Motion to Take Note

EAC Report: Development Aid – in the House of Lords at 7:03 pm on 22nd October 2012.

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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).

Photo of Lord MacGregor of Pulham Market Lord MacGregor of Pulham Market Chair, Audit Committee (Lords), Chair, Economic Affairs Committee, Chair, Economic Affairs Committee 7:05 pm, 22nd October 2012

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 programmed 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.

Photo of Lord McConnell of Glenscorrodale Lord McConnell of Glenscorrodale Labour 7:20 pm, 22nd October 2012

I start by thanking the noble Lord, Lord MacGregor, for his concise-owing to this evening's time limits-introduction to the debate and for the hard work that he clearly did on the Economic Affairs Committee to produce the report with the support of all members of the committee. I also thank the noble Lords who were members of that committee for the time that they put into gathering so much evidence, producing such a comprehensive range of recommendations and dealing with such a comprehensive range of issues, and for the priority that they gave to this issue, allowing us to have this debate tonight in your Lordships' Chamber. Much is worth while in the report and in many of the recommendations, but I believe that the report contains a contradiction at its core, and I welcome the opportunity to outline it at the start of this debate.

Although I believe that the report, the evidence gathered and much of the analysis outlined make the case for some changes in policy and spending on aid and development, I do not believe that they make the case for the reductions outlined in far too many of the recommendations. There is a contradiction between, on the one hand, saying that we should not set an arbitrary target for spending increases or decreases and, on the other hand, the arbitrary impact that that then has on that spending. In fact, in too many cases the report seeks to reduce the level of spending either on individual objectives or through individual institutions or as a general goal. In paragraph 115 the report specifically says that,

"the prize, at the end of the day, [is] less taxpayer-funded aid".

I believe that in our world today that is an appropriate target for the United Kingdom. Therefore, my remarks will concentrate more on the overall case for development aid and the objectives set out by the British Government and less on individual instances and individual countries.

For this country and elsewhere around the world, these are no doubt difficult times. We live in an imperfect world where every decision made, particularly in fragile, delicate or post-conflict countries, can have messy outcomes. However, the United Kingdom also has a duty and a responsibility to meet its international obligations and to be a force for the stabilisation of fragile states and, of course, for the reduction of global inequalities and poverty. That is a necessity. It is in our interests here in the United Kingdom-economically, environmentally, socially, diplomatically and particularly perhaps in relation to our security-just as much as in individual developing countries or the communities that make up those countries to ensure that the gaps between the developed and the developing world are minimised. However, there is also a duty on the United Kingdom-partly because of our colonial past and partly because of our responsibilities as a permanent member of the UN Security Council, as a leading member of the European Union, as the heart of the Commonwealth and due to our role in many other international institutions-to be at the forefront of the global efforts to deal with conflict and poverty. In this country, we should ask not only what is in it for us but, crucially, what is the right thing to do.

The committee argued that there is too much corruption, bad management and inefficient government in developing countries and that that should be used as a reason for reducing development aid. However, when Members of Parliament in this country were spending public money inappropriately on their homes and offices and on personal possessions we did not use that as a reason to cut the amount of money we made available to their constituents. Therefore, we should not use it as a reason for action that would have such devastating consequences elsewhere in the world. There is inefficiency, greed and bad management all over our world. Our job should be to try to help to improve the world, not to make the conditions worse.

The committee argued that at times development aid can have very little purpose or, indeed, sometimes no purpose in relation to economic growth, and that there is a far stronger role for the private sector. I have no doubt that a strong private sector and a growing private economy-particularly one that is free of corruption and is transparent and based on the long-term stability that comes from regulation and the rule of law-are absolutely critical in the fastest-growing developing countries. However, so, too, is an educated and healthy workforce, as well as the infrastructure that allows people to get goods to market, whether that infrastructure is physical or electronic or whether it is about human potential and capital in the 21st century. Governance and institutions that can provide the stable framework for business in which the private sector can properly operate are also critical.

As the noble Lord, Lord MacGregor, said, the committee argued that the target of 0.7% should not be legislated for by the Government and that, indeed, it should be dropped. I accept that that conclusion will have been reached after much deliberation and that a serious point is being made there. It would be possible for me simply to say that, in fact, UK aid and aid internationally is making such a huge difference that we should not countenance that suggestion. I could talk about the 46 million children who now start school because international aid has made a difference, the 6 million people receiving treatment for HIV, or the fact that UNICEF reported just last month that the number of children dying before the age of five in our world today is half what it was in 1990. However, those arguments are not enough. I could argue from the point of self-interest-that for every £1 in aid that we spend in Africa, we get about £2 back in trade. I could make that point and many others in relation to our self-interest.

However, there is a more fundamental point here. Legislating for the 0.7% target would allow the very outcome that the Economic Affairs Committee of this House is seeking to achieve. If we legislated for that 0.7% and we did so on an all-party basis, first, the amount spent in aid could well decrease as well as increase because it would change according to the conditions of our own economy, not because of some arbitrary decision by a politician or departmental official in DfID, and, secondly, it would take the debate on the amount of spending out of party politics and ensure that we spent our time in this Chamber and in the other place concentrating on how that money was spent and on making sure that it was spent more effectively in the years to come.

Therefore, my case for legislating for the 0.7% is based not on an arbitrary target but on the fact that it would lead to the outcome that I believe the members of the committee were seeking to achieve of ensuring that the United Kingdom is at the centre of these affairs globally-a position we should be proud to be in. By legislating for a target of 0.7%, we can take the discussion forward and have a real debate on impact, moving forward in capacity-building, in building human capital, in ensuring that there is better governance and in getting decent relationships with good Governments who are transparent, corruption-free and more effective. At the same time, perhaps we could learn some lessons from those new corruption-free, transparent, efficient and effective Governments in the developing world that we could bring back home.

Photo of Baroness Falkner of Margravine Baroness Falkner of Margravine Liberal Democrat 7:30 pm, 22nd October 2012

My Lords, I, too, thank the noble Lord, Lord MacGregor of Pulham Market, for the opportunity to speak about aid effectiveness. Some causes take on an aura of inevitability and become incontestable by their very nature. So it is with international aid for the Liberal Democrats. One of the things that drove me into political activism in the 1980s was the belief, articulated by the Liberals of the time, that we as a country needed to reach the UN target of 0.7% of GDP to alleviate poverty beyond our shores.

Liberal internationalism has always been one of the foundational values within this party and is virtually a part of its DNA. Therefore, the coalition agreement committing this Government to honouring the commitment given by all three parties to the 0.7% target was, and remains, an entirely valid and honourable promise to those who have the very least on this planet. However, to say that one believes in the moral imperative of alleviating hunger or sickness is not to say that one should be impervious to the evidence of what works. Moreover, a balance has to be struck between providing relief today and ensuring that relief is sustainable. The most powerful helping hand is one that lifts a person to his feet with sufficient strength that he may stand on his own feet thenceforth.

This report provides a sharp analytical framework for assessing where a helping hand is most effective, and I congratulate the committee on its work. I will confine my remarks to the general issue of the effectiveness of aid and then pick up the more controversial aspects of the report to do with whether we should commit to the timescale that we set ourselves and the manner of so doing. The consensus across the report that poverty alleviation and sustainable development should continue to be our priorities is welcome. I was much taken by Professor Collier's succinct description of the need to continue with giving when he said,

"growth is not a cure-all; but the absence of growth is a kill-all".

That speaks volumes. The other area of great consensus across the field is that private investment and capital flows, along with remittances, are far more powerful levers and actually do most of the heavy lifting when decent governance is in place and countries are able to move from being low-income countries to middle-income.

I was disappointed to note that the share of technical assistance in the overall development assistance budget expended by us both in the UK and in EU programmes was rather lower than the budgetary support provided. The report points to all the evidence showing that technical assistance, and the expertise provided through it, strengthens institutional capacity in low-income countries through improved tax collection, audit and legal systems and can embed capacity within those countries in the longer term. Can my noble friend give the House the Government's current assessment of the Commonwealth's technical assistance programme, which they found to be less than effective in their last review?

I also have to disagree profoundly with the report's scepticism about using aid to put in place mitigating measures for climate change. There are good reasons why we have to help developing countries with the mitigation challenge. First, we have a historic responsibility as one of those countries that have pushed the earth's atmosphere close to the point where further climate stability can no longer be guaranteed. Secondly, there is a need to put developing countries on a development trajectory that does not repeat our mistakes in pursuing a fossil fuel-based industrialisation strategy. Thirdly, it is imperative to widen the participation of developing countries in international mitigation efforts so that we can build a broad coalition in support of a stronger climate regime post-2015. I note that the noble Lord, Lord Stern, is in his place and look forward to hearing his remarks in this regard.

One of the main thrusts of the report is that it is rather difficult to measure the marginal impact of spending with an increase in growth. These things are different for each country at each stage of its development, so I welcome the committee's view that it is clear that there is no negative impact on growth. However, leaving aside economic growth as measured by GDP, there is good evidence that it is very useful, and promotes growth in the long term, if it is used for building resilience. My noble friend Lord Ashdown of Norton-sub-Hamdon noted in his Humanitarian Emergency Response Review that for every £1 spent on preventing disasters, £4 was saved in responding to them. Likewise, the committee notes that post-conflict states also have better marginal returns for every dollar expended. Again, as Professor Collier points out, it is important to provide jobs if you want sustainable demobilisation for soldiers.

I know that the committee was rather taken with the evidence of Mr Rory Stewart, who dismissed the concept of a "lessons learnt" model whereby one can to some extent extrapolate from one particular circumstance to another. Although I agree with the idea that there is no template for stabilising post-conflict situations, we do have useful experience to draw on. Mr Stewart, in my view, misunderstands what he describes as liberal imperialism. The idea was founded in the 19th-century context that if you were going to expand empire to other parts of the world, you should try to promote standards there that reflected what you thought was successful at home. The idea that our development assistance today, whether disbursed bilaterally or multilaterally, is to replicate "civilisational standards"-in the lexicon of 19th-century liberal internationalism-is, frankly, to treat today's endeavours with contempt. I wonder whether the role of the Marshall Plan in providing aid in post-conflict Europe or the writing of the Japanese and German constitutions to entrench the rule of law would count as liberal internationalism. Furthering gender equality or the rule of law is the right thing to do in a post-conflict society and some of us are sure that Afghanistan will emerge the better for our engagement there, even if it takes longer than we expect.

I will touch on the enduring concerns that we all have on the propensity for aid to be wasted through corruption. In 1950, the economist Lord Bauer said:

"Foreign aid is a system of taking money from poor people in rich countries and giving it to rich people in poor countries".

It can do no justice to the taxpayers of the DAC countries to find that their donations are siphoned away by corrupt elites in developing countries. The fungibility of aid clearly makes this a trickier problem to solve, so will my noble friend be able to tell the House whether the Government intend to take up Transparency International's recommendation that they should attempt to get the G20 countries to agree rules to discourage illicit capital flight from those developing countries?

I come to the issue of whether we should stick to our target and, secondly, whether we should enshrine this in law. The argument for spending 0.7% seems irrefutable for the UK currently. It is certainly a significant sum of money in raw numbers but looks rather different when seen in perspective: it amounts to just 1.6p of every pound of government spending, when 75% of the world's poorest people live on less than $1.25 a day. Setting our sights on fulfilling our target is right, despite the current state of our finances.

However, I will speak to the merits of legislating for the target ad infinitum. I am not speaking for the Liberal Democrats here but as an individual who has seen, more than once, the effects of legislation that is not fit for purpose after some time has passed. I am also keenly aware that if I were a taxpayer in Greece, Spain or Portugal-all three of which are DAC members-in the current climate I might feel that restoring my own country's finances, in light of the enormous strain that those economies are under, might be my priority. Were we to enshrine this commitment in law, it would take away any flexibility on our part should our own financial situation weaken. Even more importantly, noble Lords might be able to imagine some sunny uplands in the future where our statute-enshrined obligation for development assistance is no longer needed to the same extent or for the purposes it was defined for.

To use another analogy, if we were to take peace and stability as our target in this increasingly unstable world, then perhaps we should have enshrined our implicit commitment to NATO spending, which is at least 2% of GDP but below which we have fallen.

I wholeheartedly support the target but am concerned about enshrining it in law. However, I accept that all political parties committed to this and that it is part of the coalition agreement. My own proposal, which might assuage some of the concerns about an enduring commitment, would be that if we do move to legislate, we have a requirement for a substantial review at the end of a 10-year period and perhaps insert a sunset clause into the Bill that will come into play should the conclusions of the review suggest that we are able to adjust the target either up or down. This would allow us to fulfil our current commitments, provide space for the planning of programmes and provide certainty of funding for the next period; but would enable us to reconsider, if necessary.

I conclude simply by thanking the committee for this report, which has added significantly to our understanding of the issue.

Photo of Lord Hannay of Chiswick Lord Hannay of Chiswick Chair, EU Sub Committee F - Home Affairs, Health and Education 7:40 pm, 22nd October 2012

My Lords, in this House we do not get many opportunities to debate the general case for development aid and the place of Britain's aid programme within it-probably fewer than we should. So I very much welcome the chance to discuss the report on the economic impact and effectiveness of development aid produced by the Economic Affairs Committee and so ably introduced this evening by the noble Lord, Lord MacGregor, even if I disagree quite sharply with some of its recommendations-I am in rather greater sympathy with the Government's response to them.

Development aid is a crucial part of Britain's projection of soft power; it is a practical expression of our role in the world as a leading developed nation, able to help others less fortunately placed. Frankly, that is a moral obligation as well as a self-interested one. It is a not insignificant part of an overall effort, under the aegis of the United Nations, to make the world a more equitable and thus a more secure place. It matters and we need to get it right. Broadly speaking, I believe that the coalition Government have done precisely that, particularly by their decision to ring-fence the aid budget from spending cuts. They have taken a large amount of criticism for that decision, mainly from their own supporters, but it was a bold and laudable decision. They got it right.

The report recommends the dismantling of the UN's 0.7% of GNI target for official development aid. What is the justification for that? Is the quantum excessive? Far from it, I would argue. Developing countries, particularly those whose populations make up what has been called by Professor Collier-who I was delighted to see gave evidence to the committee-the bottom billion of the world's citizens, have needs in developing agriculture, education, health services, infrastructure and environmentally responsible policies far in excess of their own fiscal capacity, even when that capacity is put together with the sums that would be raised by the UN target, if only the donors actually provided them, which most of them do not. If our own aid budget is currently growing rapidly to meet that target, it is largely because, for many years, we shamefully fell far short of it while continuing, year after year, to sign up to it in any number of UN resolutions. Should that target be dropped? What signal would that send to the world's poorest people? I suggest a disastrous one. We should not forget that by setting the target in terms of a percentage of the donor's gross national income, the system already takes account-the noble Lord, Lord McConnell, made this point-of recession or stagnation in those economies.

The report is also rather critical of efforts to focus aid on fragile states. No one would dispute that mounting aid programmes in such countries is fraught with technical, security and political problems, but a situation in which aid to fragile states simply dries up, as was the case some years ago in a number of those countries, drives those states into a downward spiral, leading eventually to state failure, which puts huge costs on the international community to remedy. I believe that the previous Labour Government, who began a shift in our aid policy to give fragile states more prominence, were quite correct, as has been this Government's decision to continue that effort. Above all, the development work in fragile states requires the most intensive co-operation between DfID and the Foreign and Commonwealth Office. I very much support the call for that co-operation by my noble friend Lord Jay of Ewelme, and the progress in getting away from the unhealthy dichotomy between the two departments, which tended to be the order of the day under the previous Government. It must not be allowed to return.

Thirdly, I do not entirely agree with the criticism of the European Union aid budget, to which we make a substantial contribution, of not concentrating enough on poverty alleviation in the poorest countries. I note that the new Secretary of State for International Development took up that theme recently in one of her first public pronouncements. I rather regret that. The EU has a whole string of fragile states around its periphery, from the states of the former Soviet Union, through the Caucasus, to the Balkans and north Africa, which are not among the poorest countries in the world but which it is surely in our interest to see emerging as stable democracies and market economies and which need European help, including trade outlets and investment, to do so. We invariably support the EU's neighbourhood policy when it comes before the EU Council and rightly so, so we should not be sniping at one of its inevitable consequences, which is a substantial aid budget for those fragile states on our periphery.

I have two more positive themes. First, nothing was heard in this report, or naturally enough in the Government's response, about the desirability of our working closely with the principal emerging powers, such as China, India and Brazil, which are just beginning to become important players in the aid field. Often those countries have really valuable experience of programmes to lift their own populations out of poverty. Should we not be co-operating with them rather than regarding them as competitors? Perhaps the Minister could say something about that in her reply to the debate.

Secondly, there is the future of the United Nations' millennium development goals after 2015. The Prime Minister is joint chair with the presidents of Indonesia and Liberia of the UN panel set up to prepare the post-2015 phase, which is a welcome tribute to the role that Britain is playing on development issues. Perhaps the Minister could say something about our approach to the MDGs post-2015. How can we get a better focus on the problems of that bottom billion? How can we refine the very broad-brush approach of the present MDGs? How can we ensure better monitoring of the recipients' performance in using and in matching up to their own targets? She may also take on board that it might be really good if we had a full debate in the House, in government time, before too long on the post-2015 MDGs and the objectives that the Government are pursuing in respect of them.

Photo of The Bishop of Leicester The Bishop of Leicester Convenor of the Lords Spiritual 7:48 pm, 22nd October 2012

My Lords, I add my thanks to those of this House to the noble Lord, Lord MacGregor, for bringing the subject of development aid to our attention. Crucial to the public discussion of this subject is a central question, to which the noble Lord, Lord McConnell, drew attention earlier, about how the debate is framed-the question raised in sharp terms by the report of the Select Committee. Are we, as other noble Lords have said, to spend our time and energy discussing whether to backtrack on the Government's commitment to 0.7% of GNI or could we move on to engage in what I believe would be a different but more fruitful debate about the effectiveness of our aid spend and the effective scrutiny of that spend?

In August of this year, I spent two weeks in Tanzania visiting our link dioceses of Mount Kilimanjaro and Kiteto. The advantage of visits to churches is that in African culture you travel straight to the heart of local communities; you meet the key leaders in towns and villages; and you see both the hope and despair of populations rarely visited by politicians or even NGOs. You are also brought face to face with unavoidable moral questions, as the noble Lord, Lord Hannay, suggested. What is the responsibility today and tomorrow for the unrecoverable childhoods of those stricken with curable disease and avoidable malnutrition? How do we calibrate responsibility to these children against our responsibility to the children of our own country? What sort of moral value do we put on the obligation of the United Kingdom to keep its commitments, repeated in recent years at United Nations, G8 and EU summits?

These questions stand in some contrast to the tone of the Select Committee report, which lists the great range of complex issues on which, according to the report, experts are not agreed. The range of disagreements is vast and includes questions about the effectiveness of aid in promoting growth, the forms of aid most appropriate to achieving independence, the best way to channel aid, the relationship between aid and the need for better governance, the relationship between aid and the need to combat corruption, and so on. This list cannot be used as an alibi for reneging on our commitment to a target. Rather, it precisely illustrates my point. If the Government are to wait for consensus among experts on these issues before becoming resolute in standing by their original commitments, we will be left looking indecisive and incoherent in a fundamental area of government policy.

This House can properly feel some pride in what has been achieved through British aid programmes to date. In 2009-10, UK aid ensured that 15 million people had enough food to eat and it provided more than 1.5 million people with clean water. The United Kingdom's aid helped to build or upgrade 1,500 kilometres of roads, and in 2012 to 2015 it will help more than 77 million people to access financial services. It can be argued that, far from being unaccountable, DfID is one of the most scrutinised departments in Whitehall, with the Independent Commission for Aid Impact and the International Development Select Committee, in addition to the National Audit Office.

If we could move on from the debate about 0.7% of UK income, we could reach the point of discussing other, more fruitful and urgent questions such as the relative merits of microfinance, social entrepreneurship and grass-roots advocacy. It is after all commonplace in other areas of government spending to explore these kinds of questions, so why is the debate about aid not framed in this way? That would allow us to move on to deal with other crucial matters, including how we plan for a future beyond aid, how we tackle global forces that keep people poor, how we address the tax avoidance that creates the huge inequalities that hurt the poorest and most marginalised and how we push for international co-operation to end the tax-haven secrecy that preserves these inequalities.

Our polarised debate seems to assume that aid is often seen as the only source of external funding and that external funding is all there is to development. This is a sterile and erroneous position. Important though aid is, access to markets and technology, especially green technology, is arguably far more important to a country's strategy for development than any external financial assistance. Aid is but one part of the solution, not the whole solution. I hope that our debate this evening will help us to move on from narrow terms focused on government targets.

Photo of Lord Lawson of Blaby Lord Lawson of Blaby Conservative 7:54 pm, 22nd October 2012

My Lords, I hope that the right reverend Prelate will forgive me if I do not address the points he made in his contribution to the debate. We are strongly constrained for time, which unfortunately prevents us having a debate in the real sense of the word.

As the first member of the Economic Affairs Committee of your Lordships' House to speak after our chairman, I start by paying a large tribute to his outstanding chairmanship. He pointed out that in this tricky area we produced an absolutely unanimous report. I think that the main reason for our unanimity, if I may say so, was because the weight of evidence that we received was so overwhelming-evidence that noble Lords who have spoken so far seem to regard as of no account. However, his outstanding chairmanship also played a part, and I thank him.

This country's aid programme stands out in at least three ways. First, as my noble friend said, we give more in overseas development aid than any country in the world with the sole exception of the United States. Secondly, while in order to achieve sadly necessary fiscal consolidation, all other public expenditure programmes are being either frozen or cut back, the UK overseas aid budget is roaring ahead-at a time when most other countries are slowing down on this front. Thirdly, we are doing this explicitly in pursuit of a pledge to meet the 42 year-old United Nations target of spending 0.7% of our GNP on aid by next year; and, unlike any other country in the world, and in contrast to all other areas of public expenditure in this country, we have said that we will introduce legislation to bind this and all future UK Governments to maintaining this level of spending in perpetuity.

As my noble friend Lord MacGregor pointed out, the principal conclusion of our report, although not the only one, was that, far from making it a legal obligation, we should abandon this antique and wholly arbitrary target altogether. He admirably set out why we unanimously reached that conclusion. In particular, he pointed out how the 0.7% target prioritises the amount spent rather than the results achieved, and thus makes the achievement of the spending target more important than the effectiveness-if any-of the programmes. The Government's pathetic response to our report was that the 0.7% commitment was a solemn pledge by all three political parties, and that is that.

Photo of Lord Lawson of Blaby Lord Lawson of Blaby Conservative

I very much hope that the Minister will do better than that this evening, even if the Leader of the Opposition is unable to do so.

In my rather long political experience, when all three political parties are agreed on a policy, it is nearly always mistaken-as it is in this case. There is a very clear reason why that should be. The existence of all-party consensus ensures that the policy in question is never properly debated or scrutinised. If the evidence shows that a policy is mistaken, it should be abandoned: it is as simple as that.

I do not question for a moment that the policy is well meant, or that the intentions behind it are noble. However, as we all know, the road to hell is paved with good intentions. Policies need to be judged by their outcomes, not by their intentions. I cannot stress this too strongly. I believe that all of us on all sides of the House are well intentioned, but that does not prevent us frequently disagreeing strongly with the proposals of those who sit opposite us, on the grounds that the consequences of what they propose would be damaging. For example, I am sure that Mr Blair had the most high-minded intentions when he took this country to war with Iraq. However, that does not mean that he was right to do so. It is outcomes, not intentions, which matter.

I return to the proposal that the 0.7% aid target should be abandoned. I suspect that we might not have felt quite so strongly about this had there not been serious doubts about the efficacy of development aid more generally. To quote the cautious conclusion of our report,

"the evidence that aid makes a contribution to growth in recipient countries is inconclusive".

We did not go deeply into the question of why development aid does not, on balance, promote economic development, although we did point to the malign relationship between aid and corruption, which has already been mentioned in this debate. But corruption-important as it is-is only part of the story. The real issue is more fundamental than that.

A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson, which unfortunately was not published until after we had completed our inquiry. They say that what the nations that fail,

"all share is extractive institutions. In all these cases the basis of these institutions is an elite who design economic institutions in order to enrich themselves and perpetuate their power at the expense of the vast majority of people in society".

In parenthesis, my noble friend Lady Falkner reminded us earlier of my old friend, the distinguished development economist the late Professor Peter Bauer, who many noble Lords will recall was a stimulating Member of this House. He used to say that the principal effect of official development aid was to transfer money from the poor in the rich countries to the rich in the poor countries. That is far too true for comfort.

Be that as it may, Acemoglu and Robinson continue:

"The idea that rich Western countries should provide large amounts of 'developmental aid' in order to solve the problem of poverty in sub-Saharan Africa, the Caribbean, Central America and South Asia is based on an incorrect understanding of what causes poverty. Countries such as Afghanistan are poor because of their extractive institutions-which result in a lack of property rights, law and order, or well-functioning legal systems and the stifling dominance of national and, more often, local elites over political and economic life. If sustained economic growth depends on inclusive institutions, giving aid to regimes presiding over extractive institutions cannot be the solution".

That must be right. But I would myself put it more simply. The crucial requirement for economic development is a variant of the separation of powers: in this case, a separation between the political and the economic spheres.

Without that separation, if the route to individual wealth is via political office, government becomes a means of extracting wealth for the benefit of those in government, at the expense of the governed; and the notion of facilitating economic development or growth by providing conditions in which the governed can escape from poverty by their own efforts, outside the political process, is conspicuous by its absence-hence the futility of development aid.

I stress that I am not speaking here about disaster relief, although even in the area of disaster relief, the reality is all too frequently far from the intention, as Linda Polman has devastatingly documented in her book War Games: The Story of Aid and War in Modern Times..

The record of development aid, however well intentioned- and I admit that it is-is as disappointing as it is because it does not and cannot achieve the indispensable political and institutional requirement of a separation between the political and economic spheres in the recipient countries. Without that, development aid is futile; with it, development aid is unnecessary. Indeed, official development aid is likely to be worse than futile, and actively counterproductive overall-even though individual projects may bring useful if minor benefits, such as better paid schoolteachers and thus, we hope, better schools.

This is because the principal consequence of the provision of official development aid to Governments in the developing world is to boost the already excessive dependence on government and, more specifically, to reinforce the concentration of political and economic power-the very reverse of what history has shown is required for successful economic development, without taking into account the extent to which aid promotes corruption in the recipient countries; a well documented phenomenon.

It is, of course, important that we do nothing actually to impede the economic development of what used to be known as the third world. That means, in particular, putting no barriers in the way of their exports to us. But if we seriously wish to use taxpayers' money to help the people of the developing world, the best thing we can do is probably to spend a fraction of what we are currently mis-spending on development aid on educating the future leaders of those countries in our best schools and universities. It is only they who may, in future, be able to effect the political and institutional transformation that their countries so badly need.

Photo of Lord Boateng Lord Boateng Labour 8:06 pm, 22nd October 2012

My Lords, this is an important debate. We owe the Economic Affairs Committee of the House a debt of gratitude for making it possible and for the serious and weighty consideration, so well exemplified by the contribution of the noble Lord, Lord MacGregor, that it has given to this subject. Even when one disagrees with some of the committee's conclusions-and I certainly do-no one can doubt for one moment that they are worthy of very careful consideration. It would be dangerous in the extreme for anyone to dismiss them out of hand.

From the outset, I declare an interest in this debate. I was the Chief Secretary whose fingerprints are all over the commitment to the UN target on ODA. I confess that. I am an adviser to and trustee of a number of not-for-profit organisations that either have been or hope to be the recipients of grants from DfID. I make no apology for that. I believe that NGOs have an enormous contribution to make, not always realised, frankly, on the part of government donors, to the development of the poorest parts of our world, and have insights into how best to innovate and deliver to the very poor that governments very often do not have.

I must put my hands up, too, to the responsibility of having led a mission for four and a half years. As its head I held a notional responsibility for the operation of DfID in a particular region. I say "notional responsibility" because the reality is that the Foreign Office-appointed head of mission in any country has very little influence let alone control over the activities of the Department for International Development in that country. I shall come to that in a moment because it is an issue that has to be addressed. For all those reasons, I have form as long as your arm when it comes to DfID.

I regard myself as a friend of the Department for International Development and appreciate enormously the dedication and commitment of its staff globally. In my experience, no other development organisation globally enjoys the universally high reputation that ours does. It deserves real credit for that. Although I am a friend of the department, I am not an uncritical one because there are areas, a number of which are highlighted in the report, where the department could certainly do much better. I want to address a number of those in the course of my remarks.

First, a department with the responsibilities and the budget that this one has ought to be capable of working in a more collegiate way across government than in fact it does. The reality is that not only does it often fail to work collegiately with the Foreign and Commonwealth Office, it also fails to take advantage of the huge expertise across government in certain areas that are absolutely central to the alleviation of poverty and the development of those countries that are so desperately in need of development. I shall give a number of examples of that from my own ministerial experience, quite apart from anything else.

The Department of Health, about which no doubt we will hear more in due course from the noble Lord, Lord Crisp, is full of expertise when it comes to healthcare delivery systems. There are nurses and doctors all around the country at various stages in their careers who very much want to and often are making a contribution to the alleviation of poverty and suffering in our world-underfunded or unfunded. Do they get the help and support from the Department for International Development that they ought to? I am afraid that they do not. The department, which has more money at its disposal than it can deal with and which is busy handing it over in large quantities to the European Union and a range of other multilateral organisations, some of which frankly do not deal with the money as they ought, has not been prepared to make money available to another government department so that it can be spent more effectively on behalf of the taxpayers of this country to meet the objectives that we as a country have signed up to. That, quite frankly, is a scandal. I would like the Minister to tell us just how much of the ODA budget is expended through other government departments. If, as I suspect and indeed as I know, it is a minute proportion of the total amount available to it, why is that the case?

DfID does not have the staff to monitor and deliver the resources at its disposal as the department itself accepts they ought to be monitored and delivered, so why not allow other government departments to take responsibility for facilitating the sort of partnerships between hospitals, universities and a range of organisations in this country and their counterparts in the developing world which, with just a little seed corn funding-and sometimes with more than just a little bit extra, but a steady and sustainable stream of funding-could make a huge difference to the poorest in our world? There is a case that the department has to answer for its failure in this regard. I hope that HM Treasury will look at this carefully, will drive in a way that it has not always driven in the past-indeed, I put up my hands because I did not drive as I ought to have done-and will encourage co-operation between government departments across the piece. That is an issue to which I hope we will return in the course of our debates on this subject.

I turn now to one area where the department needs to be prepared to abandon some of the orthodoxy that hitherto has tended to predominate. For all its strengths, the department has a tendency to be theological in its approach to development. If something does not fit in to the mindset that is the established wisdom of the department, it is treated with the utmost suspicion. I give the example of science, technology and innovation. I have yet to see a country that has been able to develop and grow its economy without science, technology and innovation, and yet for years the department has had a downer on promoting science. It had to be dragged kicking and screaming by a line in the Chief Secretary's letter to appoint a chief scientist in the first place. We were told that it was not necessary for the department to have a chief scientist because it was not something that had a direct bearing on the alleviation of poverty-please, do me a favour. The reality is that the poor need science. Without the growth that is stimulated by science and innovation, we are never going to see the developing countries of the world reach the level of human and economic development that is their due. I would like the department to assure us that, this time around, it is giving its chief scientist a budget so that the department can do the work that it is there to do.

I would like an assurance that the department is actually working with higher education institutions in this country and that it is actually prepared to spend some money in those institutions on promoting science and innovation across the piece, particularly in relation to agriculture. We are facing one of the gravest crises in food security that our world has ever seen. That is the reality on the ground. It cannot be solved simply by resorting to food parcels and humanitarian relief. Today, a number of parliamentarians met MPs who represent farmers in Uganda. They are desperate for hands-on technical support in relation to their crops, for the development of drought-resistant seeds, and for the most basic forms of agricultural research and development. Their own Government are not spending up to the AU targets on agriculture as they ought to be. Sometimes we look at issues of conditionality when we grant direct budgetary support and sector support, but ought we not to make it a condition, when offering general budgetary support, that at least the Governments should set their budgets so that they spend up to the targets they have already committed to? If they do not, why should British taxpayers expend their hard-won resources on support for budgets that do not meet the needs of the poorest in those countries? While I do not advocate a return to conditionality-indeed, I am opposed to it and sceptical of some of the new forms now being imposed on the developing world-there are some forms of conditionality that relate to fitness for purpose that should be required by DfID if it is continue with direct and sector budgetary support along the lines that it indicates it intends to do. I hope that it will take into account the Economic Affairs Committee's strictures when it comes to sector and general support because there is a great deal of good sense behind them.

My final point is one where, again, you come up against the theology within DfID and the most amazing resistance to co-operation with the Ministry of Defence. There can be no development without security. In the Sahel, we are witnessing, centred around Mali but spreading throughout that region, one of the gravest threats to development and security that Africa has ever seen. I hope that we will hear some reassurance in the course of the debate that DfID will be prepared to co-operate with the Foreign Office and the Ministry of Defence in using the conflict pool to address the situation in the Sahel. If it does not, and we find that the African Union is unable to access the resources it needs to offer a military, economic and public diplomatic response to the crisis in the Sahel, we will reap a terrible whirlwind across the continent.

If ever there was a time for an agency such as the British Council to be freed up to work in that region, with resource, it is now. Scandalous as it is, the proportion of resources available to the British Council for that sort of work has gone down and has done so when DfID is awash with money. How much money has DfID made available to the British Council in each of the past five years? How much does it intend to make available to it in the next five years? I am afraid that the answer to that question will reveal a continuing reluctance on the part of DfID to share the taxpayer largesse that that has been made available to it.

I support and applaud the Government's commitment to the 0.7% target. I support and applaud the incredible work being done by DfID and our partners throughout the world. But there really is much more to be done. We need to be bold; we need to be innovative; and we need to be prepared to work together in ways that go beyond the old and established ways of thinking and doing things. We need to be prepared to take some risks if we are to fulfil the moral commitment that we have made as a nation. At the same time, we need to applaud the fact that we have made it and have done so with the overwhelming support and concurrence of the British people. It says something about a nation when the majority-61% of UK adults-agree that we should be spending what we are on overseas development. It says something about a nation when, up and down the country-in church halls, in village halls, in chambers of commerce, in trade union branches, in communities rich, poor, rural and urban-people are getting together on a daily basis to see how they can make the world a better place. This House is doing the right thing by giving this report, its conclusions and the Government's response to it the serious consideration that they deserve.

Photo of Lord Shipley Lord Shipley Liberal Democrat 8:22 pm, 22nd October 2012

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 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.

Photo of The Earl of Sandwich The Earl of Sandwich Crossbench 8:35 pm, 22nd October 2012

My Lords, I, too, have high regard for our aid programme, and it is encouraging that so authoritative a committee as the EAC should have decided to report at length on its impact and effectiveness. I say this sincerely because, like the noble Lord, Lord Hannay, I believe that aid, although universally popular in this country, is a neglected subject in Parliament. Even in this House, which has a good record on foreign affairs, aid tends to come up only in general or country-specific debates. With such a large budget, though, international development should be examined like every other aspect of our economy. Indeed, in many ways much overseas assistance provides a catalyst to our own domestic economy.

I still cannot decide whether the committee was attacking the 0.7% target as an intellectual exercise or whether members of the committee such as the noble Lord, Lord Lawson, disapprove of the use of the aid target as a mantra of the political parties. It helped that the media picked up on the report and ran the headline, and I in no way attribute base motives to the committee in seeking attention from the press. All Governments should receive criticism, especially of their core values and their red lines, so this debate and others at least challenge Ministers to rethink and reaffirm policy if necessary.

The 0.7% target is only a target and has now been set in stone by all the main political parties, if not yet in legislation. After all, we have taken 60 years to get to this point; it was back in 1958 that the World Council of Churches proposed a target, initiating the debate leading to the Pearson commission's recommendation and the UN's first adoption of the target in 1970. The noble Lord, Lord McConnell, talked of our international responsibility, and today Britain's acknowledged leadership in the world of development assistance, as measured by the OECD in terms of its performance and effectiveness, to me makes the UN target of 0.7% inevitable.

We have not yet caught up with the Scandinavian countries, which came up to the target some years ago. Last year we were only at 0.56% but we are getting there. Whatever one's assessment of the Liberal influence on this Government, it is this coalition that should be congratulated on ring-fencing aid during a recession-a difficult thing to do, as they are finding. It was the Labour Government, as we have heard from the noble Lord, Lord Boateng, who deserve credit for raising our sights in the first place, reflecting growing public support for aid. We should give the maximum support to the Government in fending off critics within their own ranks and maintaining our international reputation. After all, it is widely acknowledged that DfID, whether or not it remains a different department, is a cornerstone of our foreign policy and should remain so.

That the developing world needs more aid can hardly be in doubt, considering the effects of poverty, conflict and climate change. Agriculture in Africa, above all, as the noble Lord, Lord Boateng, said, requires much greater investment at a time of extreme weather conditions and rising populations. India will continue to have a large proportion of the world's poorest people, and I disagree with the committee about an exit strategy; with the benefit of our historic experience and partnership with India, there is a moral as well as an economic imperative to defy the critics and keep at least three or four Indian states inside our aid programme.

There is little doubt in my mind that aid works if it is carefully managed. It can be very successful in what must be its primary objective and motivation, which is to help the poor on to a sustainable level at which they can earn more, feed themselves adequately and care for their own health. Aid agencies such as Oxfam, Christian Aid and Save the Children have given us many examples not only of their own successes but of DfID's achievements in malaria prevention in Kenya and Tanzania or the reduction of infant mortality in Bangladesh-there are many examples.

Perhaps more important to the committee is whether the aid system-the current machinery for delivering aid to the poorest communities-can really absorb the budget over the next two or more years, during which our aid is supposed to climb towards £12.6 billion. I doubt whether 0.7% will be reached next year or even the year after. A lot depends on recipient Governments, and I think the committee may be too cautious in recommending more conditionality and less budget support-although I understand what the committee is saying.

However, the committee rightly points out that speed can reduce quality and accountability and encourage corruption and diversion. We also need an assurance from the Minister that DfID's own administrative cuts, such as country office closures and the loss of staff, are not going to affect the efficiency of the current programme. The committee recognises, as I do, that NGOs in the right context can often deliver aid most effectively and, better still, can be a catalyst to more efficient official spending. I have seen NGOs and church agencies working so successfully with the poorest in India, for example, that-through small business development, loan and credit schemes and integrated development in the best sense-they have shown the way to local government and have often substituted for government altogether. We cannot take that away.

At the same time, I agree that while NGOs have increasingly taken on a quasi-governmental role, they occasionally and perhaps deliberately get in the way. One thinks of Ethiopia under the late Meles Zenawi, especially where even the most established agencies like Oxfam and Save the Children were outlawed at different times. The Independent Commission for Aid Impact says that NGOs funded in recipient countries are not subject to the same level of scrutiny, and this is not surprising. Although DfID is rightly stepping up its monitoring of NGOs, ultimately it is their freedom from bureaucracy that ensures their flexibility, quality and innovative character.

I will not go into the issue of corruption because DfID's anti-corruption strategy is still at an early stage. No kind of aid can be free of it altogether, but I think there is some exaggeration of deliberate corruption. Much of it can be incompetence. Those of us who have visited UK projects overseas will recognise what might be called the "muddle factor", which is where perfectly good, well designed programmes are brought down by incompetence both by donors and recipients. I will give one example from Nepal. DfID's once excellent Livelihoods and Forestry Programme in Nepal-which the Minister may remember visiting with the Inter-Parliamentary Union a few years ago, and was seen more recently by the Commons International Development Committee-was notable for its direct involvement of the local community through forestry user groups. However, in the past two years the whole programme has stalled during an attempt to upgrade it into a multi-stakeholder project involving the Swiss Government. There have since been management failures, expertise and jobs have been lost, and there is still doubt whether the new programme in its revised form will go forward.

The position was summarised in an answer I received in Kathmandu this summer from DfID:

"Following formal approval in January 2012, the new programme is currently in initiation with activities being geared up to establish a project coordination office and select implementing agencies for the new programme".

This kind of language-which I have also seen in explanations of delays to projects in South Sudan-reveals wastage of taxpayers' money, nothing less. I emphasise that there are usually two sides to these problems, although they are more often blamed on the host Government or the lack of government, as in Nepal. If the noble Baroness is still familiar with this project, she may wish to make a comment in writing. The Minister Alan Duncan's letter of last month gives me no confidence and suggests that the project should be the subject of a wider inquiry.

I will say a final word on the multilateral agencies. I do not agree that we should reduce our EU funding to neighbouring states, and I am not convinced that the committee had enough time or evidence to draw useful conclusions about the World Bank or the UNDP. How do you decide in a report like this whether the bank should invest in coal in Kosovo, when half the country cannot afford the price of electricity?

In conclusion, my support for the UN target is as a target, and even for legislation, but it does not contradict the main thrust of the report, which concerns our aid performance and effectiveness. As it says in the report, experts also disagree on what effectiveness usually means. However, experts often disagree anyway.

Photo of Lord Tugendhat Lord Tugendhat Conservative 8:45 pm, 22nd October 2012

My Lords, it is a pleasure to follow the noble Earl, but I am afraid that I shall be taking a somewhat different line on a number of issues to those that he put forward. However, I should like to begin, as did the noble Lords, Lord Lawson and Lord Shipley, who are on the committee, by paying tribute to the chairmanship of the noble Lord, Lord MacGregor. It was an outstanding feat to bring us to unanimous conclusions, and it was a great pleasure to serve under him.

I should also like to take this opportunity, especially in the light of recent events, to pay tribute to the stewardship of Andrew Mitchell, as Secretary of State for International Development. He was an outstanding Secretary of State-he treated it as the job of a lifetime-and his commitment and enthusiasm will be remembered for a very long time to come.

I have also been impressed by what I learnt about DfID, and about what others in the field had to say about it. At a time when there are serious doubts about the basic competence of a number of government departments, it was encouraging to find that DfID is regarded as world-class in its field so far as execution is concerned. However, that does not mean that I emerged from our inquiry in agreement with all that it is trying to do. I will concentrate on a very limited number of points.

In particular, I came away with the strong impression that it is living in the past, and is reluctant to move into the present. I fear that the same is true, in respect of aid, of the wider Government. The Prime Minister claims that it would be wrong to balance Britain's budget on the backs of the poorest people in the world, but that is not the point at issue. The proposition that the Government and DfID must justify, and which they have failed successfully to do, is the commitment to increase the aid budget by 37% in real terms between 2010 and 2011, and between 2014 and 2015, in order to reach the arbitrary UN target of 0.7%, which was set over 40 years ago.

To increase the budget by that rate over a limited number of years, after the increases that we have already had in recent years, would be a tall order in any circumstances. However, at a time when every other public expenditure programme is either being eviscerated or, at best, held constant, it is quite simply wrong to privilege that particular programme in that way, and to seek to set standards by the amount that is spent rather than by the effectiveness of the expenditure.

I am very struck by the fact that those of us who have been on the committee appear to be unanimous in our view, while those who did not have the benefit of listening to the evidence that we received appear to take a contrary view. Moreover, the target of 0.7%, set in 1970, takes no account of the enormous changes that have taken place in the world since that time, many of them greatly for the better so far as development is concerned. By comparison with that time, as the report shows, development aid has become a relatively minor element in the capital flows from developed to developing countries.

The noble Lord, Lord MacGregor, gave the figures and I shall briefly repeat them. In 2010, development aid accounted for 10.9%, the same as that for portfolio investment; foreign direct investment accounted for 43.5%; remittances, an ever-growing source of funds for developing countries, was 27.4%; and 7.2% was accounted for by long-term private debt. In its latest issue, the Economist points out that FDI in sub-Saharan Africa alone has increased by 50% since 2005. Those are very impressive figures.

The way in which this debate has been conducted so far might give the impression that aid and development are two sides of the same coin. But, in fact, development is being fuelled by a great many other drivers as well as aid. The contribution of aid in percentage terms is diminishing as the other drivers increase. It would be very difficult to come away with that impression from some of the things which have been said earlier in this debate.

Quite apart from those factors, and in addition to them, important new donors, undreamt of in 1970, have entered the field. I refer, of course, to China but also to India and Brazil. I believe that we should rejoice in that, welcome them to the fold and welcome what they have to offer. I agree with the noble Lord, Lord Hannay, who said that we should be co-operating with the new donors and not regarding them as rivals.

The arrival of the new donors gives rise to another question. Why on earth are we still giving aid to India? I know that there are a great many poor people in India. There are more poor people in India than there are, I believe, in sub-Saharan Africa. But India is a country with a space programme, a massive defence budget and major foreign direct investments in this country as well as in others-we are very glad to have India's direct investments in this country. It has more conspicuously high-spending millionaires than almost any other country.

Therefore, it seems extraordinary that instead of concentrating our aid effort on poor people in poor countries, we should be sending a significant proportion-described as peanuts by an Indian Minister-to India. If the Government of India choose to spend their own money helping poor people in other countries rather than doing more to help their own poor, they have the sovereign right to do so. It is a sovereign country and if it chooses to spend its money helping poor people in other countries rather than poor people in its own, it has that right. But we should not be shouldering its responsibilities to its people. The very fact that we do so reeks of a certain form of a rather depressing nostalgia.

The impression I derive from the continued commitment of DfID and the Government to the 0.7% target and aid to India is of people who are to some extent living in the past. They do not want to accept that aid contributed by richer, western countries like us, through the dedicated efforts of their own officials and NGOs, is no longer the chief instrument of development in poorer countries. Thanks in part to those efforts, and to the catalytic effect of that aid, the economies of the developing countries are now picking up speed with the help of a range of other drivers. We should rejoice in that and in the benefits that accrue to the developing countries as a result.

When the Cold War ended in victory for the West, many in the defence establishment were reluctant to face up to what this meant for them and their roles. We have not yet reached a 1989 moment so far as the development of the developing countries is concerned but much progress is being made, powerful new forces are at work and old ideas, establishments, budgets and targets need to be rethought. Now is not the time for embedding a 40 year-old target in legislation and privileging that particular budget at the expense of the National Health Service, education and all the other domestic budgets, not to mention defence and foreign affairs.

Photo of Lord Hollick Lord Hollick Labour 8:54 pm, 22nd October 2012

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.

Photo of Lord Stern of Brentford Lord Stern of Brentford Crossbench 9:05 pm, 22nd October 2012

My Lords, I begin by thanking the noble Lord, Lord MacGregor, and his committee for their interesting and important report, and I thank the noble Lord for his thoughtful introduction. I declare an interest and an involvement. For more than 40 years, I worked as an academic economist on development issues. I have been directly involved in decision-making in the Africa and Asia committees of Oxfam in the 1970s and 1980s. I was chief economist of the EBRD and then of the World Bank. I also led the writing of the report of the Commission for Africa. That report stands up well in what it anticipated and pointed to with regard to how Africa was changing, in part through collaboration with donors.

I am going to concentrate, as others have done-but a bit more academically, if noble Lords will forgive me-on the effectiveness of aid, because that is crucial. I take it that the need is clear in terms of the deprivation, and I take it that our wealth is clear-we are much better off than we were 40 years ago when the 0.7% target was indicated. The arguments turn on the effectiveness of aid. I want to argue that the conditions for effective aid have never been better. Difficult though they are, institutions, policies and governance in the developing world have improved. That is not to minimise the severe difficulties but those factors are better than they were. We have learnt a great deal from successes and failures over the years, in both developed and developing countries. The collaboration and partnership between institutions, among donors and with developing countries has improved.

How do we tell whether aid has been effective in reducing poverty? We must start by agreeing strongly with the committee that growth and private sector activity are fundamental to poverty reduction. We must also agree strongly with the committee that other capital flows are of great importance. Taken in the developing world as a whole, they are of substantially greater importance than aid. However, if we look particularly at the poorest countries in sub-Saharan Africa, aid is equal to the sum of FDI and remittances. In the poorest parts of the world, aid therefore remains quantitatively an important part of the story. We have to ask whether aid promotes growth and thus, in large measure, poverty reduction. Does it stimulate those other flows? The evidence is strong that, if used well, aid has done so and it can do so.

Perhaps I might describe one way of looking at this issue that is definitely inconclusive-so-called cross-country regression. Noble Lords must forgive me for using this kind of language but I am a professor of economics at the LSE, and that is a method by which people try to tease information out of data. Crudely speaking, you look at variations in growth and try to explain them by variations in aid and other variables. You do that by lumping lots, or a couple of hundred, of countries together, looking at long periods of time and trying to explain changes in growth through changes in the other variables. In my view, it is inconclusive and a dead-end.

The quality of the cross-country data is poor. There are real problems of identification and simultaneous causation; in other words, you hope that aid will reduce poverty, but aid also goes to where poverty is the greatest, and that confounds much of that kind of statistical work. In addition, different kinds of aid are often lumped together. If we look back at the Cold War era, we should see much of that aid as political support, rather than development aid. It would be hard for any of us to pretend-and we certainly should not-that flows to Mobutu's Zaire had very much to do with development. That was a different time and we can argue whether those things were justified or not, but those kinds of flows are different animals from development aid. Broadly speaking, I do not think that we should expect that kind of cross-country regression, which is extremely popular in my profession, to get very far, and-surprise, surprise-it does not. We should know that if we take out those kinds of more politically motivated flows, the productivity of the others looks much stronger. However, I do not want to lay too much emphasis on the cross-country regression approach.

What I find convincing are case studies of country assistance, programmes and projects. I shall give a few examples, as they matter. Ethiopia, Mozambique, Uganda and Vietnam all grew at more than 7% in the last decade. They were strongly supported by aid as-this is crucial-policies and institutions improved and they came out of conflict. Five million people were lifted out of poverty-according to the conventional World Bank definition-in Ethiopia between 2005 and 2010. Under a similar definition, the percentage of the population affected by poverty in Uganda has fallen from 31% to 25% in the past five or six years, and in Vietnam from 34% to 22% in the past decade.

Of course, we have to look beyond income, as development is about more than that. Over the past decade, infant mortality rates fell in Ethiopia from 139 to 77 per 1,000 births, in Mozambique from 172 to 103, and in Uganda from 141 to 90. Those are enormous changes and they were strongly associated with aid. When policies and institutions improve and resources are there in support, the results can be immense. It is not true that if policies and institutions improve, nothing else matters, but if they improve and are supported, the results can be much stronger. My friend Daron Acemoglu of MIT would, I am sure, agree with that conclusion.

Perhaps I might continue with these successes. Over a longer period, UNICEF has estimated that 14,000 fewer children under the age of five die each day-I repeat: 14,000 fewer each day-compared with the figure 20 years ago, primarily through success in tackling polio, measles and malaria. Again, that is strongly aid-supported. However, 19,000 children under five still die every day from preventable diseases. The need for action is strong-there is so much more to do.

Regarding education in Tanzania, in the past decade the number of boys and girls at primary school went up from 4 million to 8 million and success in passing exams went up by a factor of five in the same period. That is associated with a stronger allocation in Tanzania's budget but is supported by the work of DfID. By anybody's standards, this is surely value for money. Speaking as a former senior Treasury official, I believe that it would pass any serious test of value for money in the Treasury.

However-this is an important point-we have to be careful not to claim too much for ourselves. Development is a partnership. It is about supporting policies and programmes conceived inside a country or embraced by a country. If we say that X or Y happened only because of us and if we try to grab the credit, that is not only presumptuous and arrogant but destructive of the kind of partnerships that we need to build. Therefore, we must carry out our analysis with care and ask ourselves whether we have been involved in a partnership that has created success rather than saying that that success has come about only because of us. If we do the latter, we will destroy the process that we are trying to support.

I shall mention two other issues, and I shall be brief because of the pressures of time on this House. Innovation is extremely important. Aid should discover ways of doing things better. In that way, it can be scaled up and multiply. However, we should also recognise that, as we look for innovation, we take risks and there will be failures. Development programmes with no failures at all are probably not as effective as they should be because they are not pushing out those frontiers. I was involved in assessing a smallholder tea project in Kenya in 1969. It was enormously innovatory in bringing to smallholders what had previously been seen as plantation crops. Before long, tea became one of Kenya's most important exports. The power of example is important in India, too. India is a collection of states. I have worked extensively in Karnataka and we are working with people there on a programme for climate change resilience. If it works well in Karnataka, that can have an effect across India. The power of example is very important, and I believe that working in Indian states is significant in this respect.

The noble Baroness, Lady Falkner, mentioned climate change. I am not going to dwell on that at any length but will note that the opportunities in low-carbon development, as seen by developing countries from Bangladesh to Ethiopia and beyond, are tremendously exciting. There are many ways of people taking charge of their own affairs, for example through solar power electricity, and many developing countries are looking to work strongly in that direction. This is a case where innovation is extremely important and where we have much to do to share in that very important story. We of course gain from this: carbon reduction in Bangladesh, China or India benefits us and the world as a whole.

I will share a few words about DfID. It is an outstanding department of government. I have seen it as chief economist to the World Bank and had the chance to compare it with other institutions. It is outstanding. It recruits the best young people, as I saw as head of the Government Economic Service, and on the whole they want to stay there. There are other parts of government they want to leave, but they do not want to leave DfID. The best people are recruited and they stay. It is a very knowledgeable and important institution. It is not always right, but it is very strong and has been well led politically. Along with one or two other noble Lords, I pay tribute to the work of Andrew Mitchell. I worked with him on the ministerial advisory group, where his contribution was outstanding. His focus on growth, the importance of entrepreneurship, fighting corruption, getting value for money and his robust defence of 0.7% were at the heart of clear, strong and effective leadership.

In conclusion, deprivation is strong and we are wealthier than we were when that promise of 0.7% was made. There have been great advances in the conditions in developing countries-in governance and particularly in institutions. We have learnt a great deal and collaborate better by following the Paris agreement made seven years ago among donor countries. The millennium development goals have given us shared objectives, so that we are clearer about what we are trying to do together. We can use up to and beyond 0.7% very productively, with real value for money. It has gained us respect internationally as a country, and rightly so. It defines what we stand for. The arguments for 0.7% were strong 40 years ago, and are still stronger now.

Photo of Lord Bates Lord Bates Conservative 9:18 pm, 22nd October 2012

My Lords, it is a great honour to follow the noble Lord, Lord Stern. I found that as the noble Lord was talking, I was striking out great sections of my speech, which I no longer need to trouble the House with because the points have been expressed far more eloquently and with such authority and expertise by the noble Lord. My only regret about his evidence was that it was not made available by him as a witness to the committee. I pay tribute to the work of the committee, and to the way in which this debate has been introduced by my noble friend Lord MacGregor.

The report has 28 recommendations. In their response, the Government agreed on 20, partially agreed on four and disagreed on four. I found myself going a bit further towards the committee. Out of the recommendations, I found myself in partial disagreement on only one and in total disagreement on one more. However, the one more that I found myself in total disagreement with goes to the absolute core of this discussion-the 0.7% commitment. I believe, as a Conservative, that our resolute commitment, led by Andrew Mitchell, to 0.7% at such times as these-to which rightful tributes have been made-is one of the most humane and courageous political acts that I have seen in my generation. I am proud to be associated with it. I would not want to see us budge from that commitment at all. If anything, the only flexibility I would seek is that we need not in the future be limited to 0.7% but that it could be increased. When you look at what is happening around this world with the money that is being spent, you see 55 million children vaccinated against preventable diseases, 50 million provided with the means to work their way out of poverty, 9 million people having access to primary education and 15 million with access to clean drinking water. You do not need many statistics like that to realise that this is among the best spend that we make as a Government.

Sometimes the foreign policy world and the debate on it is controlled by an elite. There are people who have enormous expertise and knowledge, but it is not that different from what we do at home. In 2011, in this country, we spent £332 billion on health, welfare and education. If we did not do that, all the police forces and all the prisons in the world would not keep us safe and keep our society orderly and civilised. Therefore, self-interest makes us choose to spend that money in that way, to help us to become a civilised nation. I hope that we can become an international civilisation, and part of the entry cheque for that is a commitment to aid flows.

There is criticism that these commitments were entered into in 1970 but they have been repeated many times since. They were repeated in 2002 at Monterrey for the millennium development goals so that is very recent indeed. They were central to the success of the Gleneagles agreement in 2005 when there was a commitment to 0.7%. The criticism should not be about whether it was 40 years ago but about the fact that 40 years on we are still debating whether we should meet our obligations. Whatever happened to our belief to commit to our international pledges? This pledge was clearly made and freely entered into by successive governments but we have failed to deliver on it; thankfully, we are about to enter into a commitment by 2014. I welcome that wholeheartedly.

Perhaps I may make a general point about our friend on the other Bench. Would it not have been wonderful if we had hit this 0.7% target when the sun was shining, when we were not in the midst of a recession, as we are now, but during those years when we had abundant budgets and receipts, when we could perhaps have stretched to it? That was a missed opportunity. That point needs to be made. In many ways, the previous Government sidelined us. The noble Lord, Lord Lawson, mentioned the good intentions of these initiatives, but we were sidelined by engagements in conflict, particularly in Iraq, which cost in excess of $1 trillion, almost eight times the amount we are talking about in aid. That is a point of regret.

Let me finish with this reflection. I was persuaded about the need to focus our aid on those who need it most. I thought about how 74% of the UK bilateral aid went to those with the lowest incomes, whereas in the EU it was 56% and I think in the US it was 54%. Clearly, we need to look at that. Of course, we should say that 100% should go to the poorest and those who are in need; we ought to focus our attention on that.

In regard to the evidence, I found myself drawn to support the view of India. I found out the latest figure for the foreign currency reserves of India and found that they were currently hovering around £240 billion, which I am sure our Chancellor would be quite pleased to have. The notion that our modest contribution of £276 million would not make a profound difference to that country-the Indians are more than capable of making it themselves-but could be transferred to make a profound difference to other countries is something of which we ought to take note.

My final point is to endorse the view about the importance of trade as a way of getting people out of poverty. The example of China is inspirational. It comes in for a lot of criticism, but I think I am right in saying-I am looking in the direction of the noble Lord, Lord Stern, who will correct me if I am wrong-that China has lifted more people out of poverty than any other nation in history. It has done so on the back of its economic growth. India and Brazil are also doing it on the back of economic growth. These are welcome steps in the right direction, but the commitment to 0.7% should stay.

Photo of Lord Lipsey Lord Lipsey Labour 9:26 pm, 22nd October 2012

My Lords, in view of the Whips' guidance earlier, I will reduce my blog-length contribution to a tweet-which means that I will not be able to say all I would like to say about the committee chairmanship of the noble Lord, Lord MacGregor.

On the afternoon that we published the report, I was walking through the Lobby when a colleague and good friend came up, eyes blazing, and said: "David, you have signed the report condemning the 0.7% target. Do you not realise that it is party policy?". I was not a very good target for that particular argument. I have spent more hours of my life than I care to recollect sitting in the kind of committees that create party policies-with a few eager but ignorant young researchers, the representatives of a pressure group or two, and the statutory mad professor. Quite often, what they come out with is stark, staring bonkers.

It would be quite wrong to argue that the 0.7% is stark raving bonkers. However, before we get too high-minded, we should remember how it came to be party policy. In 2005 in the Labour Party, we were rightly worried that Tony Blair's Iraq policy was costing us the internationalist vote, to which we felt we were naturally entitled. The 0.7% commitment was partly in answer to that. When producing the 2010 Tory manifesto, David Cameron made it clear that the Tories were seen by some as the "nasty party", and the 0.7% commitment was his answer to that. That is politics; I have been in it long enough to understand it. However, we should not elevate something that came about at least partly as a matter of politics into a great principle; we should look at the merits of the target, not at the fact that it is party policy or at the way in which it became party policy.

I will not go over all the arguments in the committee's report; they are rather conclusive. I will emphasise just one point. To achieve this target, spending on aid will have to increase from £8.4 billion in 2010 to £12 billion in 2013-an increase of nearly 50% in three years. We know what happens when you increase public expenditure programmes very rapidly. We saw it with the health service. I strongly supported what the Labour Government did in greatly expanding spending on the health service-but now the evidence is in and it shows that what the increased spending greatly increased were the salaries of doctors and what it somewhat decreased was the productivity of the National Health Service.

If we were to abide by the 0.7% a target, precisely the same thing would happen. Our aid programme-which, contrary to the view of the noble Lord, Lord Lawson, I believe to be a great force for good-would contain more corruption and more "get the money out of the door somehow and never mind what it is spent on", and would do less for growth. It would supply opponents of aid with ammunition that they could scarcely dream of. What will the Daily Mail do when it gets into how that money is spent?

If I supported the view of aid of the noble Lord, Lord Lawson, which I do not, and if I were Machiavellian-and neither of us are-I would say that we should go to the 0.7%, because it would so discredit aid that no government would dare to spend poor taxpayers' money on that scale again. What is needed with aid is a gradual, well directed and well controlled increase at a speed that the countries and the projects receiving the aid can absorb. It can then be demonstrated that it has done good to those countries and the poor people in them. It is because I fear for the effects of this unrealistic target on aid and I fear even more for its effects on the likely public perception and attitude to aid that I believe it is mistaken.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat 9:30 pm, 22nd October 2012

My Lords, I, too, thank the noble Lord, Lord MacGregor, and his committee for producing an extremely challenging and interesting document. It was not an easy document to produce. I agree more with the Government's response to it-like the noble Lord, Lord Hannay-but both documents are a great contribution to an informed public debate.

My own view of aid has been formed by circumstance. I was lucky enough in the 1980s to act as solicitor for some of the great aid charities, such as Oxfam, Save the Children, Action Aid and so on. I went on a field trip with Oxfam to Brazil to try to understand the realities of the delivery of aid, and I found, as the noble Lord, Lord Stern, hinted at the end of his remarks, that those realities were extremely challenging. Not enough credit has been given in the debate tonight to the extraordinary difficulty of getting aid to where it needs to go. The circumstances in some states are so chaotic, dangerous and lacking in any sort of infrastructure or organisation that there is an inbuilt risk that, whatever you try to do, it will in the end be frustrated. That is inseparable from aid in many of the most underdeveloped countries.

I also thank my son-in-law, a long-standing employee of DfID. He is currently in Tunisia, having just come back from Afghanistan. I have also visited my family in the Congo, where I again saw first-hand what redoubtable challenges have to be faced, day in, day out.

We need to be proud not only of DfID but of our great aid charities, because you cannot discuss one without embracing the other. They are true partners in most parts of the world: there are places where government can go in terms of aid, and there are places where charities can go. To collaborate as they do-and could do more-has been an essential aspect of the full impact of British aid in the third world. I emphasise that fact. The partnership is both complementary and doubles up the value of each.

We should never forget the huge voluntary input into the great aid charities. One is apt to assume that they are made up entirely of employees, but they are not-take Voluntary Service Overseas as an example. My son went out to central east India with Save the Children. There is a huge voluntary input of time, expertise and tenaciousness because they are extremely successful in tapping the great British sympathy for the underdeveloped world. A number of noble Lords have referred to the state of British public opinion. If there was evidence of huge cynicism about aid, one would be more worried about some of the conclusions in the report, but I do not think that is the truth. Indeed, a recent EU Commission survey of attitudes to aid in the different member states of the European Union shows that twice as many people in this country believe in the value and honesty of aid over those who are sceptical. That is not to say that one does not have to worry about certain media outlets or that a great deal more could not be done to uphold public faith in the aid system, whether governmental or NGO. One can and must.

I shall say a word about self-interest, which again has been referred to-very little has not by this time of night. The report makes it clear that aid is in our country's interest. The self-interest runs deep because the impact of aid can be felt a long way downstream, and then diffusely. But I, along with many noble Lords who have spoken in the debate, have no doubt that the benefits to this country are clear both politically in terms of trade and, above all, if one can use that old-fashioned word, morally.

I want to raise two specific points on the report. First, I refer to paragraph 50, which sets out the seventh recommendation:

"It is important for donors to ensure that opportunities for corruption are as limited as possible by setting in place systems of audit and control as rigorous as local conditions permit".

Thus far, I agree entirely with the report. It is very wise to take account of local conditions. However, the paragraph goes on by saying,

"and to withhold development aid altogether where corruption is rife".

I cannot go with that because it seems to be a gospel of despair and casts off those most in need. It is rather like saying to the police, "Patrol the streets but don't go into that very rough area where you might get into trouble". The mark of the quality of our aid programme is precisely how we deal with the most bereft and abandoned parts of the world, so pulling out entirely seems utterly wrong. One suggestion I would make, although it may already have been implemented to some degree, is that where government-to-government aid is impossible because the recipient government are so corrupt, one could use the NGOs as the almost exclusive delivery point of the aid we wish to give the country to help it out-remembering, of course, the policy priorities of DfID.

I have to reject that part of the report, and I am afraid that I also find the Government riposte that deals with administration rather wanting. Under the heading:

"Managing an increasing programme with a falling administrative budget", they say this:

"We are grateful for the comments provided by the Committee on this. We would like to reassure the Committee that cuts to the administrative budget will not hamper the focus on results or the struggle against corruption and explain why this is so".

This is just the repetition of a delusion which, if one has been in this House for long enough, one comes across almost every month: the pretence that significant cuts can be made without any repercussions on the ground. I dare say it is possible occasionally, but in this field it is permanently impossible unless-which I am sure is not the case-we have idle and incompetent members of DfID looking at the question of administering the budget to ensure that aid gets to where it is meant to go.

We need much stronger enforcement of the laws that exist to discourage and punish corruption wherever we can. Your Lordships may remember the Act of 2000 which brought onshore criminal acts committed overseas which formerly were not prosecutable here. The body which reported on the Act about three years ago discovered that there had not been a single prosecution under it thus far. To rely on the Serious Fraud Office effectively to police this part of our law is hoping for too much because it has had serious cuts. I have been in touch with the gentleman who runs the Serious Fraud Office. It is at its wits' end to know how it can deal with crime onshore, let alone crime offshore. I hope that when the Minister comes to sum up she may address some comments to the importance of at least enforcing the laws that we have-the bribery law which we recently passed through this House and so on. Let us not forget, and any lawyer will tell you this, that there is no more difficult area of law to enforce than anything to do with financial corruption. One has only to consider the way in which capital moneys are shifted around the globe in blatant disregard of laws not of one land but of many. Aid has become a playground of crooks and shysters and their expensive advisers. Let us not pretend that we do not have to put resources into ensuring that this aid gets to where it has to go. If that means a form of process conditionality on aid, I for one would say let us have it. Let us have an agreement by recipient Governments that we can put in one or two of our own people to follow an audit trail within their Government in the hope that we can ensure that what was intended and agreed when the aid was put forward has been honestly carried out in practice.

The noble Lord, Lord Lawson, in effect said that you have to choose between the amount of aid and the outcome of aid. That is a wholly false dichotomy. One has of course to have careful regard to how much aid one commits to-and I am totally signed up to the 0.7% commitment, varying, as the noble Lord, Lord McConnell, said it does, with the ups and downs of your own economy-but the idea that one can either look hard-headedly at the amount or look pragmatically and effectively at the outcomes but that you cannot deal with both seems to be an untenable proposition. One has to work at both ends of the equation. I again thank the noble Lord, Lord MacGregor, for introducing this debate.

Photo of Lord Crisp Lord Crisp Crossbench 9:43 pm, 22nd October 2012

My Lords, I congratulate the Economic Affairs Committee on producing this report and on provoking this debate. The report is challenging and being challenged in return. Like other noble Lords, I hope that we can have a fuller debate around development at some later date.

The Economic Affairs Committee, not surprisingly, brings a clear economic focus to this issue. That focus brings great strengths but also, I suspect, some weaknesses. I agree with much of the report. There are many interesting discussions here, but there are some omissions which slightly surprise me. For example, in the report's critique of multilateral donors, it does not make much of the counterpoint that there is great inefficiency in the multiplicity of individual donors and in the multiple requirements that they make of countries. More than one Minister has said to me and many others that managing multiple donors is a real headache and can be very counterproductive. I note that the Government raise that in their reply to the report.

I come at this issue from a health perspective as opposed to an economic one. From this field, I strongly support the view of the noble Lord, Lord Stern, that the report is too pessimistic about the effectiveness of aid. There may not be conclusive evidence overall, but there are many examples, especially in health, as the noble Lord, Lord Stern, said.

I declare my interests on the register. I chair the trustees of Sightsavers, which receives some match funding from DfID, for which we are very grateful, and is working with DfID on eliminating two blinding neglected tropical diseases. I also co-chair with the Zambian High Commissioner the Zambia-UK health partnerships, which are using UK volunteers, doctors and nurses, to train health workers in Zambia.

I entirely agree with the noble Lord, Lord Boateng, who made the point that we do not yet use the experience and expertise we have in this country in a field such as health-which is the one I know, but I suspect also in other areas-effectively alongside the money to support development and the importance of links, of professionals working with professionals. The Government have done much to support some of those through NGOs but, as the noble Lord said, they could do much more to engage the NHS and the Department of Health as part of the delivery arm of DfID.

Looking at the field from the perspective of health, I understand that underneath the definition of economic development is a much stronger issue, which is why people support the aid given from this country. As the noble Lord, Lord MacGregor, said in his opening remarks, that is about people wanting us to relieve the distress, suffering, illness and poverty around the world and help the millions where we know what to do and can do so cheaply. As my noble friend Lord Stern, said, there are many examples, including GAVI, the organisation that provides immunisation to so many millions of children, the Global Fund to Fight AIDS, Tuberculosis and Malaria and, in my field, Sightsavers. We fund our partners to do cataract surgery at the cost of £17 an eye. That is very much value for money. In our recent research with the London School of Hygiene, the person who has gone blind with cataracts returns to economic activity at the same economic level at which they were within a month. In other words, either they get a job or their carer gets a job.

The point I make with that example is that the links between economic growth and health go two ways. It is not just that economic growth can lead to improvements in health. The Commission on Macroeconomics and Health in 2001, chaired by Professor Jeffrey Sachs, who was one of the witnesses to our report, produced the evidence then that health and education contribute to growth. As we all easily recognise, ill health damages it. There have been many analyses of the impact of HIV/AIDS on economic growth in sub-Saharan Africa-or the lack of growth.

We know that economic growth does not guarantee health. The graphs that show the economic status of the country and the health state of the country do not go in a straight line; there is not a direct correlation. We can see examples such as Kerala in southern India or Sri Lanka where, despite relative low income, they have a health status comparable with many countries with a much higher income. It is also about the policies, approaches and priorities that Governments give to those areas. My point is that we need to be careful not to overemphasise economic development at the expense of some of the other important aspects of development.

I want to go slightly further than that. There is some discussion in the report of how much aid should support the UK's interests. There is an important point in health and elsewhere about shared interest. The most obvious is that we are vulnerable to diseases created or arising in the poorest, weakest and most vulnerable areas of the world. For example, in the 14th century, the Black Death took three winters to get across Europe; SARS took three days to get around the world at the beginning of this century. We have a shared vital self-interest in health surveillance in the poorest countries of the world.

There is more to that. There is more about the creation of vital global public goods. I suspect that people will not generally be aware how many health treatments have come out of the work between the UK, US and other richer nations working with their partners in low and middle-income countries. Much of the treatment and management of HIV/AIDS has of course been learnt there. The DOT therapy for treating TB, now increasingly important in this country, came from Uganda. The hydration therapy for use with small children with diarrhoea came from Bangladesh. Low-tech treatments for postpartum haemorrhage come from for Sri Lanka, and so on. It is, after all, no surprise that people who do not have our resources or baggage of vested interests are very innovative in health. It is no surprise that I advocate partnerships or that in health, as elsewhere, innovation needs to be sourced globally. Knowledge transfer is two-way. There is much about sharing experience and expertise.

Let me also touch on the fact that history means that the UK has a particular role with many of the countries that are recipients of aid and its former colonies and a particular leverage and ability to get things done because of our shared history. The NHS-I speak as a former chief executive of the NHS-owes a great debt to many of those countries for the staff who have come to support the NHS. In return, we owe them a debt in terms of educating more health workers.

The point I make here is that rather than thinking in terms of totally disinterested aid or narrow self interest, there is scope for thinking in terms of mutual benefits and creating public goods. I imagine that this is much the same in areas other than health, such as agriculture and food, which the noble Lord, Lord Boateng, mentioned. Some of this reflects on some rather old-fashioned definitions of aid. The world has moved on from just charity. We need to think a bit more about co-development as well as about support for development. However, redefining aid is for another debate which I hope we can have in due course.

Let me turn to the 0.7% commitment. I understand the point of the arguments that the committee makes about waste and about targeting inputs not outcomes, but I disagree with its conclusion. I support the Government's conclusion that they have a budget and manage their programmes against results. They need to review it. There is plenty of competition for that money, as anyone who has bid for DfID money will know. There needs to be plenty of openness and no complacency. There will be a constant challenge from others, such as this committee, about whether the money is being spent well and rightly, and so it should be.

The biggest risk was mentioned by the noble Lord, Lord Tugendhat, and others. It is the pace of growth and whether, even though there is need, there is more need than money, and whether, among other things, DfID has enough staff to be able to go at the pace required. DfID needs to answer that question about pace, not about the overall target.

The 0.7% is, of course, a shared political commitment. It is not about economics but is a commitment alongside others in the world. In some ways, it seems to me that it is not unlike the payment of tithes in churches. It is about who we are. It is about the UK believing that we should support the poorest countries in the world. Very early on in this debate my noble friend Lord Hannay and other noble Lords got this absolutely right, so I shall not repeat it. It would be a terrible signal if we reneged on this. I, too, admired the way that the previous Secretary of State held to the commitment, arguing that the poorest should not pay the highest price for the financial crisis, and I agree with the tributes that were paid to him. I wish the new Secretary of State every success and hope that she will build on the past and on the achievements of the previous Government.

In conclusion, I have talked about what I know, which is health. It is only a part, but it is an important part of this debate about development. It is a plea to think beyond pure economics. Economic and effectiveness arguments are very well made by this report, but we need to bear in mind the ultimate aim. It is not just about growth but about how we think about the world and about the UK's position in the world. When we look at it in this way we can also recognise that aid can also be about global public goods-not just some of the hard-to-measure ones which many noble Lords have talked about, such as good will, soft power and a leadership role in the world, but also very measurable health therapies and outcomes of benefit to all, which are applicable in other fields as well as in health.

Photo of Baroness Jenkin of Kennington Baroness Jenkin of Kennington Conservative 9:54 pm, 22nd October 2012

My Lords, the hour is late and many eloquent and powerful speeches have been made making a number of the points I wished to make, so I have been through my remarks with a thick red pen and hope they hang together. It is very tempting just to say, "I agree with my noble friend Lord Bates", and sit down.

I would like to put the noble Lord, Lord Lipsey, right on one point. It was Michael Howard as party leader who first committed the Conservative Party in 2005 to the 0.7% target.

I make my remarks as co-chair with Stephen O'Brien of the Conservative Friends of International Development, which was launched last year. CFID was set up to harness and focus interest from Conservatives who wish actively to support development and learn more about it. Many of our group, now numbering around 700, are alumni of the Conservative Party's very successful Project Umubano and Project Maya.

Since 2007, more than 300 Conservative volunteers have participated in a number of different programmes in Rwanda, Sierra Leone, Bangladesh and Bosnia. They have shared their expertise, whether as teachers, business people, lawyers, medics or sports enthusiasts, with children and adults in these very poor countries that face challenges beyond our comprehension. These volunteers spend two weeks of the summer holidays, at considerable expense to themselves, working in challenging conditions-noble Lords will know that Sierra Leone in the rainy season is no picnic, and two of my own group came home this summer with typhoid-but at the same time enriching their own lives and life skills as well as understanding a little more about extreme poverty. Many of the issues raised in this extremely interesting report were discussed late into the evening. They come back to the UK inspired, enthusiastic and committed. They want to know more about the developing world and about what the UK can do to help and support these countries to lift themselves out of extreme poverty and, eventually, out of our aid budget. I am full of admiration for these young people-I certainly felt the granny of my group earlier this year-and I am very pleased that this new generation of Conservatives is going to be leading the debate going forward into the future.

I join a number of previous speakers in welcoming this comprehensive report. Its evidence was extremely powerful. Like many Members of this House, I am a supporter of the aid work that our country supports, and it is a great source of pride that the UK, DfID and our commitment to improving the lives of the world's poor are regarded as global leaders in the development field. As the world's most generous philanthropist, Bill Gates, who has himself so far given away $28 billion of his own money, has put it, the UK Government are taking a fantastic lead. However, businessmen such as Bill Gates do not give away their hard-earned cash without there being a good business case and a commitment to value for money so, like many Members of this House, I welcome Justine Greening's similar approach, which follows her renewed commitment on behalf of DfID to value for money, transparency and well targeted aid. This in turn builds on Andrew Mitchell's commitment to spending money only where it will be used effectively and to stopping funding organisations that are not delivering. At a briefing by DfID officials and NGOs in Freetown early this year, I was struck by their support for this approach-one of the senior officials told us that it was long overdue.

On that basis, I, too, support the Government's commitment to the 0.7% target, as tackling deprivation and poverty around the world is both a moral imperative and in Britain's interests. However, much of the debate about the generosity of our £7.6 billion aid budget confuses people. A recent poll demonstrated this point. People were asked how much of British expenditure they thought went on overseas aid. They said that the figure was just over 17%. When they were asked how much they thought it should be, the figure that they gave averaged out at just above 7%. The actual figure, though, as we all know, is 1.1%, so we are achieving these results on 1/17th of what the public think we are spending and one-seventh of what they think we should be spending.

Where is the focus of this spending? Over the next four years UK taxpayers' money will vaccinate more than 55 million children against preventable diseases; provide 50 million people with the means to work their way out of poverty; and save the lives of 50,000 women in pregnancy and childbirth. We will also be able to help provide schooling for 11 million children, half of them girls, at 2.5% of the cost of educating a British child, and to get clean water and sanitation to more people than live in the whole of the United Kingdom. These are examples of where money really makes a difference, as it is next to impossible to escape poverty if you are suffering from illness and disease.

Following the efforts, as previous noble Lords have said, of the GAVI last year, British taxpayers will vaccinate a child in the poorest parts of the world every two seconds for the next five years and save the life of a child under five every two minutes, all from diseases that none of our children dies from. Around 10 children vaccinated for the cost of a couple of Starbucks coffees really has to be value for money

The Secretary of State has said that it is tragic to think of the wasted potential of children who might have become the next Steve Jobs, had they not lost the lottery of life. By helping children to realise their potential, we enhance the global intellectual pool and increase future technological and economic gains, as well as creating a platform for growth by helping developing countries to build a skilled and healthy population that will eventually enable the country to lift itself out of poverty.

The advantage of aid is not that it just stops at the recipients. The recipients of aid can also in due course become aid donors themselves, to help poorer and less developed countries as they move out of poverty. Correctly spent, our aid can ripple across regions as more countries become prosperous.

As countries become richer, the UK needs to move the relationship beyond aid and into trade. Helping developing countries now will mean creating consumers for the future. It is the emerging markets that were poor in recent years where UK companies have been able to win new contracts and realise benefits for the UK now.

The global fund, as the noble Lord, Lord Crisp, has said, has a proven track record of results-oriented delivery, saving more than 5 million lives since its inception. Therefore, continued UK support for the global fund has been provided and the 2 pence per day that every person in the UK gives to the fight HIV/AIDS, TB and malaria save a life every three minutes-value for money, I think noble Lords will agree.

The UK has been leading the international community in ensuring that aid is more effective. Take the International Aid Transparency Initiative in which DfID has played a leading role. The initiative will also help citizens in donor countries see how their aid money is spent, for far better domestic accountability. A budget is necessary to allow forward planning, but the Secretary of State has been very clear on her insistence that aid is based on results and outputs rather than the amount spent. In fact, as we know, DfID offices bid for results, not funding, demonstrating the commitment to outcomes rather than simply focusing on financial inputs into aid. Let us not forget to put aid spending into context. Total global aid spending currently stands at $133billion. Compare this to the $400 billion spent every year on cosmetics worldwide.

In summary, it is in all our interests for countries around the world to be stable and secure, to have educated and healthy populations, and to have growing economies. As the Prime Minister has said,

"So to those who say we can't afford to act: I say, we can't afford to wait".

This is a promise we have made to the poorest in the world and one that we are committed to delivering.

Photo of Lord Roberts of Llandudno Lord Roberts of Llandudno Liberal Democrat 10:02 pm, 22nd October 2012

My Lords, it is a privilege to take part in this debate this evening. I thank the noble Lord, Lord MacGregor, for introducing it.

I am wondering whether we are not really part of a changing mood: the weakening of links. Within the UK itself, we have the threat of weakening links with Scotland, Wales and so on. I am thinking, "Gosh, what is happening here?". People are disenchanted with the present set-up where they are related in some way or another to each other. We see it in Europe, where there seems to be a clamour for a vote on whether we stay in Europe or loosen our links with it.

Are we not somehow part of that mood to weaken the links we have with our past and our record on helping the poorest countries? When you think of the poorest countries, I am told that the average income in the UK is about $34,000; in Africa, some are on $600 a year. We have an obligation. We are, after all, our brothers' and our sisters' keepers.

There is some sort of "little England" mentality. I would hate to be described as a "little Englander"; this little Welshman is apart from being a little Englander. However, is there not some sort of isolationist, separatist spirit that says, "Ah, we have to perhaps look again at our relationships"?

When we talk of the 0.7%, people say, "That was 1970; it is yesterday's commitment". However, the Liberal Democrat promise in the last manifesto was,

"to reach the UN target of 0.7 per cent of GNI by 2013 and enshrine that target in law".

The Conservative manifesto said:

"A new Conservative government will be fully committed to achieving, by 2013, the UN target of spending 0.7 per cent of national income as aid".

The Labour manifesto said:

"We remain committed to spending 0.7 per cent of national income on aid from 2013, and we will enshrine this commitment in law".

Therefore, we say that this 0.7% is something that we can dispense with, but to do so would be a betrayal of all the commitments we have made, not only at the last election but for many years before then. The coalition agreement, of only 30 months ago-it did not go back to 1970-was to achieve this 0.7% by 2013. We have two months to go; I do not know how we will manage it. However, the commitment certainly must be there, and must be adhered to.

Of course, in time, within that 0.7% we will have to reassess and redistribute. That is the natural thing, because there are strengths, weaknesses, demands, and hopeful areas. However, we must stick to that target, because without it we would be in betrayal not only of our manifesto commitments but of everything that we hope for the poorest countries in the world. Imagine: if the United Kingdom scrapped its pledge, others would surely follow. We would have started the unravelling of this 0.7%.

What will be the impact of any reduction or uncertainty upon the great national aid charities? What would we say to Oxfam, CAFOD, UNICEF, Christian Aid, or Save the Children, and many more? Are we not working with them? If we back out of this commitment we will make it so much more difficult to restore that trust and to achieve the aims that we want. We must say and show: "We're with you. We are co-operating entirely with you, and we are maintaining our 100% support".

I will not take very much time this evening, as it is late. Of course, we have our own economic problems at home. The director of policy at Oxfam, Max Lawson, said:

"Aid is such a tiny part of budgets that cutting it has no discernible impact on deficits-it is like cutting your hair to lose weight".

If we are really committed then we can do nothing-and we should not. The demand-and the tremendous need-are there. The fact that so many parts of the world depend upon our giving was mentioned tonight. If we said that we were to scrap our target, they would be very suspicious. We have to say, "Look, our hands are stretched to meet your hands, and to grasp you and lift you up, as far as we possibly can".

Photo of Lord St John of Bletso Lord St John of Bletso Crossbench 10:08 pm, 22nd October 2012

My Lords, I join in congratulating the Economic Affairs Committee, ably chaired by the noble Lord, Lord MacGregor, on this extremely comprehensive, informative and constructive report. The effectiveness of aid in promoting development and reducing poverty while ensuring transparency and accountability has always been a thorny issue. What is clear is that economic growth is essential if poverty is to be reduced.

I will focus my few remarks this evening on poverty reduction in Africa. At the outset I applaud the achievements of DfID, which has transformed the lives of so many people, both young and old, in places where, as a result of conflict, climate change, lack of access to clean water, food, healthcare and education, there appeared little hope for them in the future.

However, as the noble Lord, Lord Boateng, said, many parts of Africa are facing a grave crisis of food security, and a lot more should and could be done by DfID to provide more expertise and support for these farmers. I also agree with the noble Baroness, Lady Falkner, that DfID should seek to promote more technical assistance. This was reinforced by the noble Lord, Lord Boateng, who said that science, technology and innovation should be promoted.

On a positive note, we have seen dramatic and encouraging political, economic and social developments in Africa over the past 20 years. Almost two-thirds of the population have access to mobile phones, with Africa now the fastest growing mobile market in the world. Will the Minister elaborate on whether DfID has been involved in the drive to promote more affordable broadband access to those in the developing countries of Africa?

The noble Lord, Lord Tugendhat, referred to the momentous year of 1989. He may not be aware that way back in 1989, of the more than 50 countries in Africa, only three were democracies. Now we stand with more than half of Africa having democracy. Although it is not full democracy, it is certainly an extremely encouraging development. My noble friend Lord Stern, who has just taken his seat, rightly said that the conditions for effective development aid have greatly improved.

The key question and challenge is: how much of the economic growth achieved over the past decade has been transferred into tangible benefits for those in abject poverty on the continent? Sadly, in sub-Saharan Africa, one child in seven still does not survive past the age of five, with many dying from AIDS, malaria, TB and inadequate access to clean water. Will the Minister also elaborate on what measures are being taken to invest in promoting equality in Africa, with greater recognition needed for the important role that women play in driving economic growth?

We have seen huge growth in the mining and extractive industries but all too often that has not translated into similar benefits for the poor people in those countries. The challenge has to be to ensure that economic growth transfers into improving the infrastructure of roads, railway lines and ports; better access to affordable power; and better healthcare and education. With education comes the need to feed children, as has been shown in South Africa, where many children suffered from not having had a meal before going to school in the morning and then losing concentration after just a few hours at school. There also needs to be improved access to clean water as well as to electricity and power, thereby providing the platform for sustainable employment opportunities.

In recognising that economic growth is the most effective remedy for global poverty, this begs the question as to whether aid should be tied to and linked with trade. Paragraph 127 of the report states:

"The UK has long abandoned tied aid aimed at securing commercial benefits, on the lines of the old Aid and Trade Provision".

Certainly, in Africa, the Chinese have been most successful in linking aid projects, such as the building of roads and railway lines, with securing control over scarce natural resources and gaining access to new and growing markets for their exports. But there have been grave concerns that the Chinese have used their own workforce and expertise, which has not resulted in a much-needed increase in job opportunities for the locals in those countries. They have presented themselves as partners rather than donors.

While the Chinese certainly continue to play a very valuable role in building much-needed infrastructure in many of the developing countries, sadly, there has been a dramatic increase in the poaching of wildlife, particularly elephants for their tusks and rhino for their horns. Very little has been done to combat this growing crisis.

On the business front, I believe that British businesses, both large and small, could and should benefit from the strong relationships that we have in Africa and the continued aid that we give to those developing countries. I was encouraged by the statistic given by the noble Lord, Lord McConnell, that for every £1 in aid that we spend in Africa, we get £2 back in business. Certainly, a lot more can be done to ensure that British aid is "more conspicuously badged", as it says in the report.

I wholeheartedly support the recommendation of the report that DfID should consider, with the Department for Business, Innovation and Skills, how Britain could derive more direct economic benefit from its development aid programmes without worsening quality and effectiveness for recipients. In encouraging the private sector to invest in developing countries in Africa, thus generating much new growth, jobs and trade, it is important that we encourage these African Governments to strengthen local accountability, good governance, respect for human rights, as well as the provision of a reliable legal system, with the ability to enforce contracts and protect licences. One major drawback for small and medium-sized enterprises in these developing countries is their inability to get finance at reasonable rates. There needs to be more bank reform and greater access to banking facilities. In that regard, I agree with the point made by the noble Lord, Lord Hollick, that DfID should promote more project finance. I welcome the launch of DfID's joint venture for a prosperity fund, which aims to co-fund projects focused on poverty reduction with the private sector, where both parties share the risk but where taxpayers' money works harder.

In conclusion, I join those noble Lords who have paid respect to the huge contribution made by the former Secretary of State, Andrew Mitchell. I shall not enter the debate on the 0.7% target. I welcome the decision to focus the bilateral development aid programmes where the need is greatest and where we can have the most impact. My noble friend Lord Stern listed the successes, particularly in Africa, where we have received value for money. Certainly, we need to focus on getting value for money for every pound of aid that we spend. I welcome this report and look forward to the Minister's reply.

Photo of Baroness Hussein-Ece Baroness Hussein-Ece Liberal Democrat 10:16 pm, 22nd October 2012

My Lords, as the 20th speaker in this excellent debate, I, too, have significantly reduced what I was going to say, because so many others have made excellent points that I would have wished to make. I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee for this report and the opportunity to debate and consider its content on foreign aid and its potential and benefits for developing countries.

Whether we measure poverty by the 1 billion who go hungry each day or other factors, such as the 8 million children who die each year from preventable diseases such as diarrhoea and malaria, the fact that poverty on this scale still exists today is unacceptable to our common humanity. Levels of poverty impact beyond national borders and it is therefore of global importance. We live in an increasingly shrinking world. Countries are more dependent on one another for their security, safety and prosperity. It is in all our interests.

There is strong evidence that the majority of the British public, and in particular young people, who are far more aware of what is going on globally, support the United Kingdom's overseas aid programme. But it is also quite right, as we have heard, that we are vigilant and have a right to demand that aid achieves value for money and is free of corruption. After all, it is the poor who bear the real brunt of the misuse of valuable aid, as the noble Lord, Lord Shipley, and others have mentioned.

Over recent years, DfID has identified increasing the number of people with access to clean water and sanitation as a top priority for a number of African countries. There can be few more important and effective interventions than clean water. Diarrhoea, caused by lack of access to these basic human rights, is the biggest killer of children under five in Africa, so it is hardly surprising that the United Nations development programme estimates that for every £1 invested in water and sanitation, £8 is returned to the economy through increased productivity. Oxfam reports that the global fund for HIV, tuberculosis and malaria has a proven track record of delivery, saving more than 5 million lives since its inception. It tells us that continued UK support for the global fund is essential. The 2p a day that every person in the UK gives to the global fund to fight HIV/AIDS, TB and malaria saves a life every three minutes. I believe that these are real outcomes, as the noble Lord, Lord Lawson, said.

The report suggests that there is evidence that in some instances aid fosters conflict, but surely supporting fragile nations prevents conflict and reduces the number of refugees and displaced people. Last year, in response to the now Republican vice-presidential candidate, Paul Ryan, who proposed that the United States should cut back significantly on its foreign aid, US commentators replied that,

"foreign aid is not a luxury but a critical investment in global stability".

I would appreciate it if my noble friend the Minister could address this point in her response as it has come up on a number of occasions.

I was a little surprised to see that there was little mention in the report of the impact that aid has on the lives of women and girls. Therefore, I would like to mention some of the enormous benefits that UK aid has brought to their lives. Aid, particularly in fragile states or in areas of poverty, brings the greatest benefits to women and their families. We know that once women earn a wage they gain more independence and are more likely to put their earnings into the family, thus enabling their children to be educated. These countries are less likely to condone violence, trafficking and other forms of crime which affect women and girls. Businesses that treat women equally as regards seniority and pay benefit through greater productivity and profit. As a global business leader has said, enhancing economic opportunities for women will result in increased incomes, enhanced skills in business, increased stature within the community and improved potential for the communities.

Earlier this year I attended the United Nations Commission on the Status of Women conference in New York. As a delegate from your Lordships' House, it was a source of great pride to me that the UK, through DfID's Strategic Vision for Girls and Women, has put girls and women at the heart of its development programme. We are the world leaders in this area and I can report that DfID's reputation at the conference was second to none. The vision set out in the report has four key themes for action for girls and women: to delay the first pregnancy and support safe childbirth; get economic assets directly to girls and women; get girls through secondary school; and prevent violence against girls and women. The programme outlines where we are making great strides to support girls and women: for example, primary education for girls; maternal health; and access to financial services.

In the past year alone, UK aid has provided at least 740,000 women with access to financial services, improved the rights to land and property for at least 210,000 women; and has supported 2.5 million girls in primary school and 260,000 girls in lower secondary school. It has supported 1 million additional women to use modern methods of family planning. We know that the benefits of focusing on girls and women are significant. When a girl in a developing country receives more than seven years of education she marries four years later and has 2.2 fewer children and her children are more educated and likely to be healthier. Evidence also suggests that societies that have more gender equality tend to be freer and fairer, have greater female participation in politics, and the labour force is associated with lower levels of corruption.

I am also concerned about discussion on moving away from the 0.7% commitment that all parties gave at the general election and which is not only within the coalition agreement but is an international agreement. I believe that we want a more stable and secure world. As others have mentioned, I do not believe that the 0.7% is excessive, given the scale of the challenges that the world is facing.

If the Government are serious about this commitment, they should bring forward the legislation. Legislating will move the debate forward. We need to look at how effectively aid is spent, far more than at how much aid is spent. The spending of £1 on prevention saves £4 being spent on disaster response. In 2009-10 alone, UK aid ensured that 15 million people had enough food to eat. Nevertheless, there are significant funding gaps, for example, in sectors such as child health. Reducing our spend on aid would risk denying millions of poor and vulnerable people around the world the vital assistance that is helping to lift them out of poverty and disease and encouraging greater economic stability. This is a comparatively small contribution to the global problem but makes a real difference in areas of enormous need.

Ideally, we would like to move to "trade not aid"-of course we would-because we know that aid is not an end in itself. But the evidence of the good it is doing is overwhelming. Backing away from our commitment to the 0.7% will also risk the level of contribution that other richer countries make and may start a ripple effect in that direction, which would not be a positive thing. The UK has a long-sustained commitment to reducing poverty, inequality and inequity in the developing world, and for this we should be proud.

Photo of Baroness Royall of Blaisdon Baroness Royall of Blaisdon Shadow Leader of the House of Lords 10:26 pm, 22nd October 2012

My Lords, I thank the noble Lord, Lord MacGregor, for this welcome opportunity to discuss development and for his excellent introduction to the debate. I warmly welcome the committee's finding that DfID enjoys an outstanding reputation internationally as an effective aid agent. This is something to be proud of but, of course, my noble friend Lord Boateng is right when he speaks of the need for better cross-government co-operation in relation to aid. In relation to better working with the British Council, for example. I agree with my noble friend Lord Hollick that staff within DfID need to be retained, as far as possible, in order to keep that vital expertise. I take this opportunity to pay tribute to the wonderful NGOs in this country, such as Save the Children, Christian Aid, Oxfam and so on, which work in partnership with DfID on the ground, really delivering for the poorest people of this world.

First and foremost, our contribution to fighting poverty and human rights abuses is a moral imperative. However, aid is also effective and provides the soft power mentioned by the noble Lord, Lord Hannay. Critics such as the noble Lord, Lord Lawson, say that aid does not work. They question its effectiveness and impact on development and growth. This is not my view of aid and it is not Labour's view. In fact, a number of civil society organisations have labelled it a view that is out of tune with public opinion, out of touch with economic reality and stuck in the 1980s. We are all indebted to the noble Lord, Lord Stern, for his clear explanation of the effectiveness of aid. Aid brings about extraordinary change in poor countries.

According to UNICEF, over the past 20 years, development aid has meant that 4 million fewer children will die this year, 33 million children have had the chance to go to school for the first time and 4 million more people have access to life-saving drugs for HIV/AIDS. Over the next years, the UK's contribution to the Global Alliance on Vaccines and Immunisations will ensure that 80 million children can be immunised world wide, saving an estimated 1.4 million lives. Health and education contribute to growth. Aid creates the conditions for economic growth. In one year, we helped build or repair 4,500 kilometres of road. In the years 2012-15, DFID will help 77.6 million people access formal financial services. Aid helps to secure peace and strengthen good governance. The UK's extensive security and development assistance to Sierra Leone over the past decade has helped end its civil war and stabilise and rebuild the country. Over the next three years, UK aid will help 44.9 million people participate in elections. However, aid does not just work abroad-it works for us too. Security, trade and migration mean that it is also in Britain's national interest and, as the noble Lord, Lord Crisp, said, health is a shared interest. Health in developing countries can be a catalyst for innovation.

The committee recommends putting in place an early exit strategy from the Indian development aid programme. The committee's recommendation ignores the level of need and inequality that remains in India. Some 456 million people in India, which is equivalent to one-third of the world's poor and more than all of sub-Saharan Africa combined, live on less than $1.25 a day. DfID staff in India are doing a fantastic job.

I disagree that aid is a perverse incentive to poorer states. I was in some of the poorer states myself this year and I talked to small farmers who have been helped through, for example, DfID's support for the Orissa Modernising Economy, Governance and Administration programme. This programme has worked with farmers, helping them to get a better price for their products and to find non-farm products by linking them with the market. Their families used to survive on less than $1.25 a day; now they have become entrepreneurs, providing a service to the community and providing paid jobs for people living in the villages, and they are helping the local economy to grow. They are being, as it were, a catalyst for private investment. DfID is also working with the Government of Orissa and WaterAid, providing technical expertise for much needed sanitation projects in areas where only 10% of people have access to a lavatory and a tap connection. This help with sanitation will mean that girls will go to school. It will change their lives and help them to contribute to the economy.

Of course, value for money is important and, as part of our policy review process, we are considering the future of our bilateral development programme, including aid to India. However, any decision that we make must take into account our commitment to reducing global poverty and the need to ensure that the poorest communities are not adversely affected.

I was going to say a lot about the European Commission as the largest multilateral donor in the world and a crucial actor in developing countries and peripheral fragile states. I believe that the European aid programme is a good one. It can do more and better but we must work with it to ensure that it does precisely that.

I come to the most controversial issue-the committee's rejection of the target of spending 0.7% of GNI on overseas aid. I must part company with my noble friends who sit on the committee because I believe that they and the committee are wrong. I was pleased to see the Government's firm response to this particular recommendation and I am delighted and relieved that they have retained their commitment. Labour is committed-it is our party policy-to ensuring that the 0.7% target is enshrined in law. It was a target last recommitted at the G8 meeting at Gleneagles. It would ensure that future changes to the budget, irrespective of which party was in power, were permanently related to the economic state of the country. I say to the noble Lord, Lord Bates, that, when in power, perhaps we did not get as far as 0.7% but I could defend-strongly and at length-what we did in power to help the poorest people of the world, especially in terms of health and education. I am very proud of what we did.

I think that my noble friend Lord Lipsey-who is my friend and is noble-is far too cynical about our policy and the Government's policy on the issue of the 0.7%. I do not think that the policy was reached as a result of cynical opportunism; I think that it was reached because it is absolutely the right thing to do in the world today-a world which is still far too unequal but one which can become more equal as a consequence of the 0.7% commitment.

The choice that some people make between quality and quantity is a false one. According to evidence from Christian Aid, in countries where the target is reached, the discussion has shifted away from the amount given and towards the way it which the aid is spent. In addition, it has been shown that predictability is a key determinant of impact, supporting longer-term planning in partner countries. The organisation ONE has estimated that meeting the 0.7% target would, for example, put 15.9 million children in school and provide more than 80 million children with vaccines, saving an estimated 1.4 million lives. I could go on but time is short.

As I said, I am delighted that the spending commitment is supported by the Government, and, as the noble Baroness, Lady Jenkin, said, it is also supported by the people of this country. Therefore, I urge the Government to honour their commitment and enshrine it, either by bringing forward the Bill or by supporting Mark Hendrick's Private Member's Bill.

Now is the time for big global economic and social change. We want growth which is sustainable, companies that are both profitable and responsible, meaningful agreements on fair trade and climate change, universal access to free healthcare, compulsory education and social protection, global human rights with no exemptions for our allies, and women's rights at the heart of conflict resolution.

It is right, especially in these difficult times, that we make sure that aid gets to those who need it most and that it delivers maximum value for money. That is why we have said that we would not reverse the Government's decision to cut the projected aid budget as a consequence of the reduction in GNI-a cut, I hasten to add, that does not go against the 0.7% target.

I agree with the committee's recommendations on the need to tackle corruption. This is vital. DfID is already doing important work in this area but we need to do more. That is why Labour is working on a new anti-corruption plan for the UK and a strategy for building a new anti-corruption coalition around the world that will identify tangible action that can lead to real change.

However, we cannot ignore our role and that of other rich countries in facilitating corruption. We need to do more to fight the tax dodgers who steal from the poorest people and the poorest countries in the world. Developing countries lose approximately $160 billion annually as a result of tax dodging by multinational companies alone, according to Christian Aid. The better developing countries get at collecting revenues themselves, the less aid they will need from us; and we can help them along the way.

Development aid has made a real and lasting impact in reducing poverty, spreading human rights and fostering growth across the world, and it continues to do so. Our aim is to eradicate aid dependency; and we could do more, and better. We want to move to a world where aid is no longer necessary, but the way to do that is not by abandoning our spending targets at a time when millions are in desperate need. We must continue to defend the crucial role that aid plays in addressing poverty and misery across the world.

Photo of Baroness Northover Baroness Northover Baroness in Waiting (HM Household) (Whip), Lords Spokesperson (Department for International Development) 10:37 pm, 22nd October 2012

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:

"Developmentand 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.

Photo of Lord MacGregor of Pulham Market Lord MacGregor of Pulham Market Chair, Audit Committee (Lords), Chair, Economic Affairs Committee, Chair, Economic Affairs Committee 10:54 pm, 22nd October 2012

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.