four reasons. The first was that the policy,

“wrongly prioritises the amount spent rather than the result achieved”.

Secondly,

“it makes the achievement of the spending target more important than the overall effectiveness of the programme”.

Thirdly,

“the speed of the planned increase risks reducing the quality, value for money and accountability of the aid programme”,

and, fourthly,

“reaching the target increases the risk identified in [the report] that aid will have a corrosive effect on local political systems”.

I speak as a former Chief Secretary to the Treasury. For me, it is always axiomatic that all areas of government spending are rigorously examined at the appropriate times within, but also outside, the individual government departments to ensure of course the right priorities but, above all, that all taxpayers’ money is effectively spent and gives value for money. No department should be immune from Treasury scrutiny and evaluation compared with other departments’ programmes. That is particularly important when a key priority is reducing the fiscal deficit. I can think of no other department where the department itself will be the sole judge of value for money, which is effectively what the commitment implies, and where the department will feel that it is, above all, judged by whether it pushes the money out of the door, rather than whether it is properly spent. In the committee’s view, therefore, the core of aid policy should be choosing and funding the best ways of promoting international development and stability, rather than finding new ways to spend ever increasing resources.

We therefore urge the Government to drop their commitment to enact legislation to enshrine in British law an obligation on future Governments always to comply with the UN target of spending 0.7% of gross national income on aid. It would deprive future Governments of the flexibility to respond to changing circumstances at home and abroad. It seems likely that the scramble to meet the target will reduce the scope to achieve the better focus and accountability in the aid programme we advocate in our report, and ring-fencing aid spending in a uniquely privileged position where it can never be cut, irrespective of economic conditions or priorities, seems most likely to bring aid into disrepute with the British public. We are very supportive of many of the directions and policies now being pursued by DfID but we believe that there are areas where it can go further and we urge it to do so. Of course, the one exception is the commitment to an aid target of 0.7%.

In conclusion, I thank, above all, my parliamentary colleagues on the committee for the huge contribution that they made. They were stimulating, probing, thoughtful, experienced and always a pleasure to work with. I wish that I had more time to comment on other parts of our report but, given the lateness of the hour and in the interests of other speakers, I commend the report to the House.

--- Later in debate ---

[Lord MacGregor of Pulham Market]

My Lords, it is impossible to sum up this debate in a couple of minutes, but it has reinforced the point made early on by the noble Lord, Lord Hannay of Chiswick, that we need more opportunities to discuss these issues, for there have been many excellent contributions tonight and we have all been constrained by the requirement to make short speeches.

A number of them, such as those of the noble Lords, Lord Boateng, Lord Shipley, Lord Stern and Lord Crisp, and the noble Baroness, Lady Jenkin, were based on the thought that it is real outcomes on the ground that matter. The noble Lord, Lord Shipley, gave many examples of what the former Secretary of State Andrew Mitchell had done in this respect and of which he is so justly proud. I was very pleased at the many favourable comments made about the record of Andrew Mitchell in that role and I would be very happy to pass on to him all those compliments from all parts of the House.

Real outcomes on the ground were the basis of much of the evidence that we received and the thrust of many of our recommendations. I paid tribute in my opening remarks, as we did in our report, to the work of DfID and the first-class reputation that it has world wide.

I make no apology for our committee putting emphasis on the effectiveness of aid, for it is the effectiveness of aid which is crucial for those who most need our help. I am grateful to all who have contributed during this debate.

Motion agreed.

House adjourned at 10.56 pm.