International Development - Minutes of EvidenceHC 751

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Oral Evidence

Taken before the International Development Committee

on Tuesday 11 December 2012

Members present:

Sir Malcolm Bruce (Chair)

Fiona Bruce

Richard Burden

Pauline Latham

Jeremy Lefroy

Mr Michael McCann

Fiona O’Donnell

Chris White

________________

Examination of Witnesses

Witnesses: Mark Lowcock, Permanent Secretary, DFID, Richard Calvert, Director General, for Finance and Corporate Performance, DFID, and Mark Bowman, Director General, Humanitarian, Security and Conflict, DFID, gave evidence.

Q1 Chair: Good morning, Permanent Secretary. Thank you for coming in. I just wonder for the record, first of all, if you could introduce your team.

Mark Lowcock: Good morning. Thank you very much. On my left is Richard Calvert, who is the Director General for Finance and Corporate Performance; and on my right is Mark Bowman, who is the Director General for Humanitarian, Security and Conflict.

Q2 Chair: Thank you very much. We have had some help, as you know, from the National Audit Office as well as from our own staff, in terms of probing things. There have certainly been some changes in the structure and priorities within the Department, which are manifesting themselves. One of those is the extent to which you are now putting your bilateral programme through multilaterals. There is a much bigger increase in that balance. The first point is: what are the implications for you of the fact that two-thirds of your budget now goes through multilaterals, which, by definition, you do not have the same direct control over?

Mark Lowcock: Thank you very much, Mr Chairman. Most of that, about two-thirds of that two-thirds, goes in the core contributions to multilaterals. As you know, the NAO did a separate piece of work on how we manage our engagement with multilateral organisations, which I gave evidence to the Public Accounts Committee on last month. There is a particular set of issues beyond that that arise where we use a multilateral organisation to deliver parts of the bilateral programme. If I have understood, it is that particular issue you would like me to talk about a bit more. Have I got that right?

Q3 Chair: Let me tease it a bit further. What is concerning us is the extent to which you are passing money over to other organisations to deliver what are effectively bilateral programmes. We are trying to test the reason for doing that. Is it because it is the most effective way of doing it? Is it because it offloads admin costs to them, or is it a way of just getting the money out, because you cannot spend it fast enough?

Mark Lowcock: When Ministers commissioned and finalised the Bilateral Aid Review, they asked us to move more into fragile and conflictaffected states. In those states, it is less sensible for us to channel resources directly Government to Government, because we do not have the same level of assurance that we do in less fragile and conflictaffected states. That means essentially we have three alternative routes for delivering the results that we want to deliver: more girls and boys in schools; reduced infant mortality-all that result set that we set out last year. The first route is to give more grants to NGOs. The second route is to use private-sector contractors. The third is to work with multilateral organisations, design programmes with them and use them as an implementing channel. The main reason why we have seen an uptick in that-bilateral through a multilateral-is those choices to deliver results in those fragile and conflictaffected states.

Now, there are things we need to look at on value for money. We need to drive down the administration costs, for example, in those multilaterals to make sure we maximise the proportion of resources delivering results and minimise the overheads. One of the areas we have been successful in this year is in having greater scrutiny of the admin costs in multilaterals and driving them down. This year, the UNICEF, UNDP and UNESCO boards all agreed a 5% reduction in their admin costs, because we have greater scrutiny on them and wider buyin to that efficiency drive.

Our starting point in choosing a channel is the results we are trying to achieve. Our starting point is not a preference for a particular channel. When Ministers say to us, "We’d like you to see what you can do for girls’ education in that country," we then look at the set of possible ways of doing that, and the channel is an outcome of that assessment of the options, which is driven primarily by a valueformoney effectiveness concern.

Q4 Chair: Is there an advantage? If you are doing a joint project in a country, say with the World Bank, if that is a jointly funded or a jointly managed bilateral programme, or if they are doing it directly on your behalf and effectively you are providing 100% of the money for that programme, does that give you more leverage over their management overall than would be the case when they are either operating their own programme in partnership with you or indeed just as part of their overall programme, which you have corefunded but not funded bilaterally?

Mark Lowcock: If we are wholly funding, clearly we get more leverage over the detailed project design and implementation than we would if it was just a project they were funding from their core budget. Sometimes, as you know-as you saw when you were in Afghanistan earlier in the year-the donors will get together on something they want all to make a contribution to and use a single implementing agency for reasons of fiduciary, accountability or other financial efficiency. Lots of donors want to contribute to the Afghanistan Reconstruction Trust Fund, which I think you learned a bit about when you were in Afghanistan, and through which 150,000 teachers are now paid regularly in Afghanistan, which is the reason why there are now 6 million girls and boys in schools. It is clearly more efficient for there to be a single process for accounting, audit and performance management, than for each donor to try to have a separate negotiation with the Government of Afghanistan.

Q5 Chair: We understand that. Next year, you are due to hit 0.7%. You are currently at 0.56%. You have reduced the number of countries you are operating in and you have been constrained at 2% overheads. You have been restricted on staffing levels. Does that not perhaps lead people to the conclusion that the only way you can spend that money is by giving it to somebody else?

Mark Lowcock: As you know, we have had three years to plan for the uplift. You tested me last year on whether we were building enough capacity in the organisation to manage it effectively. I said to you that I would not be ready myself to be in a position where I thought we did not have enough capacity. Over the last 18 months, we have hired 500 additional professional staff in the organisation. The net increase is actually about 300 because, as we have closed down in some places and streamlined our corporate services, we have reduced, but we have a very big increase, especially in the front line, in our delivery capability. In fact, we are now projecting that we will need a bit more than 2% of the total budget to go on frontline delivery. It will be about 2.2%, I think, which is consistent with what I said to you last year. If we need to invest more in the front line, we will.

We have also used the time we have, ahead of the uplift next year, to plan. If I look now at how ready we are to spend the uplift next year and the year after, for the 201314 year, next year, we have now programmed 98% of the resources that will be available to us. For the 201415 year, we have programmed 97% of the resources. That means we know what results we are trying to deliver and how we are going to deliver them. We have to translate that into approved projects, and award grants and give contracts. For the 201314 year, we have done that for 75% of the resources and, for the following year, for 60% of the resources. I think we are in a good position to be able to provide a high degree of assurance that we have projects and programmes in place that will deliver the results and will absorb the resources available to us.

Q6 Mr McCann: Good morning. I will go back to an issue that I have been to before with you, Mark, in relation to the operating costs. The British public rightly demands value for money for every pound of taxpayers’ money that is spent. It is admirable that DFID is aiming to get to operating costs of 2.2%. You mentioned multilaterals and the EU; those figures are much higher there. You mentioned that there was a reduction of administration costs at UNICEF and UNDP by 5%. What does that actually translate to, in terms of the amount of money that you are giving them? How much are they spending on operation costs?

Mark Lowcock: I will write to you with a full reply across a range of organisations on that, Mr McCann, because there is a lot of detail. It is absolutely the case that there are too many multilateral organisations that have too high a level of admin cost. That is a big area of priority work for the Department, which we have been trying to engage more other donors in. As you will appreciate, in some of these organisations we are one out of 190 members. The biggest challenge has been to get a large enough group of contributors to agree that we need to drive down these costs. They do vary between 1% and up to 20% of the total budget, and that reflects a little bit the different roles of different organisations. Some organisations are mostly policy, advocacy or standardsetting organisations, and you would expect them to need a significant overhead. Others are mostly resource transfer, so you expect them to need a lower overhead. We have to look at what the role of the organisation is before reaching too many judgments.

We have made some progress in winning broader support. I think I said last year, Mr Chairman, that we were frustrated that we did not have enough other financiers of these organisations joining us in this campaign. In February this year, we hosted a meeting in London bringing together all the major donor countries on this agenda. I have been engaging also in my overseas visits, as have Ministers, in getting some of the newer voices-India, China, Mexico and Brazil-which are paying a bigger share of the bill now for these multilateral organisations in that agenda. That is going quite well. There is a followup meeting in Germany to the one we hosted in February on this administrative efficiency issue, so we are gradually making some headway with it. I will write to you with the detail organisation by organisation, but we are still at the beginning of the journey, and it is a journey that is very important to us.

Q7 Mr McCann: How long is the journey going to be? For a United Nations body, in the past two trips that we have been on, in South Sudan where we saw the UN in operation and most recently in Pakistan, the Committee has been less than impressed by what we have seen and where our money is going. Therefore, the question has to be asked, if you are one of a hundred and however many countries, when does the journey end? When do you make a decision that we are no longer going to put British taxpayers’ money into an organisation where the costs are unacceptably high, they do not provide good value for money and we would be better doing it ourselves?

Mark Lowcock: As you know, Mr McCann, for reasons of that sort we left four multilateral organisations last year. We have put five more on notice. We are reviewing the whole set in the spring of next year. It is really important that we use our voice to drive further improvement in efficiency. I do not think this is going to be a short journey unfortunately, but we are determined to make it a successful one.

Q8 Fiona O’Donnell: It would be useful to have this on record. You have the welcome increase in the percentage of GNI, but then GNI is not quite where we thought it would be. I wondered what the effect was of last year’s Autumn Statement. What changes did you have to make and what changes do you think you will have to make as a result of this year’s Autumn Statement?

Mark Lowcock: Last year, as a result of the economy being smaller than we projected in 2010 it would be, the budget need for 0.7% fell by about £1 billion over the Spending Review period. Last year, through the Bilateral Aid Review, the Multilateral Aid Review, the Humanitarian Review and the subsequent decisions, we did not allocate all of the resources available to us through the Spending Review period; we kept some back in contingency. Essentially what we did is write down that contingency. We did not have to make any new decisions on results we would deliver.

This year, the situation is a little different. We will have roughly 2.5% less each year, beginning 201213 and for the next two years, in the programme budget than we previously forecast. We have largely drawn down the contingency. The first thing the Secretary of State has asked us to do in meeting this new challenge of delivering what we said we would deliver with fewer resources is to drive efficiency more strongly. We definitely can deliver some of the results we were originally planning to deliver more cheaply than we previously expected to.

For example, as you know, we are planning to provide tens of millions of bed nets to protect people from malaria over the next few years. Over the last couple of years, we have driven down, by working with other buyers of bed nets, the price of an average net from about £3 to £2. There is a big efficiency saving there. To give another example, we buy a vaccine to prevent children getting respiratory diseases-against the pneumococcus virus-at a price that is about 90% less than the price that is paid in developed countries. The first thing we are going to do, across a range of things, is drive for greater efficiency to achieve results at a lower cost. However, I cannot guarantee that that will be enough to allow us fully to achieve all the results we said we would achieve in 2010. We are doing some work on this at the moment. We need to get further steers from Ministers, and it is possible we will have to make some choices.

Q9 Fiona O’Donnell: The NAO said 4% or 5% next year, before you came in.

Mark Lowcock: What I have given you is an average over the three years, so it is on average 2.5% over the three years.

Q10 Pauline Latham: Why have you reduced the general budget support by a third? Do you think it is no longer a good way of providing aid?

Mark Lowcock: When we introduced general budget support 10 to 12 years ago, we essentially had four objectives: firstly, to help countries stabilise their macro economy, which is the reason the IMF and EU are supporting Greece at the moment, and that is the kind of problem we are trying to deal with; secondly, to provide more financing for the recurrent costs of developing countries’ budgets, so they could pay the teachers and health workers needed to achieve those MDGs in countries where the tax base is very small; thirdly, to try to promote improvement in public financial management and public expenditure management, and all that valueformoney agenda; and fourthly, to reduce the transaction costs between governments and the donors. In other words, we were wanting to have fewer experiences where the Finance Minister of a country would say to us, "Please can you donors organise yourselves better so I do not spend 80% of my time talking to you individually."

Against those four objectives, over the last 10 years, we have made very good progress on the first two and some progress on the second two. Because we have made that progress, there is a smaller need for general budget support. That is the main reason we are doing less of it. A subsidiary reason is the countries we are operating in are now a little different. We do not do general budget support in countries where we have a low degree of confidence in the fiduciary or financial environment. That means, as we have moved into those countries, we have obviously not made use of that instrument. We have this trend-as you say, the proportion of general budget support is going to fall by about half between 200708 and 201112-as a result of success in achieving previous objectives and judgments about the best ways to channel resources, given our current objectives.

Q11 Pauline Latham: Where does Pakistan sit in that?

Mark Lowcock: Up until two years ago, we had a general budget support programme in Pakistan, which we no longer do. We do have financial aid, as you will have seen last week, at the state level. We are pleased with the progress we are making in a number of sectors there, particularly education. We do have to keep in view the fiduciary environment in Pakistan. You must have, I am guessing, engaged a bit in the debate going on in the country on corruption issues. That is something we have to pay careful attention to. I do not know if Mark wants to comment more on that.

Mark Bowman: The other dynamic in Pakistan, where we have moved from general budget support to sector support, and doing that at a state level, is the significant devolution of power from the centre to the states. The Committee on your recent trip went to Punjab and saw the kind of work we are doing there in the education sector. We are supporting that at that level and not at a central generalbudgetsupport level.

Q12 Pauline Latham: They still seemed to think, though, that the money was not coming from the top enough. They did not feel they were getting enough at state level from the centre.

Mark Bowman: Clearly, there are issues there about how these new arrangements in Pakistan and the devolution of power are working in practice, but this is relatively new stuff in terms of devolving responsibility for health and education away from the centre.

Mark Lowcock: Let us look at that, though, Ms Latham. I will take that away and we will have another look at that.

Q13 Pauline Latham: Thanks. If the budget support does not work, how else can donors help to build capacity in the system?

Mark Lowcock: A lot of the technical assistance work we do is primarily focussed on building the capacity of institutions, not just state institutions but the accountability institutions as well-Parliaments, public accounts committees, the media, civil society and auditors general. Generally, our approach with budget support has been to have alongside it programmes that build up all those other institutions. It is not just about financing the system; it is also about strengthening the system. We will keep working on the capacity building, whether or not we are engaging on direct financing of the budget. Arguably, it is one of the most important things we do across the whole programme, this capacitybuilding effort, because that is a key deficit for most of the countries in which we work. I do not think a reduced level of general budget support is at tension with a stronger effort on capacity building.

Mark Bowman: Afghanistan is a very good example of this, where we have not felt able to give general budget support for rather obvious reasons, but we have done some fantastic work with the revenue authorities, helping them to develop the expertise and the capacity to build up their tax base.

Q14 Pauline Latham: How well have you done with that in Pakistan?

Mark Bowman: There are some very significant challenges in Pakistan, in terms of building up their tax base. This is an area that we would like to explore further-how we can continue to work with the Pakistani authorities. They have a very persistent problem in terms of the very low ratio of tax to GDP. Through the technical support that we can provide but also the dialogue we have with them over their general economic policy, through the IMF and other organisations, this will be a key priority for us in the coming years.

Q15 Pauline Latham: There is not much of a will to collect tax there. We were told by one Minister, "People do not really expect to have to pay tax here." Our taxpayers are paying a lot of tax to fund the programmes over there.

Chair: We do have a chance to pursue this in more detail in your part.

Pauline Latham: I am sorry, but it is about budget support, is it not-about where it is going?

Mark Lowcock: Can I just say that I think you are completely right? This is an issue I have raised with President Zardari, successfully with the Finance Minister and with other leaders. Also, we are trying to get it addressed as a national issue for Pakistan. The work that the International Growth Centre is doing for us in Pakistan is largely about trying to build a different dialogue inside the country about a taxpaying culture. I think it is a really crucial issue.

Q16 Pauline Latham: It is. In the countries where you have stopped or reduced budget support, are you providing a similar level of aid but in a different way? Why have you not increased sector budget more to compensate for the loss of general budget support?

Mark Lowcock: It varies country by country. In Vietnam, to give one example, or Cambodia, to give another, the reduction of general budget support has been part of a general graduation strategy. In other countries, we have switched instruments. It is a fair question whether we should be making greater use of sector budget support, because there are some risks around sustaining an adequate level of financing for health workers or teachers to achieve the MDGs if we move out of the general budget support, but we have to address this case by case, country by country. Again, I am happy, if there are particular countries, to explain our rationale, but it does vary from country to country.

Q17 Chair: Just on the specifics, in countries like Ghana, Zambia and Tanzania, where one is led to believe budget support has worked quite well, you have reduced it. Is that, taking Pauline Latham’s point, because they have increased their tax base and become less dependent? Otherwise, it does not make obvious sense as to why the countries that actually use it effectively should get less.

Mark Lowcock: To take each of those in turn, in Ghana, the economy has grown substantially over the last 10 years and the tax base has increased, but also they have oil coming on stream, so they are less reliant for funding their recurrent cost budget on general budget support. It goes back to what I was saying earlier about the objectives we had having been achieved. In Ghana, they are largely achieved, so there is less need for it.

You reported earlier in the year on Zambia, and you know we responded and agreed to all your recommendations in the Government response last month. The economy in Zambia has grown very substantially, because of the recovery in the copper sector, but that has not translated by the degree everybody would have wanted in either strengthening the budgetary position or reducing poverty. We also, like you, have a number of concerns about the composition of the budget in Zambia, especially over the maize subsidy. The situation there is different. We feel we need to engage in a continuing way with the Zambians on building the tax base and improving the use of their own tax resources.

Tanzania is again a different case. The economy has grown very substantially-7% a year for the last decade. The tax base has grown pari passu with that. They do finance a lot more of their own recurrent budget now than used to be the case. We think that is a success; we think that is a good thing. Accordingly, we do less general budget support and sector budget support actually, and we are programming to do less still over the years ahead. I hope the case studies illustrate a case-by-case approach.

Q18 Mr McCann: You are planning to stop giving aid to India. The question would therefore be: do you plan to do the same for other priority countries, such as Nigeria and Pakistan, which have also obtained middleincome status? If so, what criteria will you use to inform those decisions?

Mark Lowcock: The Secretary of State announced in her written ministerial statement on 9 November a change in our relationship with India. If I may say so, a lot of what she announced there picked up the recommendations you made last time you studied India. We are retaining a development co-operation relationship with India, as you know, on the private sector, on expertise in capacity development and on our shared roles on global development issues. What we are concluding by 2015 is our finance grant aid relationship. The reason I say that is that, as we graduate countries, it is important that we do it in a phased way and move to a different sort of relationship, rather than simply say, "That’s it; we’re no longer interested in you." That has been a very important thing the Secretary of State has said to us as we have had these graduation transition discussions.

No country wants permanently to be a recipient of aid. Every country wants to graduate and evolve, and we want to support them in doing that. The pace at which countries can graduate has surprised lots of people over the last 15 years. As you know, eight years ago we were running bilateral programmes in 65 or 70 countries. Two or three years ago, we brought that down to 45 and now, largely because countries have succeeded, we are at 28 or 29. We do not have a timetable, to come to the last part of your question, for the next set of countries and when they will get there. We do have a view on the kinds of criteria that will be relevant. Progress on the MDGs is one. Growth of the economy is another. The buildingup of their own tax base is a third. A fourth one is the country’s own preferences and desires. We need to take account of that as well, as importantly we did with India. There is a set of things we need to look at, but we cannot be too mechanistic about it and it will be different in each country.

Q19 Mr McCann: But there will have to be a degree of consistency. We take benchmarks like the ability to move into middleincome status, which some argue still means people in poverty, with the concept of $2 or $3 a day. You must apply the policy approach consistently to how you then deal with other countries that are in a similar position. On the point that you mentioned a few moments ago, if you look at India in terms of MDGs, the ratio of girls to boys in primary education is amber. The underfive mortality rate ratio is amber. HIV prevalence in 15 to 49yearolds is amber. This means that a lot of NGOs are arguing that we should phase out aid to India more slowly, particularly when you consider places like Bihar, which is an extremely poor part of India, which half of the Committee visited in 2010. Do you see the transition involving more slowly phasing out aid to places like the state of Bihar? Incidentally, has there been a response from the Government of Bihar to the decision that we made?

Mark Lowcock: The Secretary of State went to Bihar and talked to the chief Minister when she was there at the beginning of November. I was there two weeks previously, so we have had very good dialogue with them. Our continuing private-sector engagement-and let me be clear on this-is largely about delivering financial services to the very poorest people of the state. It is a very povertyfocused programme on the private sector in Bihar, and the technical co-operation programme we will sustain after 2015 as well will be focused, to an important degree, on the poorest states in India. It comes back to the point I was trying to make about a phased transition rather than an overnight cutoff.

I take your point that we need a degree of consistency, and it is a question that I am always asked, but I do not think we can have a mechanistic formulaic approach to this, because countries are all different and our relationships with countries are different. Those things have to be factored in as well.

Q20 Mr McCann: It is just an observation, but when you look at the press headlines from the last few weeks about our removing aid from India, there is no question in any of those articles that we are going to be taking it easy and will be doing it on a phased basis. Perhaps there is some transparency missing there, in terms of what the public thinks we are going to do. One final question: there has been a fall of 15% in aid to lowincome countries. What proportion of aid do you expect will go to lowincome countries in the future?

Mark Lowcock: It has come down from 80% to 65% or something. That is really because one of the decisions we took in the Bilateral Aid Review was to focus more of our resources on countries that formerly might not have been classified as lowincome, like Nigeria or Pakistan, but in fact have a massive share of the remaining MDG burden. From our point of view, what this is telling us is the limitations of some of those categories. In northern Nigeria, Pakistan and other countries like that-Zambia is another case actually-there is very extreme poverty, even though they may be getting above some of those thresholds in terms of percapita income. We are basically saying we are not sure those thresholds are the only or necessarily the best measure to determine what we should do, because of the overall level of poverty a country faces. We are not targeting a particular number for the proportion to go to lowincome countries at the moment, essentially because we think there are other more important measures.

Q21 Fiona O’Donnell: You planned to spend £3 billion on the MDGs and in the end spent only £2 billion. Looking at the figures for expenditure by pillar, that seems largely due to a percentage variance of 31.3% on wealth creation and 44% on climate change. My question is in three parts. Why did that happen? Are you going to increase expenditure in those two areas in the following year to compensate for that? Thirdly, what are you going to do to make sure it does not happen again?

Richard Calvert: As the NAO report said and you know from the estimates, the initial estimate we did of expenditure against pillars in 201112 turned out to be quite different from reality. The biggest reason for that was that we got our initial estimates wrong. That reflected the fact that this was the first time we had reported on this particular pillar analysis. We have now this year integrated that reporting into our system, so that when people enter projects on to the system, commit projects, we pick up the pillar analysis at the time. When we first did the estimate for 201112, we had only just decided to report on that basis and essentially had to do the estimates off system. We have recognised and said to the NAO and others that the first estimate of that we got wrong.

That does not mean that the underlying projects and programmes that we had set out in the BAR and the MAR were not delivered or were changed. This was essentially about getting the alignment between the projects and the activities we had decided to do through the BAR and the MAR, and the way to categorise those against the five pillars. I hope you will see in 201213 that our initial estimate, any adjustments we make in the supplementary estimate in January and then our final reporting will be much more accurate, because we have integrated pillar reporting into our systems much more effectively this year.

Mark Lowcock: May I add a point? As you know, we have had a kind of culture shift in the Department to get people away from focusing on how much money they are spending on something and towards whether they are achieving the results that the Government has said we need to achieve. That culture shift is in the right direction, and we are broadly on track in most areas on the results. That is where the great bulk of staff effort has gone over the last year or so. As Richard said, we made a mistake in not paying enough attention to this bit of the financial reporting, and we will sort that out.

Q22 Fiona O’Donnell: It is not just by pillar; it is the total spending on MDGs as well. Progress is patchy, and we saw that in Pakistan. There is certainly room to spend more money on the MDGs.

Richard Calvert: It is important to say that, right across the five pillars, what we are aiming to do is contribute to delivery of the MDGs. The pillar that is focussed on direct delivery tries to pick up some of the key investments, for example around health and education. If you look at what we are doing on wealth creation, governance, our investment through the multilaterals and our work on climate change, they are all contributing to different aspects of the MDGs. It would be wrong to think that the only contribution to delivery of the MDGs is the direct delivery pillar.

Mark Lowcock: In total, we spend the resources available to us. We certainly try to maximise achievement of the results by using all the resources that are available to us.

Q23 Fiona ODonnell: Is the pillar reporting useful? Is it worth it?

Richard Calvert: We introduced the pillar reporting because it aligns with the business plan that the Government set out after the election, and which still is our toplevel business plan for the organisation. We think it is useful in presenting an overall alignment of our activities against the different areas of the business plan. Clearly, if you are working in a country office or if you are tracking detailed results against an individual MDG, then you are going to want to go below this level. This is a highlevel analysis. It does not fundamentally drive our project decisions. Our project decisions are fundamentally driven by the BAR process and the follow-on to that around individual results. This is an aggregation to show broadly where our spend matches on to the business plan priorities. We think it is a useful complement to our other reporting mechanisms. Is it the most important one? It is probably not the most important, but if we can, as we now believe we can, pull this information out from our core project reporting system, it is another way of looking at the programme.

Q24 Jeremy Lefroy: Good morning. The National Audit Office has pointed out that you had to bring forward spending of about £580 million from 201213 into 201112 to hit the 0.56% target of GNI. Does that not really show that it is almost impossible for a percentage target, which you support, combined with proper management of programmes and value for money, which we support, to be compatible with Treasury rules?

Mark Lowcock: Can I say firstly that you asked us some questions about this last year, Mr Lefroy, including on CDC and Gift Aid? I commissioned further work on the CDC element, which is a particular concern you had and which, in the light of your questioning, I share, candidly. We have changed the way in which, particularly in the back end of the calendar year, we manage that risk with CDC. The risk now of CDC doing something that really surprises us at the end of the year, which throws us off course on 0.7%, is significantly reduced.

On your broader question-I will ask Richard to come in-it has always been the case that events arise that mean we have to rephase or juggle when programmes come on stream or the rate at which we implement them, because we have always had a financial limit, like every Department has every year, which we have to manage and juggle. Of course, events in the real world happen as well. We have taken some decisions in respect of Rwanda recently, for example. If we had not had contingencies in place, they would have had an impact on the endofyear outturn. We manage the organisation in such a way as to try to be prepared for every contingency.

Now it is of course possible that, in some years, the scale of events that arise or decisions that get taken later in the year could be such as to bump us off a particular outturn. The outturn not for the calendar year last year-because we hit 0.56% in the calendar year last year, which was the target-but for the financial year was a bit lower than we were expecting. The kind of priority order of objectives is, firstly, to maximise value for money. We will not take decisions that we believe are poor value for money simply to hit a target. If we are surprised and the level of our contingency planning is insufficient to deal with changes in the real world, the casualty of that, in terms of the advice I provide, will be the target rather than the quality of investment. Over the years, we have actually managed all these risks reasonably successfully. We are trying to put in place new measures, like in the case of CDC, to reduce the danger going forward. That will be the broad approach. Let me ask Richard what he wants to add.

Richard Calvert: I think you have made most of the key points, Mark. The key to doing this in a way that balances value for money and annual spending limits and targets is about having enough contingency and enough activity in the programme, so that when some activities fall away, which they always do every year-one thing we know about every year’s spend is some activities you thought would happen at the start of the year will not happen- enough other things are on stream that represent good value for money and deliver good results. As Mark has said, we do have a pretty good track record of balancing these things over the years. One of the most important indicators for me is that neither the NAO nor our own internal auditors come along and say, "You have made payments ahead of need." That is something that is really important for us to protect because, as Mark said, delivering value for money is still the most important driver. Ultimately, to manage this, it is all about having enough pipeline and flexibility that spend can move both from future years into the current year and the other way.

Q25 Jeremy Lefroy: Would it not make more sense, certainly for a considerable part of the spending and that which is more to do with investment, to do what the Germans and French do, and effectively have a development bank within DFID that is not so constrained by the need to balance the books or make sure the cash is spent by 31 March? With the increase in spending in 201314 and beyond, it looks as though that problem, which some people have described with NHS spending as landing a jumbo jet on a postage stamp at the end of the year, is going to be almost impossible.

Mark Lowcock: On the first part of what you have said, the development bank concept-this is just a personal comment-that is a really interesting idea for us to look at in general terms. We have a narrower suite of instruments, ways of providing support for development, than some other donors do. From time to time, it is worth asking if we should explore a wider range of instruments. Next year, in a way, is not a bad year to be having a look at that, because the goals for international development with the postMDG Panel, the G8 and so on will evolve after 2015. It is worth asking if we have the right tools to hit those goals.

Q26 Jeremy Lefroy: The reason I raise that is our visit to France, when we saw what the Agence Française de Développement does. They were saying the development bank has a total value of some €17 billion, and is therefore able to take a much longer term view on projects. It is also able to raise money on the open markets at reasonable rates of interest, which counts as net ODA without affecting the Government’s budget. It seems to me quite clear that both they and the Germans are increasing their ODA in that way, without it having such a direct effect on the Government’s budget, as well as giving them this longterm flexibility.

Mark Lowcock: I have indicated I am personally quite sympathetic to exploring that set of things. The second thing I need to say is that the accounting and financial management rules, for the Government as a whole, are a bit above my pay grade. My job is to operate with the system that the Treasury and the rest of central government have put in place. I engage with colleagues in a constructive debate about how that system might be improved, but ultimately what we are responsible for is making sure that, in the Department, we follow the rules that are set. I welcome this issue.

Chair: The Committee is committed to an inquiry on the future of development co-operation, in which we want to discuss precisely these ideas.

Q27 Jeremy Lefroy: The point I am trying to get at is whether you think, and you are indicating you have some sympathy with the point, that the way in which Treasury accounts for spending in this country is actually detrimental, to some degree, to our development programme and the flexibility that we have to make it best value for money.

Mark Lowcock: I think you have pushed me a little further than I am ready to go. I will never show my face in front of Nick Macpherson again if I get drawn too far in that direction. I do not think we are particularly constrained by the rules at the moment actually. It is just that it may be-and we are going to give you our first written evidence for your inquiry into future development systems shortly-that we are missing some opportunities. That is the way I would characterise it.

Q28 Chair: Before I bring in Fiona Bruce, you did mention Rwanda. As an administrative point, why did the Department feel it necessary to make an announcement on the future of aid in Rwanda after we had issued our embargoed report but before the embargo actually came into effect?

Mark Lowcock: There was some discussion between the Secretary of State and some members of the Committee on this issue. The Secretary of State wanted to make an announcement as soon as she had taken the decision. I would need to refresh my memory on the precise sequence of events vis-à-vis the publication of your report. I will have to take that away, Mr Chairman.

Chair: Maybe it is a matter for the Secretary of State, but the fact is that we kept the Secretary of State informed that we were producing our report as quickly as we practically could, in order to help her with the decision. It just seemed to us a little odd that the decision was made after the embargoed report. The report got quite a lot of attention in that context, but, given that most of the Committee was in Pakistan, we were slightly wrongfooted.

Richard Burden: Most of the Committee was in Pakistan, as the Chair has said. I was one of those who was still here, and I can say that there were discussions going on about how we were going to respond to requests that were coming in for the report when the embargo expired. In the middle of those discussions, we suddenly heard that the Secretary of State made the announcement. If those discussions were not going on with people in Pakistan and they were not going on with people here, I am not sure where they were going on.

Chair: Anyway, it was not the best piece of footwork, I would suggest.

Q29 Fiona Bruce: Good morning, gentlemen. Could I ask you about the new business-case procedures? Could you give us some information about how you feel they are improving the impact of aid delivery on the ground, particularly in terms of value for money? Could you give us some specific examples?

Richard Calvert: We introduced the new business-case procedures a couple of years ago now. There were probably two important things that they were designed to achieve. The first was to make sure we had consistent use of business cases right across the whole value of the portfolio. Previously, we had consistent procedures for highvalue spend, but not so much for lower value spend. We wanted to have a consistent approach to business cases, whether you were spending £1 million or £50 million. There is an element of proportionality in what we expect, in terms of the degree of detail in a business case, but we do want people to think through the same basic questions, whatever the value. That was number one.

Number two was we thought there were some aspects of good project preparation that were not being dealt with consistently enough in our previous procedures. One important one was thinking about the commercial route for delivery, so thinking in advance about how we are actually going to deliver the programme. Are we going to use contractors? Back to some of the discussion we were having earlier, are we going to use a multilateral channel? Are we going to use the government? Particularly around thinking about the commercial strategy and the sourcing strategy, we did not think that was strong enough.

We also wanted to get a stronger analysis of options at the start of the process. One of the things that we have recognised in the Department, and indeed to some extent more widely in the sector, is that people decide broadly what they want to do and then a lot of work goes in to elaborating on the option that they started with. That may be the right route, but the business case that we have introduced puts more emphasis on thinking about alternative options at the start of the process-alternative options for achieving the results that you want to achieve.

The approach we took was essentially to take the Treasurystandard business model, which is a fivecase model that starts with a strategic business case and takes you through economic, financial, commercial and management cases. We think it represents best practice, and our experience of it so far has been that, although some people have found the transition a bit of a challenge, because it has been a big change in the organisation, people recognise the approach set out, and the thought processes they have to go through are more thorough and certainly more consistent.

Mark Lowcock: I was going to offer a couple of examples. Would that be helpful?

Fiona Bruce: That is exactly what I was asking for.

Mark Lowcock: I touched earlier of some examples of driving down costs through bed-net procurement, vaccine procurement and so on. We had a very interesting case on the procurement of injectable contraceptives for women, where we were doing individual procurements, here and there, country by country, and other organisations were doing the same thing. Through the use of the business-case methodology, we identified an opportunity to use the collective purchasing power of DFID across all our programmes and of organisations like UNFPA and the World Health Organisation to get together and use our market power with the suppliers of the injectables. Through doing that, we negotiated very dramatic reductions in the unit cost, so that was a specific case where we got much better value for money, not just in the project where the issue first arose but across the whole portfolio, and not just for DFID but for a lot of other organisations as well, which is really the point of the business-case concept. It is not to leap straight from the particular outcome you are trying to reach to the route you first thought of, but to ask broader questions about whether there are better ways to achieve this. That is really what we are trying to do.

We always have to look at whether we are creating a set of processes, systems and documents in the organisation that is too big, overwhelming and bureaucratic. Our staff are extremely good at telling management when they think that is the case. In 2005, we had a very big exercise to get rid of what was then three volumes, 1,000 pages, of office instructions, which was all these processes and systems, and replace them with a short single volume. What happens in big organisations over time, public or private sector, is they tend to accrete processes. It may well be that we need to have another look at the set of processes we have accreted and see if we can streamline and rationalise again.

Q30 Fiona Bruce: That would be very interesting. Perhaps it is something that we could pick up on. Could I ask you about the Logframe process, in particular in relation to smaller NGOs? Some find it bureaucratic. Perhaps we are even missing opportunities to use NGOs, which, in terms of value for money, can often be the best value. Have you any comments on how we could address that challenge?

Richard Calvert: We have tried to support training, particularly for organisations that are not familiar with Logframe. Through BOND, for example, we have supported the provision of training and advice on how to develop a basic Logframe. The Logframe is in use very widely in the development sector. It is not just a DFID tool; many organisations are comfortable with it. You are clearly right that, for small organisations that may be new to using a Logframe, it can be a bit daunting. Mostly we have tried to offer advice ourselves, provide structured training and also not to necessarily knock back a project just because an organisation does not get it right first time.

Q31 Fiona Bruce: Two final questions, if I may: when you are bringing forward what are really quite huge sums of money in the public concept, like £580 million from 201213, how do you apply robust business-case procedures to that? Could you clarify that?

Richard Calvert: What would be happening generally would be around the phasing of a multiyear programme that has already had its business case approved. It would be unusual, if not impossible, to start with an idea that did not have a business case developed two months from the end of the year and be in a position to spend that money. I cannot think of any circumstances where that would be likely to happen. It is much more about a multiyear programme, where you have been through the full business-case proposal. You are essentially saying that actually the project can move a little faster than was first thought.

Q32 Fiona Bruce: My final question is about the change in the review by the Secretary of State to all proposals of £5 million or more. How do you think that will change your review procedures?

Richard Calvert: To be honest, we have approached it on the basis that the fundamental business-case procedures and the approach we expect people to take are the same. That is what the Secretary of State has underlined. From her perspective, this is about her really understanding where the money is going and seeing the kinds of activities that we are putting in place at an early stage. The basic documentation that we show to her is the same documentation that people already prepare. We have not introduced new processes or formats. The Secretary of State sees the same summary document that is already prepared, and then obviously has an opportunity, if she wants to go into more detail, to look at the full case. No, we do not see it changing the basic process, and we have a weekly cycle so that the flow of activity also does not get significantly delayed.

Q33 Mr McCann: Could I ask some questions about the London accommodation move? Of course, I will declare an interest at the start, seeing that I am the MP for East Kilbride, Strathaven and Lesmahagow, so a significant chunk of DFID is in my constituency. The Cabinet Office took over responsibility for Palace Street, and they are going to terminate the lease at a cost of £13.8 million. You have agreed as a Department to pay back the savings that you generate from the move, which is £11.7 million. I suppose my question is: why is Francis Maude being so generous in paying £2.1 million?

Mark Lowcock: Firstly, as you know, as part as this overall change in our HQ functions, we are actually moving 50 or 60 additional jobs up to East Kilbride. We are moving into a smaller building in Whitehall. The Cabinet Office had 600 people in that building. We will use it in a more flexible and, I hope, more modern and smarter way, and we will have 800 people in it. We are doing this because there is a very strong valueformoney case-and Richard can talk through the payback period, the rate of return and so on-for the Government as a whole. The question you are asking is about an intraGovernment transfer. The Department is better off as a result of this proposition. The Government as a whole is better off. We wanted to be constructive in the intraGovernment discussions we had on this point. We think we have ended up with a good deal for the taxpayer as a whole. I do not think the taxpayer particularly distinguishes between the Cabinet Office and DFID on this point. That was fundamentally driving us, but let me ask Richard.

Richard Calvert: On your direct question of why the Cabinet Office was prepared to put some money into it, it is because ultimately it is part of their London accommodation strategy. For us, there are very much two parts to this. We were offered the chance to move to 2226 Whitehall. It makes great sense for us financially, so we took up that offer. We then transferred, as you say, the building that we are currently in to the Government Property Unit. They had a choice to keep it on the public books for the next eight years or to terminate the lease. For their overall strategy, it makes better sense to terminate the lease. We said, "We are prepared to give you the savings that we have made as a result of this, and it is up to you what you do with it." I guess for them we were putting in quite a significant chunk of money to enable them to get to the outcome they wanted to get to. The balance was down to them.

Q34 Mr McCann: I am thinking about hiring you for the negotiations for my London accommodation because, if you look at page 25 of the NAO report, you will see that Palace Street has a rent of £5.7 million, but 2226 Whitehall is nothing. Can you tell me how that works out? Surely there is even some sort of notional sum that has to be offset for rent. If there is not, tell me what your trick is.

Richard Calvert: There is no rental sum. We do have to carry some depreciation costs on the building and on our investment in the building, so there will be an element of depreciation that will be charged to the Department. Essentially, it is about the Government saying across the whole estate it needs to think a lot more intelligently about making use of the freehold property that Government holds. It works for everyone for us to move into this building. It clearly saves us money, but of course our admin budget is coming down, so the Treasury is benefiting as well, because it is giving us less money for admin costs. The numbers are correct; there will be an element of depreciation. It is a bit of a winwin this: it is good for DFID; it saves money for the Treasury and the taxpayer; and we have managed to take off the Government estate a building that is costing £10 million a year.

Q35 Mr McCann: It might seem a bit odd me asking this question, as someone who campaigned in the 1980s for more jobs to be transferred from London to East Kilbride in general to share the civil service wealth around the country, but you mentioned that 50 to 60 posts would be transferred to Abercrombie House. In terms of future travel requirements and videoconferencing technology, is there going to be additional travel as a result of the move or will the new technology cater for any meetings or contacts that are required?

Mark Lowcock: I will ask Richard to come in on this again, but I would like to put this in the context of the organisation as a whole. As I said earlier, the organisation is now 2,600 people; it used to be, 18 months ago, 2,300. That growth is primarily in the overseas offices, so, when we look at things like our videoconferencing, our IT capability, the systems and also the travel budget, what we need to do is look at the whole picture. We are embarking on an important refresh and modernisation of our IT and videoconferencing system, which will dramatically drive down the costs, because we will make less use of expensive satellite technology and more use of the broadband cables that are running around the sea, all round Africa. We will take advantage of the fact that we can have secure telecommunications and protect the information of a sensitive sort we have on the system with newer and cheaper laptops than the last iteration we had. The biggest drivers of those sorts of investments are actually things for the organisation as a whole, rather than coping with a different dispensation between the two HQ locations. Let me ask Richard just to speak to that.

Richard Calvert: The cost of travel between London and Scotland has stayed relatively stable over the last three to four years. That travel costs us £400,000 to £450,000 a year, so it is quite a small element of our overall global travel budget. As Mark said, we are stepping up our video capability, so everyone will be able to run videos over their own office laptop, and the spaces in both buildings to make that work sensibly will be much better than they have been in the past. We do expect video to still be really important, but face-to-face travel and meetings will also be important. In the context of the overall savings and costs of accommodation, even if we had a 10% or 20% increase in travel, you are talking about tiny sums of money in relation to the overall value that we gain by having an office in Scotland. The overall costs of running an office in Scotland are significantly less than half those in London. I think it is something like a third cheaper to have a staff member in Scotland than in London. Even with some travel and some investment in video technology, it is still a very sensible thing for us to do.

Mr McCann: Chair, can I just say that I am glad to see that the predictions that I made in the 1980s have been realised?

Q36 Chair: Not now, but are you able to give us any more detail of how those savings have come about? Backing up Mr McCann, I think the split headquarters is a good thing actually. It would be interesting just to see how, with these arrangements, the cost and savings are brought about, if you are able to give us a note on that. Thank you very much for that.

The issue that I suppose the last two visits have brought home to us is the issue of security, which I want to explore a little, and the costs and the inhibitions that go with it. I just wonder if we can explore that. I have to say that, having travelled around in both Pakistan and Afghanistan, under close protection in the case of Afghanistan, and in the case of Pakistan under quite strict security, I felt anything but inconspicuous. We were driving around in an armed prison van, as far as I could tell, in Pakistan. We had squads of outriders and all that kind of stuff. In Afghanistan, we had close protection wherever we went. It costs a lot of money. It actually draws attention. It has been put to us that the security industry rather sells its case as to how strict it should be, and that it actually inhibits the ability to get around and make communication. The NGOs that we support do not do that. I was talking to somebody from Afghanistan who has been there for seven or eight years doing development work. He lives in an ordinary house, takes local taxis and has never had any trouble whatsoever.

The final point on this is you know the situation in Bamiyan. We put this in our report, and were criticised for it. We were not allowed to move out, even though we were reassured by the PRT. They pointed out that an American General walked into town in full uniform to get a cup of coffee, and nothing happened other than people came up to shake his hand, welcome him and thank him for being there, and yet we were told, "You cannot go anywhere; you cannot do anything. It has to be close protection." It is not just a question of the Committee’s experience. Our concern is that, for the DFID people, it actually makes it very difficult to do the job. I just wonder whether you are satisfied we are making the right decisions, or is the security industry making the decisions for us?

Mark Bowman: We provided you with a background note on some of the security costs, which basically describes the bulk of our security costs.

Q37 Chair: On that particular point, they went down in Afghanistan and then they have doubled again, so perhaps you might just address that.

Mark Bowman: The table we have provided for you provides the bulk of the costs. There are some elements of the costs that are covered by our central contract with the Foreign Office, but these describe the key trends. For rather obvious reasons, as you have described, our costs in Afghanistan are very significant. Some of these figures go up and then down, and some of these trends in the figures are quite intuitive. Some of them relate to where physical security upgrades have happened on offices or investments have been made at particular times. That explains to a degree why some of the figures are lumpy.

The questions you ask are the right ones. To draw this comparison with the NGOs is the right question to ask. I am afraid to say, though, that, in some of the countries where we operate, there is a material difference between working for an NGO and being associated with the UK Government in a Government Department. We have to take the security of our staff extremely seriously and we have to make these kinds of judgments about how to keep them safe.

Mark Lowcock: To add a couple of points to that, we have a crossgovernment approach to security for crown servants working in fragile places. As you know, we have over the last decade suffered a series of attacks on our establishments, kidnappings and lots of other threats. We have a good record across government but including DFID of looking after people, which is important in terms of maintaining the confidence of our staff. We do attach a high weight to making sure we can do that.

I take your point that you have choices about the level of profile you have in any particular environment. We take those choices in an intelligent way, environment to environment. You have been to some other places, I know, where the particular arrangements we have are less obtrusive than the examples you have given. The way we take those judgments is by looking at the set of risks. It is not appropriate for me to go into enormous detail, country by country, about how we see the risks in a forum like this, but we do look very hard at whether, in particular places, the safest approach is a lower profile approach.

We have a committee in the Department, which Mark and Joy Hutcheon, who you know, chair. The security committee works across government. It looks every quarter at the particular security posture everywhere we are. We have an incentive to try to reduce the costs and keep them down, but we also have a legal obligation to provide a proper duty of care to our staff. We need to bear in mind that, were we ever to have a problem, or whenever we have a problem, the cost of dealing with it, with a kidnapping for example, is very high. Minimising the number of times we have to deal with those costs is also something we need to bear in mind.

Q38 Chair: We understand those issues. Forget about the Committee’s visits; they are beside the point. Our concern is that it actually inhibits the ability of DFID staff to do the job. That is the problem. We are guaranteeing them security but making it, in some cases, difficult to the point of impossible to do the job properly. That is the point of concern, where you have to make a calculation. If we cannot do this in a slightly more lowprofile way, maybe through third parties rather than directly, maybe we should not do it at all.

Mark Lowcock: I worry about that too, Mr Chairman. Let me take all this away and we will have another look at it. I am grateful to you for recognising that we are weighing a number of different things in taking these judgments, but I do take your point.

Q39 Richard Burden: This is on the same lines. Clearly we all understand and accept that you need to keep DFID staff as safe as possible, but one of the things that was just occurring to us is that decisions about the level of security and how obvious that security is are also about things like the balance between locally engaged staff and UKbased staff over there, where different levels of security may apply, not because it is any more important to keep one type of staff safer than the other but because the security risks are different. This was something that we brought up in the Afghanistan report, but do the discussions that go on about security and appropriate levels of security overlap with discussions about the effectiveness of the operation there and what that might mean for who you employ to do a particular sort of job, as well as the security that goes with them?

Mark Lowcock: I am really at the limit, Mr Chairman, of what I want to say about all this in a public forum. Could I offer a private discussion with the Committee, in which we can explore these issues in more detail?

Chair: Okay, thank you.

Pauline Latham: I have to say that we were incredibly well looked after, both in Afghanistan and more recently in Pakistan-incredibly well looked after, with great care taken not to offend the local people as well. It was very well done.

Chair: That is absolutely correct.

Q40 Chris White: Before I ask my question, it should be recorded that we do appreciate the work that DFID does-a very difficult job in very hostile circumstances. Please pass our thoughts on. What impact will the cuts in administrative staff have on your capacity to scale up our aid programme?

Mark Lowcock: We are reducing over the Spending Review period our admin budget by about a third, but growing our frontline delivery budget. A lot of the things we are doing on the admin budget are in the category that Mr McCann was asking Richard about-accommodation costs, IT costs. We have done some other things as well, which do not impinge on staff numbers. We do have a significant programme of efficiency in our corporate services, which is reducing staff numbers in those areas. Richard can say more about that, if it would be helpful.

The quid pro quo is we have a very substantial boost in our professional capability for frontline delivery, with about 400 extra people in that space over the last 18 months. As you know, Mr Chairman, I have been here over a number of years now answering questions on this point. Certainly three or four years ago, when Minouche and I were here, this was a subject on which we were worried, but we have grown in capacity and we have not yet got through all of the benefits of that growth in capacity. My current estimate is that we do have the capacity to deliver, particularly across the bilateral programme, because we have so substantially grown the professional capability of the major overseas offices. That is not my top worry in terms of delivering all the results and impacts we are trying to deliver at the moment, but we need to keep it on track.

We are not completely through all the growth, and there are still some remaining problems. We are still struggling a little bit more than we would like to on staffing in some parts of West Asia, and in some disciplines like public financial management. Those people, at the rates we can pay, are hard to recruit sometimes. There are some continuing problems, but we are certainly in a better position than we have been for at least a decade.

Q41 Chris White: You have just said you are decreasing the admin staff costs by a third, whilst at the same time increasing frontline capacity. Is that a difficult balance to make and are you doing it quite rapidly? Are you managing to keep up with your plans?

Richard Calvert: We are doing it over a threetofouryear period, so I think that gives us enough time to get it right. As Mark says, we have probably recruited 400 to 500 extra professional frontline staff. We will have some more recruitments still, probably another 100 to 200 extra staff, over the remainder of the Spending Review period, particularly targeting some professional disciplines. In terms of the core admin reductions, we have made some reductions there, but we will make more reductions in 201314. There is a significant chunk of staffing reductions that will follow from automating a lot of our HR processes. That will reduce the number of staff we need to do that. We are also looking at the staff who essentially do corporate activities around the network and how efficiently all of that is done, and whether we simplify some processes there. The timescale means that we have been able to do this in a way that has not compromised our ability to provide the support that we need to provide from the centre to the business. That is clearly the balance that we are weighing up all the time.

Q42 Chris White: Just to explore this a bit further, I think you employ 700 professional advisers and now that number is going up to 760. Are you shifting from an internal employment model to the professional adviser? Is that the way you are shifting your budget costs?

Richard Calvert: I would not draw such a clear distinction between advisers and nonadvisory staff. For me, the distinction is between staff doing programme delivery, which comprises a range of professional advisers but also the core programme management staff. If you go to a country office, as you know, you meet a mix of staff who are doing core programme management and some people who are there with a specific professional discipline. The shift is into that group of staff and out of the staff doing support work in particular. It is important also not to forget about all the staff doing policy and international oversight work, many of whom are in the UK. That is another very important group of people.

Q43 Chris White: Are these professional advisers?

Richard Calvert: They are a mixture. If you look at the policy division in London, there will be a lot of professional staff there who are both working with international organisations but also looking after the cadres of professional staff across the network. The professional advisers in DFID are very much integrated into our business units, whether they are country offices or policy teams in London.

Mark Lowcock: One way to see this also is the proportion of staff who are what we call Band A, the middle professional level, who are typically people in the 30s or 40s with a postgraduate degree and five or 10 years’ experience. That group is growing as a proportion. That is part of the professional capability of DFID. The proportion who are in administrative support or more junior roles is falling. Clearly, we need enough people in those roles, but we are increasing the numbers at the professional levels, whether programme managers, economists, government specialists or engineers.

Q44 Mr McCann: Is it not true that, in terms of stripping out the administrative layer, what you have done is that all the tasks that were previously tied to the administrative layer are now being done by people on extremely high salaries?

Mark Lowcock: I do not think that is the case, no.

Mr McCann: That is what I was told by Liz Ditchburn in East Kilbride.

Mark Lowcock: Most of the tasks are being automated away. We used to have hundreds of people in DFID whose job was to put papers on to files. We do not have those jobs anymore, because we have automated our recordkeeping. Last time, Mr McCann, I think you noted that we had gone back to a better system for our travel expenses than we had had in place for a while-a much more rational system. That took people out as well. People want interesting jobs to do with more professional challenge in them. On average, jobs have got a lot more interesting. There are fewer that are routine and mundane.

Richard Calvert: If I can just add one thing, and this may have been Liz Ditchburn’s point, we also want people who are doing programme management and doing professional jobs to care about the people and the money side of what they are doing. If you had gone back 15 years, you would have found a lot of professional advisers in DFID thinking that looking after the money was someone else’s job, and we had a layer of administrative people to do that. We do want people right across the organisation to care about how we manage our resources. As Mark said, the simplification of processes and ways of working means we need fewer people at an administrative level to do that, but those things are still really important.

Q45 Chris White: To go back to where we started this series of questions, how can you encourage more people to work in these hostile environments?

Mark Lowcock: Most of the growth that we have had has been in tricky places. Something like a quarter of those UKbased staff who are posted overseas are in places where they cannot have their partner or their children with them. Clearly we need to recruit people who are able and willing to go and work in those environments, and a lot of the recruitment we have done has been of people of that sort. What we are going to see is that, over time, we will have larger numbers of people who will come and work for part of their career with us and then go and work in other places where there are more opportunities of the sort that suit them as their lives evolve. For most people, there are some times in their career when working overseas in a challenging place works well and other times in their life when it does not work so well. We need to staff the organisation to deliver what we have to deliver, as well as retaining enough opportunities for people to grow and develop their careers. Because the reputation of DFID has improved over the last 10 years, lots of other organisations want to hire staff from us, and so that means people can come to us for a while and do great things afterwards. Some mornings I regret the scale at which that is happening, but overall I think it is a good thing. That is how we are trying to manage it.

Q46 Chris White: Could you comment with particular reference to Pakistan and Afghanistan? A subsequent question would be: how many contractors do you employ in those countries?

Mark Bowman: This is a very interesting set of questions. As an organisation, as we increasingly work in these types of countries, we have a significant challenge in terms of recruiting good staff to work in these places. It is partly about making sure that we look after our staff while they are there and we provide them with good conditions and security, and it is partly about being clear with them that these are the exciting new areas to work in, if you are a member of DFID. This is the cuttingedge, challenging side of development. To your question on contractors, we can provide you with that detail. I do not have it at my fingertips at the moment.

Mark Lowcock: In general on contractors, because we have grown our own frontline delivery capability, we have a smaller need for contractors and consultants doing the internal stuff. As you know, there has been a ban on consultancy expenditure from the admin budget, so we have been lucky compared with some other Government Departments in that we have been able to resource ourselves internally to provide those things that previously we had gone for externally. It is still the case that one of the things that lots of developing countries want from the UK under the development collaboration is expertise, advice and technical capability. Providing that through contractors is, if you like, a product line for us, but we are using less consultancy in running our own organisation than we used to.

Chris White: Thank you. Chairman, can we take up Mr Bowman’s offer to supply us some figures on contractors? In my view, this is an area that does need to be controlled. It is an area that sometimes snowballs.

Chair: It is also helpful, because we get allegations and accusations for which it is better to have some information.

Q47 Mr McCann: Can I take you to page 35 of the report and paragraph 3.10, which says that the Department does not routinely collect aggregated data on the language skills and cultural awareness of its home civil servants or the length of time they have been in post? The question would be: how can you take well informed decisions on how best to deploy home civil servants if you do not hold that comprehensive data?

Richard Calvert: To be honest, I was a little bit surprised to read this, because I personally think we have quite good information, particularly on the language skills, qualifications and backgrounds, because for all staff we hold a personal searchable CV on our internal system, so I could go and look up any member of staff, and the fields we collect include exactly these things. There may be something the NAO has found here around whether that is used on a 100% basis or whether some people have not got uptodate data on it but, from my perspective, we broadly have this information, so it would be worth checking with the NAO what exactly they think we are not collecting.

Q48 Chair: They are just telling us their publication was agreed with the Department.

Richard Calvert: Yes, although I personally do not know what the response was. I can confirm we do have information on things like language skills and qualifications in the Department.

Mark Lowcock: The issue is whether we are aggregating it as opposed to collecting it. As Richard says, if you are on the IT system as a staff member in DFID, one of your obligations is to put your CV there and the skills you have. There is a nice question about how much money we should spend centrally aggregating all the information there, counting the number of language speakers in a particular area. That may be something we can explore a little bit more, but it comes at a cost.

Q49 Mr McCann: I would imagine it would be fairly modest, but it is something perhaps you could look into and maybe come back to us on. One issue that we have seen on our travels is the importance of individual members of staff having a knowledge of the culture and the country that they are working in. Therefore, it has struck us sometimes as odd that there is this threeyear limit on the amount of time staff spend in country. I just wondered if you could give us an explanation of why three years is the chosen time that people should work.

Mark Lowcock: It is a really good question and an important issue, because having some kind of institutional memory and longevity of understanding is really important. Of course, we get that to a greater degree from our staff appointed in country, many of whom, these days, are professional advisers, and so contributing to the policy development and the higherlevel work, but we also need it in our UKbased staff when we are posting them.

There are a number of constraints. Firstly, it is not sensible in the most dangerous environments to have people in post too long. Three years, for somewhere like Afghanistan, is really the outer limits of what somebody should do for their own physical and mental health. If someone has been in a place like Afghanistan for that length of time, they need lots of help and support adjusting afterwards. We have a responsibility for that. Most people should do shorter tours in a place like that. One thing we can do though, maybe better than we are doing at the moment, is think about the series of postings people have. On Afghanistan, we have got larger numbers of staff now than we used to who would do a Londonbased job on Afghanistan before they go to Kabul and Helmand, and then maybe again afterwards. That is a way in which we get better value, if you like, from the institutional memory and knowledge that people build up.

Outside the most dangerous environments, there is more flexibility over tour lengths. In some of the other countries you visited this year, you will have met DFID staff who have been there four or five years, in some cases. That clearly makes sense institutionally, while at the same time we have to encourage people to get enough broad experiences to be able to develop their career and move on. Those are the things we are juggling.

Q50 Mr McCann: I understand all that. I just wondered if you had ever thought of making the tour in areas that are not fragile or insecure longer than three years as standard, because it would increase the institutional memory and knowledge that is held. Hugh Bayley raised the point when we were in Afghanistan that that is exceptionally difficult when you are putting people in postings of one or two years. The problem we found when we were asking questions in Afghanistan, when we were based in a bunker in Kabul, was that there was a limited amount of information we could get feedback on. In fact, in some respects, there were more members in the Committee who had knowledge of Afghanistan and had previously visited than the staff who were there. I understand the point about how long someone can stay in an environment like that, but do you take that into consideration in terms of profiling individuals, their mental strengths and capabilities, before they go out to that type of environment? Again, I do not want to lead you down a path, as you do not want to give away too much. You might want to reserve it for our private meeting.

Mark Lowcock: On that point, we absolutely do that. People do go through a series of steps before we will post them anywhere difficult, and we will only post people who we are confident have the professional skills, personality and resilience to cope. We absolutely do that. We will take away your point about whether the general presumption of a three-year expectation for the less hostile places is the right presumption. Maybe we should just be more flexible about that. I also have had the same experience as you, having myself visited Afghanistan for about 10 years now, of finding I have a bit more institutional memory than some of the team on the ground. I do think a way of dealing with that, and I will bring Mark in, is the series of posts that people have. You can stay working on a country like Pakistan or Afghanistan for a number of years, without being there the whole time.

Mark Bowman: Just to add to that, clearly in Afghanistan there is a problem in terms of maintaining the institutional memory, with the very good reasons for shorter postings. Over the years, however, we have had a number of people who have worked in Afghanistan on multiple occasions or have worked on Afghanistan in London and then gone to Kabul. Also, because of the high turnover of staff, we have a lot of people elsewhere in the organisation who have experience of Afghanistan. One of the things we are currently working on is to see how we can do a better job of harnessing those skills and experiences of people who may, for obvious or good reasons, have moved on to a different area of DFID but still have an institutional experience. We need to find a way of making that knowledge and skill base available to the current staff who are working there.

Q51 Mr McCann: Forgive me for jumping the gun, but in terms of the recommendations that were made in this area in the Afghanistan report, do you have any comments that you could make?

Mark Lowcock: The Government is due to respond by 23 December to your report. I will not be that day that we respond, but we will by the 21st. I do not think it would be proper for me to prejudge that, if that is alright.

Q52 Chair: I wonder whether you are satisfied with language knowledge, nevertheless. You may have the records but, generally speaking, the DFID staff we meet are very dependent on locally recruited staff to act as interpreters. Speaking for myself, I am not a great linguist, but I am not impressed that many DFID staff, who are very good in many other ways, do not appear to have local languages to any great degree. Are you comfortable with that?

Mark Lowcock: I will have another look at that. It is very expensive to equip someone from a standing start with a high level of knowledge for some of the languages that you need in the places we operate. One of the reasons we have larger numbers of highly professional local staff is to get that capability inside the organisation in a cheaper way, but I will take it away and have a look at it for a few places. There is a cost barrier that we need to think about.

Q53 Mr McCann: As I said, the resignation rates of staff appointed in country are much higher than that of home civil servants. Is this a concern and what are you doing as a Department to address it?

Mark Lowcock: One reason for that is most of the people we hire in countries, by definition, are not available to work for us in third countries or in the UK, so the number of additional opportunities available to them, in an office of 50 or 60 people, is obviously smaller than if you are one of our UKbased staff, for whom there are 2,000 or 1,800 opportunities available. That is the first thing to say.

There are some places where our local staff have said to us that we are not keeping up with the pay and benefits of other comparable employers. We operate a crossgovernment approach to terms and conditions for local staff, so we do that together with the Foreign Office. We are not trying to compete, because we cannot afford to, with the top employers in every market. On the whole, we think that some degree of churn and refreshment is a good thing, as I said earlier. We do not at the moment have any places where we have a major problem in recruiting and retaining staff of the calibre we need. Some people think it would be healthy for us to have a slightly higher turnover rate of staff, both in the UK and overseas. It is something we need to keep an eye on, but it is not something at the moment we are highly worried about.

Q54 Mr McCann: In terms of the reasons for the dissatisfaction of local staff, there were insinuations-or more than insinuations-about discrimination, harassment and bullying. There were also other issues about salaries. On salaries, are there separate pay scales in every country in which we operate compared with the British ones? In terms of the discrimination and bullying point, there could be various reasons for that. It could be linked to the initial disgruntlement about pay, for example, and that is what they could be including in that. What is your measure of where those particular problems lie? In terms of, for example, DFID Afghanistan, the home civil servants will be paid on salary scales that are for Britain. In terms of the local staff, how do you then go about making a judgment about what the salary levels should be? I appreciate you do not go to the top, but where is the judgment made in terms of where the salaries should lie?

Mark Lowcock: Basically, the system we have is that, in each place where we hire local staff, we survey the local labour market and we compare ourselves with a range of employers, so the World Bank, other embassies, leading private-sector employers and the public sector. We draw up a pay scale for each of the sorts of jobs we have in each market, and we do that together with the Foreign Office. Pay and associated benefits are set market by market, according to what happens in that place.

On the issue of other things that matter to people when they come to work, our local staff tell us the work we do in DFID is inspiring and it is worth getting up in the morning to come and contribute to that, and that they feel included and valued. They think we are serious about investing in their learning and development. But there are also, in one or two places, issues of whether everybody is treated fairly and equally, which you allude to. We have just taken delivery of this year’s staff survey. 2,300 people around the organisation have answered 50 or 60 questions telling us exactly what they think about that whole set of issues. We are digesting the results at the moment. We absolutely have something to do on this bullying and harassment issue, but it is very localised, and so we need a local response to those kinds of issues. The managers in charge of each location or business unit have a personal responsibility to work out what is going on in their area.

Q55 Mr McCann: On a slight tangent, one of the issues that I certainly find when we go overseas is that we speak to local staff, we speak to the home British staff, and we are trying, in a lot of areas we are working in, trying to change governance and attempting to change cultures in certain ways. For example, when we were in India, I was talking to one of your staff who was a local member of staff, and we were talking about the caste system. Of course, it was outlawed when the country was formed. He said, "No, it doesn’t exist." I just gave him the retort, "Which caste do you belong to?" to which he responded, "I am in a high caste." It struck me as a bit of an irony. Do we do any training there? It is all very well that we are trying to change governments in countries, but do we do anything in terms of the local staff, in terms of trying to change their outlooks in order to help us do a job on the ground?

Mark Lowcock: We absolutely expect our local staff to absorb and display behaviours that are consistent with the values we have across the public service in the UK. They are coming into our system and, as part of the induction and support and training we give them, we are very clear about standards of behaviour that are expected. That touches on a whole range of issues. Lots of people have possibly previously worked in environments where corruption or bribetaking is tolerated in a way in which it absolutely is not in our system. We do make sure we acclimatise people to how we do things around here when we hire them.

We also try to make sure we get the best out of our local staff in informing us of what is going on in the wider environment. I was in Rwanda three weeks ago and Uganda last week, and some of the best intelligence I got on what is going on and what we should really be caring about was not actually from President Kagame or President Museveni, both of whom I had conversations with, but from what the citizens of the country, not least our own staff, said to us. They are a really important resource for the organisation in making sure we understand the context and can operate effectively in it.

Q56 Mr McCann: My final question is: to what would you credit the reduction in staff turnover in West Asia over the last three years? What reasons would you provide for the reduction in staff turnover in West Asia?

Mark Bowman: Part of that is that we have been through a process of scalingup our presence there. I do not have any specific golden bullet as to why the turnover has reduced, but this is an exciting part of DFID, with good offices in good shape and good places to work.

Chair: We still have a few questions to get through, so we might need to move along a bit.

Q57 Fiona ODonnell: I think you have probably answered the first question I was going to ask, which was about reinforcing or improving value for money in your dealings with contractors. The Secretary of State said that she was engaging directly with the top suppliers, and I just wondered if that engagement had added anything in particular.

Richard Calvert: We have had an initial meeting with our top suppliers. I think the extent to which that changes practice, behaviour and value will become apparent over the next few months.

Q58 Fiona ODonnell: In response to this Committee’s report last year, you said you would look at how to improve the management of service delivery programmes, including more use of inhouse staff. I just wondered if you could update us on progress with that, please.

Mark Lowcock: Yes. Obviously now we have a larger internal capability, we have made less use, as I said earlier, of consultants to design and appraise programmes. That has been an important step forward. One of the things the Secretary of State has done since she came in is enable us to get a much edgier conversation with our big suppliers. I gave you some examples earlier of how we have driven down costs. We are doing the same on issues like fee rates and cost of expertise. I gave an address to the annual PwC conference on international development. I set out quite a strong agenda of driving value for money through consultancy services, and I expect we will have another series of examples to offer you next year.

Q59 Fiona ODonnell: On the subject of transparency, you also said last year that you would look at collecting and publishing information on expenditure on technical co-operation by purpose. I just wondered what progress has been made in that area.

Mark Lowcock: I will have to check on where we are on the aggregation exercise. As you may know, an NGO called Publish What You Fund earlier in the year conducted an exercise to rank 72 organisations according to the level of their transparency in providing development assistance, and they ranked us top of the 72. We do publish all of our project information, project by project, on the website. There are some rules we have to follow, set by the OECD, in terms of how we report on technical co-operation, and we are in a discussion at the moment with the OECD to try to streamline and simplify those rules to make what is published more accessible and intuitive to people. We will have to come back to you on the aggregation point.

Q60 Fiona ODonnell: In terms of improving and going even further on transparency, the NGOs and the TUC have recommended that DFID should instruct all their commercial contractors and consultants to release open data, conforming to the International Aid Transparency Initiative, by the end of 2013. Is that going to happen?

Richard Calvert: We launched just last week an aid transparency challenge, which is directed at the organisations we work with. That includes multilaterals, NGOs and indeed private contractors. We want to work with those organisations to see what makes sense. We recognise there will be issues around the commercial confidentiality of some information, but our overall approach is to say that the kinds of standards we have adopted in DFID should provide a model for all organisations that are delivering money that is coming from the UK taxpayer.

Q61 Fiona ODonnell: In terms of the increasing expenditure on private-sector development, there was a recommendation from BOND that DFID should publish further details of its private-sector development programme, including which businesses it is supporting and how they will generate propoor outcomes, and be transparent and accountable for their impact. Is that an area where we are going to see progress?

Mark Lowcock: We publish everything. All details of all the projects we publish. The issue is what responsibilities we should take inside the Department for doing lots of analysis, aggregation and different cuts of that data. To some degree, my own view is it is up to the external scrutineers like the NGOs to decide what interests them and for them to do their own analysis. We put all of the data out there in the public domain.

Q62 Fiona ODonnell: Do you not think it would be of interest, though, if someone, for example, had an equal pay policy? That is something we would want to see-the same kind of basic human rights.

Mark Lowcock: Yes, I think that is a good example. When we give grants to anybody or we let a contract to anybody, we have a set of standards that we expect them to adhere to. For me, that is a given.

Q63 Fiona ODonnell: Dose that include private-sector development?

Mark Lowcock: The standards, what you have to do if you want a grant from us, are ones that apply across the board. We do not discriminate. Tell me if I am getting this wrong, but they are generic standards.

Q64 Jeremy Lefroy: I would just like briefly to pick up one question building on what we were asking earlier about the increase in spending next year. What preparations have the Department made to ensure that the considerably increased budget is both wisely and properly spent?

Richard Calvert: Essentially, it is a lot of the things we have been talking about so far. Over the last two years, we have been building up the pipeline. As Mark said at the beginning, we have a pipeline that is very close to 100% for the next two financial years. That obviously has depended on, and will depend on for its delivery, all the additional staff that we have. We want to see that pipeline actually bigger than 100%, for the reasons we were talking about earlier, in terms of managing against the kind of uncertainty that we have to deal with. I am personally not yet satisfied that 98% and 97% are good enough. We would like to see an additional 10%, possibly more than that, of pipeline activity that might come on stream and we could bring on stream if we needed to. Essentially, from my perspective, it is around having a strong pipeline and staff on the ground who can deliver.

Mark Lowcock: We do measure the effectiveness of the portfolio all the time. We have a quarterly discussion in the management committee, which tracks the indices we maintain on whether the 1,000 major projects we finance are performing well. We have had more than two years to prepare for this scaleup. We hope we have used that time wisely. We are driven by the results that the coalition Government has said it wants to achieve in this area. As Richard says, we are trying to generate even more proposals from our teams on how money could be used as a means of creating competition for resources and making sure we fund only the best things, but we have been lucky to have had all that time to prepare.

Q65 Jeremy Lefroy: You will always be doing more than will actually be implemented-this extra 10%. With those very good programmes that your teams have drawn up that are not going to be implemented, do you give them to other organisations and say, "Look, here’s something that needs to be done. It’s your job to do it. We’re fulfilling our commitment"?

Mark Lowcock: We are trying to do better on that than we have done in the past. One interesting thing that we are seeing is that, for some of our most successful programmes, the governments in the countries in which we work find themselves coming under more pressure than they used to, from their own populations, to scale up. Some of you will know that we funded a programme to provide very small cash grants to HIV/AIDS orphans and their families in Kenya, over the last few years. After we had been doing that two or three years in 11 districts in the country, MPs from the rest of the country started clamouring for the Kenyan Government, from its own resources, to be doing that nationwide, which is what happened. That actually is quite a good aspiration for us to have replicated more often.

Q66 Jeremy Lefroy: Finally on presentation in the annual report, last year you said you would consider whether future annual reports would include expenditure in each country per poor person, which you have not actually done. I just wondered why you decided not to present in that way. Having said that, I think that the way in which it is presented generally is very helpful.

Richard Calvert: We have tried to get the right balance of information in different publications. We have tried to improve and certainly respond to some of the Committee’s recommendations on what is in the annual report. Some information is also in the Statistics on International Development publication, and I think there are references to that. We are always happy to look at ways in which, from the perspective of the reader, we can improve the presentation, but what we are looking to do is balance the readability and presentability with having the right level of detail.

Mark Lowcock: Could I make an additional suggestion here, Mr Chairman? Last year, you also had some suggestions on how we could improve the report. Could I suggest that maybe I could ask senior officials to talk to your team about what specific things we might address for next year, and also for us to provide examples of how we could address them, so that we stop being in a position where we are somehow not quite completely satisfying you on the data? It may be because we are not fully understanding the request. If we can have a bit more interaction with you over the next six months, or with your team, before we prepare next year’s annual report, we might score the bull’s eye, rather than whatever the outer thing is.

Chair: That is helpful.

Q67 Richard Burden: One of the areas where the report is helpfully presented is when it goes through, page by page, the 28 priority countries. The picture that emerges from that, though, seems to me to be quite mixed. Of those priority countries, just 29% of the selected MDG indicators are targeted to be delivered. Have I read that right? If so, that does seem a bit low.

Mark Lowcock: As you know, in general globally, there is very good progress made on some MDGs. The halving poverty MDG and the access to water/energy have been achieved five years early. On others, access to education, gender equality in education and reducing infant mortality, there has been quite a lot of progress, even if the targets have not yet been met, and in some cases may not be achieved by 2015. That is the global picture. As you also know, we have selected 28 of the toughest countries in which we are trying to make a contribution from the UK to the MDGs. I do not think it should be a surprise really that the countries lagging are the ones where we are making our effort. It is also important to draw a distinction between how the country overall is doing-and we would not be there unless there was a big problem to solve-and the performance of our portfolio. We expect to deliver the set of results we plan to deliver. One point I take away from the analysis that I have done, which is the same as yours on the data, is we need to get more people into this set of countries, driving progress forward faster. I do not think it is the case that the UK is not making a very strong contribution. We are, but there is not enough in some cases from others. Maybe the Governments in some countries are not focussed enough on poverty reduction as a goal of public policy, as opposed to some other things.

Q68 Richard Burden: I suppose where this does link to what you are saying, where there are significant programmes, for instance in Nigeria and DRC, there is a lot going in but progress is poor. I would guess that you would say part of the reason for that is what you were saying. In Nigeria, there are issues of corruption and so on. In DRC, there are questions of conflict and so on. If you then look down the list of countries that have indicators off track, if not seriously off track-in other words the amber category-they do not particularly fall into the categories of really challenging environments in a lot of cases.

Mark Lowcock: Yes, Mr Burden, you are right. Firstly, the biggest problems are in the first category of countries that you describe-the Nigerias and DRCs-and that is partly because those are the biggest countries, but there is a series of problems that are not fully solved in smaller countries as well. In the likes of Yemen, Somalia, Sudan and South Sudan, progress is very poor against the MDG indicators, which is one of the reasons why we have strengthened our effort in those countries. We have constantly to ask the question: why is this country not doing better than it is doing on making progress? Are there ways in which we could make a stronger contribution or get others to make a stronger contribution? I come back to the fact that we have selected ourselves to work in the toughest places. If we were having this conversation about Vietnam, Cambodia or other countries where we used to operate, we would see a lot more green. We have said "congratulations" and "goodbye" to the green countries and focussed our efforts on the ambers and reds.

Q69 Richard Burden: I can see that. The information base you work on, though, raised some questions, because in a number of the priority countries, you say it is difficult to make a judgment. They are in the grey category, where there seems to be insufficient data to assess progress. Just looking at a couple of those, I could not see what is going wrong there. In some, it is easy to understand. If a place is ridden by conflict or has a dreadful communication system, it is very difficult to acquire data, but, if I look at Nigeria for example, where I would have thought there would be lots of issues about getting good data, you find there that that is not a problem, even though there is a problem with achievement. If I look at the occupied Palestinian territories, there are all sorts of problems there, but I would not have thought acquisition of data would necessarily be a big problem, unless perhaps it is the lack of direct knowledge arising from policies on involvement in Gaza; that is the only one I can think of there. The acquisition of data there is a problem. Can you explain that to me? I do not understand the pattern of where it is difficult to get data.

Mark Lowcock: There are some generic challenges, for example on measuring maternal mortality. There is an unresolved international debate, which the World Health Organisation is leading, on the right methodology and intermittent indicators for that. That is something that applies in lots of places. Then there are some countryspecific things. In quite a number of countries that have been relatively successful in making progress on reducing poverty and achieving the MDGs, they may not have invested very much in their data systems. A big problem in lots of countries in which we work is the census may be 20 or 30 years out of date, so the very basic information is very poor. There might not be good quality information on how many people the health service or the education service is reaching, so you are right to observe that there is no correlation between the quality of data in a country and the general progress a country is making. One thing that we have tried to do in DFID over the last few years, and maybe this is what the force of you question is-maybe we should do more of it-is invest more strongly, probably with others, in building data and information so that some of these lacunas are filled.

Q70 Richard Burden: It may be that on the example of the OPT it is about calculations of maternal mortality, and maybe that is one of the places that is off track, but the other one that is interesting is Nigeria. There is not a problem in Nigeria, whereas I would have thought there would be. Is there something going right in relation to data collection in Nigeria, because my instinct would be you would have to double and triplecheck an awful lot?

Mark Lowcock: My instinct is the same as yours. One thing that is true in Nigeria is that data from the south is much better than data from the north. What you are saying, which I agree with, is you need to take some of these ratings with a bit of a pinch of salt as well, doublecheck and ask if they pass the sniff test. I do agree with that.

Q71 Pauline Latham: You are piloting projects that use payment by results in Uganda, Ethiopia and Rwanda. How is that going?

Mark Lowcock: I looked at the Rwanda education paymentbyresults experiment when I was there three weeks ago. These are very early days. The basic concept there is that we will provide additional finance to the extent that children complete school. It is basically a bit too early to say how that is going. The early indications are reasonably positive. The other thing we are doing in Rwanda is a health programme, where there are personal incentives for staff in the health system to hit their performance measures. That is an experiment about which it is too early to say anything, because it is just getting going. The Ethiopia case is actually going quite well. They have been successful in improving access, completion and pass rates. I am hopeful that we will see a continued positive trajectory there. The Uganda case I will have to write to you about, because I do not remember enough of the detail on that. These are experiments. We are trying to learn as we go along. My forecast is that some of them will work better than others, but it is certainly an interesting area for us to be putting more effort into.

Q72 Pauline Latham: What would you say are the advantages and disadvantages of this system?

Mark Lowcock: One advantage is that you provide a very clear incentive for faster progress. A disadvantage is that you have to make sure the thing you are trying to get the progress on is exactly the right thing, because otherwise you can bring all sorts of distortions into the system and accidentally affect things you were not trying to affect. A general problem is the more resources attached to a particular outcome or result, the more likely you are to get a risk of cheating or other problems. You have to be careful of the weight you put on the experiment. We will distil generically the advantages and the risks of this approach as we bring together our emerging experience.

Q73 Pauline Latham: When you have done this and you have paid out, are you paying it the Government? In which case, how are the Rwandan difficulties at the moment? Are they being paid for their payment by results?

Mark Lowcock: As you know, we are having to look at what reprogramming options we look at in Rwanda, and we have not bumped into a decision on that particular issue yet. That is one of the things we are looking at. In answer to the generic question, sometimes the benefit goes into the sector budget of the ministry and sometimes it is more directly to the people who are responsible for the progress. As you probably know, we ran a big experiment in Andhra Pradesh a few years ago, where we tested out whether you got the biggest improvement in education quality by providing a personal benefit to the teachers in the school or to the school as a whole, say by building a classroom or providing some other collective benefit. That experiment at least revealed that the biggest benefits seemed to be to attach the incentive to the individuals who were mostly responsible for the progress, which is kind of intuitive. We are trying to find out whether that is generically applicable or was something to do with that particular experiment.

Q74 Pauline Latham: Do you see any particular barriers that will stop you rolling this out a bit further, once you have done an evaluation?

Mark Lowcock: That is really the test. Proving the concept is the first thing. Not every government has the same level of appetite for experiments of this sort. It will be a bit like what we have seen with social protection and tiny 40p or 50paweek grants to the poorest households in some of the countries in which we work. If that is proven, as it has been with social protection, to be something that is successful in reducing poverty, then it will accelerate and countries will use their own resources to do it. That is one of the things that DFID brings to the development world: an ability to pilot, experiment and test new ideas. The good ones will then acquire a momentum of their own.

Q75 Chair: You have kindly offered to work with the Committee team on a number of issues, and the ones we have at the end here probably would fit into that category, which relates to research. I was just going to make a general point. You have increased research, but you are giving quite a lot of it in core funding. We need to know what the rationale is for increasing research. Also, the National Audit Office is not convinced you are making good use of it. It is quite a lot of money. What is the strategy? How do you keep control of it? How do you make proper use of it? As I say, if you want to put that into the working group, that would be fine, but that is the essence. I think Jeremy Lefroy might have a specific question.

Mark Lowcock: Maybe Mark can say a word or two, but we will absolutely follow up in writing.

Mark Bowman: The rationale for investing in research is very compelling. We spend just under 3% of our budget on research. We invest that money to improve the quality of the impact of the rest of the budget that we spend, but also we are genuinely providing a global public good here, improving the quality and impact of other people’s spend, whether it be other donors or developing countries. There are some fantastic examples of where our research, whether it be in floodresistant rice or droughtresistant maize, has really delivered very significant returns. The challenges for us as an organisation are, at a very basic level, to ensure that we are commissioning the right sort of research and, secondly, that we are using that research well in our decisionmaking. Actually the two are related, and we have put a lot of effort into this over the last couple of years. The more we use evidence effectively through the business-case process, the more that will help also to ensure that we commission the right types of research.

Q76 Chair: It would be good to get more detail of that process. You have given one or two examples. When you just look at a figure, £200 million or £300 million spent on research, you do really need to know what it is you are researching, what the outcomes are and how they are applied. Rather than answer that now, some detail on that would be really helpful.

Mark Lowcock: Can I just give you one example? East Coast fever is a tick disease that kills a million cattle a year in Africa. We have developed a vaccine that is now being used in 11 countries to deal with that problem. To be honest, that on its own, if it is widely applied, will generate benefits dramatically beyond the cost of our entire research project. That would be my guess, so you can get some really big wins in this space.

Chair: I think the Committee would appreciate having a bit more understanding of that. That would be helpful.

Q77 Jeremy Lefroy: I just wanted to pursue something we have pursued before, which is about the impact of your research spending on UK universities and how much it benefits UK universities, because clearly we want to see as much of that done in the UK as possible.

Mark Lowcock: I have been this year around a number of universities to pursue the dialogue on that a bit. I was in Reading recently. I have been to the University of East Anglia. I have been to the London School of Economics, to Sussex and a range of places. We are trying to strengthen our links and collaboration. Obviously we fund things because they will have a development benefit in the countries in which we work, so we need to apply that test. We also think it is important that universities in this country strengthen their links with partner organisations in developing countries. We are developing some funding vehicles to incentivise that more. Britain has some of the world’s greatest higher education institutions and research capability. It is a really smart thing to do, we think, to put that to work for development goals. I expect us to be doing more of it in future.

Q78 Mr McCann: Can I just ask a very quick question? You might want to tread carefully on this one, but I get a sense in terms of some of the criticisms that are made by the NAO or, indeed, ICAI that, when we have been out in the field speaking to people, they have been a bit unhappy about some of the things that have been said, because they think there is a disconnect between the numbercrunching and what the circumstances actually are on the ground. Indeed, in the sense of research, the concept of what we are trying to do is so innovative that you have to take a gamble and you have to take a risk with some of the areas that we are moving into. Do you feel that organisations like the NAO and ICAI should take more account of those areas?

Mark Lowcock: We think scrutiny is a good thing. It improves the value of what we do. It is not for me to raise questions about the conclusions that ICAI reach. My responsibility is to decide with Ministers how we respond to the recommendations. I think I will be before you again shortly on the next wave of ICAI reports. They collectively, on average, add important value. In a way, the question is for you on ICAI, since they report to you, about whether you are happy about the overall balance of the effort they make. The NAO does add value in the work that it does. I was at the PAC last month, as I said, and the last thing Margaret Hodge said to me at the end of that hearing was "congratulations", which is not exactly what Permanent Secretaries are used to hearing from the Chair of the PAC. There is a recognition that, where we do a good job, reports will expose that. But we should be constantly striving to improve. To have scrutiny and that discipline is an important incentive for us.

Chair: As you know, we have set up a subcommittee on ICAI, which Richard Burden chairs, precisely to ensure that we can get a grip on it without diverting the attention of the Committee from its core task. I think that will make a difference. Did you have a question, Jeremy?

Q79 Jeremy Lefroy: I just had one question. On page 9 of the report, there is a very nice map that shows DFID’s priority countries. On the whole of Eastern Central Africa, there are two small white patches in the middle of the blue, which are DFID’s priority countries. One is Lake Victoria and the other is Burundi. That clearly is something that this Committee has already commented on, but I would just like to stress that it does seem to us to be a discrepancy. Everywhere else in that whole region is considered a priority, except for that one country, which as we know is going through a fairly difficult time. I wondered if you could perhaps comment on not the decision, which was not taken by you, but what is going on in Burundi at the moment and what DFID is doing in Burundi, even if it is not a priority.

Mark Lowcock: We make a substantial contribution to reducing poverty and promoting development in Burundi, through our funding of multilateral organisations. We have retained an engagement to try to help Burundi on its integration into the wider economy of East Africa. I was briefed on that regional integration issue by the Trademark East Africa team when I was in Kigali three weeks ago. That is the core thing we are doing bilaterally. As you say, the Government took a decision about the right approach for us in Burundi and that is where we have got to.

Q80 Chair: The Committee and you as a Department must be aware that the ground is shifting quite a lot in this whole area, whether it is the review of the MDGs or countries graduating to middleincome status but nevertheless accommodating an increasing proportion of the very poorest people, which we as a Committee think you as a Department are going to have to constantly rethink. I do not think you can set your strategies, whether bilateral or multilateral. As a Committee, we are considering the extent to which we can follow DFID’s money through the multilaterals even more closely than we have done in the past. For example, the whole of South America: on the face of it, we do not have a development programme in South America. I know we have an office in Brasilia or whatever, but, in reality, a significant chunk of UK money is going to multilateral institutions that are engaged in Latin America, and yet we do not get much of a handle on what the strategy is, what the policy is, what the followthrough is and what the engagement is. I am not asking you a question; what I am saying is this is something I know the Committee is going to want to follow through and engage with you on.

Mark Lowcock: If I could just offer two responses to that: firstly, I very strongly welcome the Committee’s interest in how the multilateral system performs and how we exercise influence over it, especially in places where we do not operate. There is a lot of value to be generated from the Committee’s engagement in that. Secondly, you started off by talking about how the policy framework for international development is evolving. We have the postMDG work-the Prime Minister chairing the Panel-and the things we are doing on the G8 Presidency. It is really timely that you are beginning your inquiry into all that, because at the moment the Department is trying to do two things at the same time. The first thing we are trying to do is deliver on all the commitments we have made for the 2011 to 2015 period. 90% of the staff of the Department are spending 90% of their time doing that- the delivery of what the Government said it would deliver.

Secondly, we are in a very important shaping moment for what the goals for activity in international development are beyond 2015. When those goals are determined, there will be a really important process, in which the Department and Ministers have to decide what the role we are going to play is. We really look forward to engaging with you on that inquiry. It is very timely and it will be a really interesting exercise.

Chair: On the front of your report, we have this UK Aid flag, which I know is contentious in some views. The fact is there are only 28 countries in the world where that means anything. You have got a whole subcontinent, where we are actually sending a lot of our money, but the words "UK Aid" mean absolutely nothing. We have to think about that for British taxpayers. It is one thing to have untied aid; it is another thing to have a substantial amount of taxpayers’ money with no perception of UK input whatsoever. Most people will say, "The UK does not do South America." If we look it up, we do do South America, but we are not sure in what way we do it, as a policy. That is the sort of thing that we want to look into. Can I thank you and your team again, not just for answering the questions and the written evidence you have given, but for the undertakings to co-operate on a number of aspects, which I think will be mutually beneficial in improving the presentation? Thank you very much indeed.

Prepared 30th January 2013