EAC Report: Development Aid

Lord Shipley Excerpts

Monday 22nd October 2012 Lords Chamber

[Lord Shipley]

My Lords, this report is the outcome of many months’ deliberation by the Economic Affairs Committee, during which we heard from many expert witnesses who challenged our perceptions of development aid.

I present the apologies of my noble friend Lord Smith of Clifton, who as a member of the committee hoped very much to speak on this report but is absent because he is recuperating from surgery. I am sure that he would agree with me that this report should be seen as the report of a critical friend. It is about the effective use of public money in helping to drive growth in poor developing countries, in reducing inequalities in income, wealth, health and life expectancy between countries and peoples, and in making the world a safer and more secure place by spreading wealth and opportunity.

The UK is a better place because it gives international aid and wants to give more. I pay tribute to the previous Secretary of State for International Development for his personal commitment to the importance of overseas aid. He had a clear programme to get 11 million children into school, to vaccinate 55 million people against preventable diseases and to stop 250,000 newborn babies dying needlessly, and a plan to promote education and access-to-finance schemes for women and girls.

Aid is morally right for richer countries to give, but it should not lead to fraud, corruption, capital flight or arms purchase. The committee heard worrying evidence that it did. We also heard convincing evidence that development aid can be a driver for growth where it acts as a catalyst for a recipient country’s institutions and its economic and social infrastructure. We heard that aid is not necessarily a driver of growth itself but that it can increase the rate of growth, led by the private sector, by investing in health, skills, internal infrastructure and strong political governance.

Since the report was published earlier this year, three trends are impacting negatively on poor countries. First, the international debt crisis is pushing up the debt repayments of poor countries by about one-third. The Jubilee Debt Campaign has identified that because European demand is lower, income derived by poor countries from exports is reducing. Also, European banks and companies are repatriating money and poor countries are being asked to reschedule debt themselves and thus carry greater burdens. Cutting debt repayment matters because it can be followed by specific, measurable action. We should remember, for example, that in 2001, when Tanzania was granted debt relief, school fees were abolished and school enrolment rose from 50% to 80%.

Secondly, there is a food crisis: 250 million people in Africa are undernourished, and food production in Africa is reported to have dropped by 10% in the past 50 years. I read that more than $33 billion a year is spent on food imports into Africa. Prices are rising and becoming unaffordable and faster agricultural modernisation and expansion seems essential, as the noble Lord, Lord Boateng, pointed out a moment ago.

Can the Minister update the House, either now or later, on whether British multinationals will in future be able to direct profits into tax havens that could cost developing countries significant losses of tax income? What estimates have officials of DfID made of that? Is the estimate of ActionAid correct when it estimates that loss at £4 billion—one-third of our planned development aid budget?

All those trends matter deeply to the amount that we give in aid, which is why the Government’s ambitions to increase the amount we give are right. However, we know from research and from the evidence we heard that only about 50% of aid reaches its target. That is far too low. The other 50% goes in administration and overheads, particularly where money goes through a chain of agencies, in consultancies but also in corruption and fraud.

I move to the issue of fraud and corruption. Some of our witnesses claimed that DfID emphasises quantity, not quality, with poor monitoring. An important consequence of that is a lack of public confidence that money is well spent. Indeed, last year, DfID admitted to the Public Accounts Committee that it did not know how much aid money was lost to fraud and corruption—so much for audit. In 2011-12, the sum identified as fraud and corruption from our direct aid was only £3.1 million, a tiny portion of overall spending.

The Government have created the Independent Commission for Aid Impact. It would be helpful to know what it has achieved since we reported. I understand that it has subcontracted some of its work to KPMG. It would be helpful to know the terms of that. For example, is there an element of payment by results?

A recent National Audit Office report into multilateral aid stated that none of the institutions acting on behalf of DfID had any quantified details of known frauds or losses, although departmental staff were aware of investigations into potential fraud in some cases. That rather suggests that not a lot is done to limit fraud. I hope that the Minister can put my mind at rest and confirm that multilateral aid is indeed subject to proper audit.

As the Government spend more to reach their goal of 0.7% of national income, it is crucial that the public have confidence in our aid programme. Rightly, they want giving aid to be dependent on positive outcomes, improving in-country governance and delivering proper audits on the ground, not supporting Governments who are complicit in terrorism or attacks on civil liberties. The target of 0.7% of gross national income for OECD countries has been a 40-year target. It exists as a statement of the responsibility of rich countries to support poor countries across the world, and I subscribe to it.

I have been concerned, and I have heard much evidence to support that concern, that achieving 0.7% cannot be an end in itself. It should be the consequence of what we do project by project and programme by programme because success can be measured only through positive development outcomes. I have also questioned the speed with which 0.7% is to be reached. The committee’s conclusion in paragraph 95 relates to reaching it by next year, and whether it should be made statutory, which presumably future Governments could change if they wanted to.

In financial terms, there is a planned 37% real-terms increase in aid spending by 2015, which is three years away. I am still uncertain whether it can be done without substantial waste, losing large amounts to overheads and administration and, indirectly, to capital flight and fraud. I hope my doubts are misconceived—I would like them to be. Our committee has stressed throughout that its report is not about cutting aid, nor about freezing it, but about ensuring that the criteria used to define success are not just a proportion of national income. Interestingly, in his reply to our report, the International Development Secretary said:

“0.7% is not a central plank of aid policy”.

I am reassured by that and I hope that means there can be a meeting of minds. I am very happy to spend 0.7%, but the impression has been given that it is indeed the central plank of government policy. I am happy to accept the previous Secretary of State’s clarification. He is right to have added in his response that reaching 0.7% will send a powerful message to other countries, and it is doubly important that we do so given the problems of debt, the loss of tax income and reduction in food supplies that I referred to earlier. All I ask is that reaching 0.7% is done by delivering real outcomes on the ground that are sustainable, drive economic growth and maximise the development impact for each pound spent, which will in turn give the public confidence that their money is being wisely spent.

For that reason, we need to be careful that when we pass money to intermediate agencies, we do so with agreement that money will not go to projects that we would not have agreed to fund ourselves. For example, we are the fifth largest contributor to the World Bank. While our contribution is only around 10% of our total spending on aid, some of that money is going to projects that DfID would not have funded directly itself: there are examples in projects in Iran, China and India. The International Development Secretary promised that there would be a tighter focus on 27 of the poorer countries, and that seems to be right.

The same problem seems to have occurred with the EU, where British aid has been used to support some projects that would not have been supported directly by the UK. I welcome DfID’s intention to go with “what works”, in the words of the previous Secretary of State. Certainly, the bilateral aid review he undertook, resulting in country offices bidding against planned results rather than just for access to funding, will help. In education, might this mean longer contracts to allow for vital institution-building and implementation? Might it mean educational consultants working alongside rather than for an overseas ministry? Might projects be clearly part of a bigger picture rather than one-off without proper follow-up? In building civil society, might it mean focusing on outcomes so that large and prolonged aid programmes do not have a corrosive effect on local political and government systems? In health might this mean following the advice of Professor Sachs of Columbia University, which is quoted at paragraph 108 of our report? It says:

“‘I am not keen on programmes that say, “You are a good Government, you get high governance scores from the World Bank, therefore you are going to be a recipient of budget assistance and we trust you”. I trust nobody.’ Handing over money to central government and expecting it to reach the local level is, unless very carefully designed, ‘a hope too far’. Professor Sachs is instead ‘a big fan of well targeted, well defined programmes that can accomplish well designed and specified purposes’, such as delivery of bed nets or vaccines”.

Health projects like that drive growth because people are well.

In the past 20 years, 18 out of 54 countries have moved from being classed as low income to being classed as middle income. Our job is to help many more low-income countries to move from aid to trade and from low income to middle income.

This is not just about 0.7% or any other number; it is about doing what we can and should do to help poor countries to grow their way out of poverty. It also means the Government reassuring everyone that there is indeed capacity in DfID to spend effectively and, in so doing, to build public support for development aid.