The groups of vulnerable people at risk of criminal charge will include those with serious mental impairment and their carers; spouses or dependants of foreign students who may not speak English very well; people in prison or other forms of detention or in a bail hostel; and people in hospital or in care homes and hostels. Without help, these claimants are at risk of providing wrong information. Many of them have difficulty getting through each day without worrying about whether a form they completed months previously remains correct in every detail.

The circumstances of these vulnerable people often change frequently. People with chronic conditions, for example, move in and out of hospital fairly regularly. The citizen can never be sure, at the time of or after submitting information, that the regulations will not have changed since the year before. A significant risk to council tax payers arises from Regulations 3, 10 and 11 of the Council Tax (Administration and Enforcement) Regulations 1992, which require information to be supplied by taxpayers within 21 days if they are served by written notice or assumptions change in the course of the financial year. If Clause 13 of the Bill is passed without our amendments, council tax payers who are unaware of Regulations 3, 10 and 11—surely nearly all of us—and who therefore fail to act in accordance with them become potentially liable to a criminal prosecution.

Let us put ourselves in the position of someone coming out of hospital, probably still severely unwell. These days, as we know, people do not remain in hospital a single day longer than they absolutely have to. They will probably find a pile of post on their doorstep. We can expect those people to concentrate on getting well, coping with daily life, shopping, cooking and doing the usual daily chores. It may be some weeks before they feel up to dealing with the pile of unopened mail—maybe beyond the 21-day limit. Such a council tax payer will not have knowingly failed to comply with any requirement for information, yet they may find in that pile of mail an order requiring them to provide information which they will inadvertently have failed to comply with. Can any one of us seriously suggest that, in that situation, that person will have committed a crime?

Alan Murdie, a barrister who edited the CPAG handbook on council tax for 14 years and who has kindly briefed me for this debate, is concerned that this situation will be made worse because the standards of administration of council tax are apparently worse than at any time in the past 20 years. He is well placed to make that judgment. At best, says Alan Murdie, people will be pursued in error and, at worst—I must say that this shocked me, but I trust this person who deals with these situations all the time—the provisions will be used to extort money from people by unscrupulous officials. Mr Murdie says:

“The council tax is the most complicated local taxation system ever devised. Even after 20 years many aspects of the tax are

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unclear and open to argument and errors are rife throughout the system. The council tax has gone beyond what ordinary members of the public can understand”.

The council tax benefit regulations alone are apparently longer than the whole of the General Rate Act 1967.

Z2K is experiencing a growing number of cases involving vulnerable people being targeted with demands for money which they do not owe—that, for me, is deeply distressing. Just one example is that of a young man who was threatened with enforcement and imprisonment for tax that he did not owe to Southwark Council. He committed suicide. How many more people are at risk of suicide if these provisions go ahead without any mens rea requirement? The Government risk a re-run of the 1990s, when thousands of people were wrongly jailed for local tax default, resulting in more than 1,000 cases being overturned on appeal in the High Court on judicial review and in cases coming before the European Court of Human Rights.

The amendments will not prevent any vulnerable people being wrongly charged over debts they do not have. The amendments will, however, reduce the number of such cases—I hope significantly. I know that the Minister is aware of the widespread concerns about Clause 13. I trust that the Government will be able to make the limited concession encompassed in the amendments.

5.45 pm

Lord Lloyd of Berwick: My Lords, I strongly support the thinking which lies behind the amendment, for all the reasons so eloquently given by the noble Baroness, Lady Meacher, and for all the reasons which she gave late at night last week at the very end of the Report stage. I regret that I was unable to be present on that occasion.

My only concern now is that the single word that she has chosen to bring about her purpose may not be the very best one. There may, after all, be all sorts of reasons for a person failing to comply with a requirement, good as well as bad, and there may be good reasons even when a person knows that he is failing to comply with the requirement. What is needed is a word which distinguishes between the good and the bad reasons. The ordinary words which are always used to do that, which I think is the objective that the noble Baroness has in mind, would not be “knowingly” failing but failing “without reasonable excuse”. It so happens that those are the very words which are used in paragraph 1(2)(b) of Schedule 3 to the 1992 Act, which is the Act that we are amending and which there imposes a civil penalty of £50. Those words, “without reasonable excuse”, which we already find in the Act, are all the more relevant and important now that we are turning the civil remedies into criminal offences.

I am of course aware that this is Third Reading and that a manuscript amendment is not permitted, but if the Minister is attracted by the thinking behind the amendment, as I certainly hope that she and other Members of the House are, perhaps she will bear these words in mind when she gives the matter further thought.

Lord Beecham: My Lords, I join the noble and learned Lord, Lord Lloyd, in endorsing the thrust of the amendment moved by the noble Baroness, Lady

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Meacher, and I respectfully adopt his formulation, which I think meets the drafting point. In any event, I have an inherent aversion to the creation of absolute offences, which is what new Section 14B does. It is not appropriate to criminalise behaviour which could be dealt with in the way of a civil liability, particularly when there is not a necessary element of dishonesty. I hope that, when the legislation goes back to the House of Commons, the Minister will look sympathetically with her colleagues in government at whether the provision could be improved.

However, in addition to the matters which the noble Baroness’s amendments address, I am concerned about some further provisions in the proposed new section. New Section 14B(4) states that regulations under subsections which refer to false statements and the like—that is, subsection (1)(d), (e) and (f),

“that create an offence that may only be committed by a person acting dishonestly … must provide for the offence to be triable summarily or on indictment”.

I have no objection to that, but new subsection (6) states that regulations under those provisions which,

“create an offence that may be committed by a person acting otherwise than dishonestly”,

would incur a lesser sentence. So there is still a provision within the new provision to allow for somebody not acting dishonestly to be brought before the criminal courts under the provisions of new subsection (1)(d), (e) and(f). That is another example of stretching the creation of an absolute offence.

It is clear that people who deliberately fail should be dealt with but, in my view, not necessarily by the criminal courts. It is equally clear that those who may fail inadvertently or for the reasons advanced by the noble Baroness should not be treated as criminals, although there may be and perhaps should still be a procedure for them to suffer some penalty as an inducement to provide information. That point may be more debatable. I join with the noble Baroness and the noble Lord in thinking that those provisions go too far to criminalise behaviour—particularly, as the noble Baroness said, as that may well affect vulnerable people, for whom a criminal sanction is simply inappropriate.

Without the Minister committing herself today, I hope that she will at least agree to discuss this further with colleagues to see whether a less draconian process could be used.

Lord Mackay of Clashfern: My Lords, I assume that the prosecuting authority would have some regard to the circumstances of any suggested offence under the regulations, but it is very important that the regulations should not include people as potentially liable for criminal sanctions who have not been dishonest in some way or other. The noble Baroness has given examples of people who might find it very difficult to comply with regulations within 21 days in some circumstances. I hope that my noble friend, with her colleagues, may find it possible to modify the statutory language to eliminate the risk of people being faced with criminal charges who are not deliberately doing wrong but who find themselves in difficulties of one kind or another.

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I have sympathy with the view that the regulations which deal with council tax are extremely complicated and that it would be easy for someone to fall into a mistake without any deliberation. The last thing that we would want is to criminalise people who make honest mistakes; otherwise, most of us would have some difficulty avoiding the criminal law at some stage, and possibly at more than one stage, of our careers.

Baroness Hanham: My Lords, I have listened with sympathy to the noble Baroness, but I think that she is tackling the wrong end of the spectrum. If it was as she suggested, we would certainly need to do something about it. I may need to give the following explanation.

The clause is intended to allow flexibility to create offences similar to those already in existence relating to council tax benefit. It does not create any additional offence beyond those. The offence that exists is under Section 111 of the Social Security Administration Act 1992. It is that of refusing or neglecting to comply with a requirement to enter into arrangements allowing authorised officers to access electronic records. It is also an offence under that section for a person to refuse to provide information or produce any document when required to do so in accordance with the legislation.

The information may be required from one of several classes of persons and bodies: for example, from banks, employers or utility companies. We seek the flexibility to create a similar offence in regulations where a person falling under those categories fails to comply with the requirement to supply information needed in relation to the council tax support scheme. To be clear, that would relate to circumstances where an individual or organisation holding information about a council tax payer has failed to provide information when required to do so. A small number or persons, such as the self-employed, might fall into both categories, but this is not about requesting information directly from vulnerable taxpayers, as has been suggested. I hope that the noble Baroness will be assured on that point.

Baroness Meacher: I am grateful to the Minister, but she referred to the fact that failure may not necessarily apply to the person themselves. My concern is that it can apply to a vulnerable person—just out of hospital, for example—who has not opened their mail and who unwittingly therefore falls foul of compliance with regulations. That is my concern. There may be all sorts of crimes in relation to bankers and what have you, but my concern is for vulnerable people. It seems from the wording that those people could be caught up in those crimes.

Baroness Hanham: My Lords, I am seeking advice from the Box about the words, “not necessarily”. My understanding is that this is not about the person concerned; this is about organisations from which information may be sought with regard to the ability to pay council tax or possible fraud. It is not about the individual taxpayer.

Perhaps I may read what has been passed to me, because it is important. To be clear, the powers that the noble Baroness seeks to amend relate to powers to require information about a council taxpayer—for

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example, about their income. Many investigations take place across the system. The powers recreate those which exist in relation to council tax benefit, as I said, and regulations made under the powers are subject to the affirmative procedure, so will be subject to debate in both Houses.

What the noble Baroness seeks to achieve is not part of the provision, because it does not affect the person themselves—the noble Baroness described accurately people who might not be able to give that information, who may be vulnerable and who should be looked after in a different way by the council.

I share the desire of the noble Baroness to protect vulnerable taxpayers, but the amendment will not, for the most part, impact on them. It affects powers that would apply only to those who hold information about the taxpayer—I say this again because we need to be clear about it—not to council tax payers themselves and only in certain circumstances which recreate offences which currently exist under council tax benefit. Those are criminal offences, as I outlined.

Council tax payers who accidentally or unintentionally fail to provide information to the local authority should not be prosecuted or convicted for a genuine mistake, but that is not what the power provides for.

I recognise the concerns expressed by noble Lords, but I think that the noble Baroness is shooting at the wrong fox. When the regulations come to this House, which they will in due course, we will be able to make that absolutely clear. I have done my best to assure the noble Baroness that this is not about individual taxpayers who should not be pursued, but is about where information may be required to see whether it is appropriate to undertake further investigation. I hope that with those explanations the noble Baroness will withdraw her amendment.

6 pm

Baroness Meacher: I am very grateful for the Minister’s response and to my noble and learned friend Lord Lloyd, the noble and learned Lord, Lord Mackay, and the noble Lord, Lord Beecham, for their contributions to this debate. I have to say that if I am shooting at the wrong fox, the fox is very well camouflaged because I do not see it. It is not clear to me—perhaps it should be, but it is not—that the person and their advice worker, who is also feeling very vulnerable in this situation, cannot be caught up in this legislation. Therefore, I ask the Minister for further discussions about this to see whether there is a way of improving the wording to clarify that the council tax payer and their adviser will not and cannot be charged with a criminal offence when they have acted in good faith.

Baroness Hanham: My Lords, it is not possible to change the legislation because we are in the last dying hours of passing it through this House, but the regulations will come to the House for the affirmative procedure. I am happy to have further discussions with the noble Baroness in the interim.

Baroness Meacher: I am very grateful for that reassurance. I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Amendment 7 not moved.

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Schedule 1 : Local retention of non-domestic rates

Amendment 8

Moved by Baroness Hanham

8: Schedule 1, page 23, line 18, at end insert “, and

(h) amounts received by the Secretary of State in the year under regulations under paragraph 42 (payments following estimates of amounts to be disregarded).”

Baroness Hanham: This is a group of very minor amendments to tidy up the Bill. The amendments introduce nothing new. They are consequential on amendments accepted on Report in your Lordships’ House and correct or insert references to new provisions inserted on Report as appropriate. I hope that, with that explanation, noble Lords will be happy to accept them.

Baroness Thornton: My Lords, I take the opportunity offered by these government amendments to Schedule 1 to raise the issue that I have been pursuing throughout the course of this legislation, which I discussed with the Minister last Thursday, and to seek clarification at this last stage of the Bill. I declared all my interests at the previous stages of the Bill and they remain the same.

I shall not rehearse the arguments that we have already heard in this House. I am grateful to the Minister for her time at the meeting on Thursday. I also thank Sporta, SEUK, my noble friend Lord McKenzie and the noble Lord, Lord Best, for coming along to the meeting and lending their support and great expertise. I was also able to inform the Minister that the noble Lords, Lord Shipley, Lord Tope, Lord Adebowale, Lord Mawson, Lord True and Lord Smith, sent their apologies. I thank the Minister and her team for the letter which she sent to me and copied to all those concerned.

I am sure that noble Lords and others are very pleased that, at last, the Government seem to recognise a problem which the political parties, the Cross-Benchers and all the organisations concerned with community-based charities and mutuals have articulated for months. Sporta, in particular, has been active in doing most of the leg-work research and in meeting officials during the summer. However, it is a matter of regret that the Government have decided not to take action on the concerns of a wide range of local community organisations with charitable status during the course of the Bill.

In her letter to me the Minister referred to, “the persuasive arguments that you and your advisers have used”. However, she also said that the department would need to see evidence of the problem. I think the fact that all the leaders and ex-leaders of councils in this Chamber and all the organisations concerned at community level are clear that there is a problem should be persuasive. However, all is not lost. The Minister also informed us that a way of addressing the issue is provided by the amendments that were brought forward on Report specifically with enterprise zones in mind. The Minister’s letter gives a broad assurance that, “the same powers could be used in respect of other reliefs such as charitable relief”. The Minister will not be surprised to learn that what I am seeking today is confirmation of that and that the powers can apply to the central funding of all mandatory reliefs

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given by all local authorities to charitable organisations, should we be able to persuade the Government of the rightness of this decision in the next year.

I would also welcome confirmation from the Government that they will open their doors to the evidence which the many charitable bodies associated with this cause will work hard to gather over the next period and that they will assist the main representatives of these bodies to understand how and when to present this evidence to the department. Indeed, can a specific mechanism be offered to do this? I would also like to take this opportunity to encourage local authorities to co-operate in supplying evidence of the effect of the legislation on their decisions as regards the formation or expanded use—or otherwise—of local charitable organisations. Indeed, I intend to raise this issue with the Local Government Association. This is especially necessary if, as is feared, such decisions are taken with negative effect at an early stage in the consideration of options.

In the year of the Olympics, the Paralympics and the big society, we are concerned about the impact that these changes might have on sport and exercise for the disabled, the less able, the old, working mothers—everybody, actually. I know of no one in the sport and leisure field who has welcomed these proposals. Indeed, Social Enterprise UK has written to the Cabinet Office about the policy clash produced by these proposals and advised the Minister on why the Bill could have a damaging effect.

We suspect that the impact of these proposals will be damaging for the future of theatres and museums outside London; in other words, there will be fewer of them at local level. Social Enterprise UK believes that, as time moves on, this policy could have a chilling effect on new proposals in the Localism Act for the right to bid and the right to challenge community facilities by local charities, so a great deal is at stake. I thank the Minister for her help with this and for the meeting and the letter. I hope that she will feel able to reassure me that arguments will be heard at an early stage and that adjustments will be considered before too much damage is done.

Lord McKenzie of Luton: My Lords, so far as the government amendments are concerned, I understand them to be consequential and to correct other parts of the Bill. I am grateful for the short briefing note that the Bill team gave us. I have no problems with these amendments.

As for the contribution by my noble friend Lady Thornton, I, too, thank the Minister for her engagement and the engagement of the team, and particularly for facilitating the meeting last week. I hope the Government will be able to put on the record the assurance that was given at that meeting, particularly as it concerns the prospects of dealing with the matter through secondary legislation, once the Government become convinced, as I hope they will be, that we do not need to amend primary legislation.

Baroness Hanham: My Lords, the noble Baroness referred to mandatory and discretionary rate relief under particular circumstances. She kindly did not put

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an amendment forward, but she has done very well in getting her speech recorded in


so that there is no escaping what she has been talking about. I gave her two clear messages when we met. One was that while we accept that there is concern about the effect of the percentage amount of relief available to charitable organisations, we are not totally satisfied that it will have the effect that she thinks. If the organisations that were there provide good evidence and the Government decide that it is of serious significance, there are measures within the Bill that would enable us to make the changes that she seeks. I am very happy to see her again if that should be necessary.

Amendment 8 agreed.

Amendments 9 to 11

Moved by Baroness Hanham

9: Schedule 1, page 23, line 31, at end insert “, and

(f) payments made by the Secretary of State in the year under regulations under paragraph 42.”

10: Schedule 1, page 23, line 40, leave out “and (d)” and insert “, (d) and (h)”

11: Schedule 1, page 23, line 42, leave out “and (b)” and insert “, (b) and (f)”

Amendments 9 to 11 agreed.

Schedule 3 : Local retention of non-domestic rates: further amendments

Amendments 12 to 14

Moved by Baroness Hanham

12: Schedule 3, page 60, line 4, after “(2)(e)” insert “or (f)”

13: Schedule 3, page 60, line 45, after “(2)(e)” insert “or (f)”

14: Schedule 3, page 61, line 21, after “under” insert “or by virtue of”

Amendments 12 to 14 agreed.

Schedule 4 : Amendments relating to council tax reduction schemes

Amendment 15

Moved by Lord Beecham

15: Schedule 4, page 65, line 29, at end insert—

“( ) Such regulations must have regard to the possibility of authorities having to hold a further consultation as a result of the necessary alterations that must be made to their schemes in order to make a successful application to the transition grant.”

Lord Beecham: My Lords, we have reached—at long last, some of your Lordships might think—the final chapter in debating what this side, at any rate, regards as a fundamentally flawed Bill, particularly with regard to the system of council tax support. The Bill will create significant difficulties for councils in

22 Oct 2012 : Column 57

terms of administration, collection and indeed decision-making about who is and is not to be entitled, and it will involve significant hardship for too many of their residents.

The amendment, though, does not address the substance of the Bill; it is more about process, albeit about an important part of it. Under the Bill’s provisions, authorities are required under paragraph 3 of Schedule 4 to consult before making a scheme, publish a scheme in such a manner as they think fit and generally consult anyone with an interest, including major precepting authorities, and then they may publish it. However, sub-paragraph (4) states that the Secretary of State may make regulations about the procedure for preparing a scheme, and it is to that paragraph, effectively, that the amendment seeks to add a rider: that the regulations must have regard to the possibility of authorities having to hold a further consultation as a result of the necessary alterations that must be made to their schemes in order to make a successful application—the amendment says “to the transition grant” but I suppose that it should be “for the transition grant”—which we debated at some length last week.

As we debate the Bill before it leaves us on its return to the House of Commons, councils up and down the country are in the throes of consulting on complex changes to the benefits system affecting millions of people. We have heard in previous debates about schemes that run to well over 100 pages, and no doubt authorities are doing their best to consult their citizens, organisations and indeed the precepting authorities about how the system should be developed. If I may again refer to the experience of my own authority in Newcastle, the city council is faced with a loss of some £3.4 million as a result of the changes to benefits. That in itself, had it been a council tax increase, would have substantially breached the 2% limit that the Secretary of State has fixed from next year because it would in itself constitute a 3% increase in council tax. However, technically speaking, that is not what is happening, although I am bound to say that the rather airy way in which the Secretary of State and indeed the Minister appear to assume that after the transitional year it would be possible to meet that bill, simply by magicking some more savings out of the system, strikes me as a little overoptimistic, particularly when in any event many authorities will be not only generating savings already in the pipeline, as it were, but seeking to meet a substantial reduction in government support over the next few years—in my own authority’s case, some £90 million a year within three years.

Be that as it may, however, the council is seeking to consult on its current scheme, a consultation that has produced a two-page densely printed document setting out the proposals that the council makes. We have already touched on some areas: there is protection for a number of groups, and there is the 20% contribution in general from those who may not even be currently paying council tax. Whether, and to what extent, people will be able to grasp what is happening, particularly if they do not have a well informed knowledge of the current system, is perhaps another matter. Still, the council is providing material online for people to reply to and download, as well as a telephone line and indeed 14 public meetings, between now and the closure

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of the consultation period on 14 November, bearing in mind that the council has to take through its processes decisions about the scheme and about the budget overall, and there is not a great deal of time to do that.

6.15 pm

Now, with the transition scheme, there is an additional factor about which we have not yet been able to consult—nor indeed, I suspect, has anyone else in any systematic way. It may, if the council is so minded, lead to a significant change in the scheme. The particular factor that is relevant is the estimated cost because, even with the transitional grant, Newcastle City Council—I cannot speak for others in this respect because I do not have the information, but there may well be a similar situation elsewhere—will receive a grant, but apparently it will also leave a gap of, in Newcastle’s case, between £470 million and £650 million, if indeed the council accepts the offer of the grant. That is a significant figure, and one that clearly needs to be in the public domain as part of the consultation process. However, we will not know the actual figure until the final revenue support grant settlement and all the details are available which, as I understand it, will be around 20 September. The Government have certainly published the figure for the transitional grant, but what is not clear is the implications of that for the council budgets, given the potential cost to the authority, which, as I say, in Newcastle's case is substantial—according to the city treasurer, in the order of between £470 million and £650 million. If we will not know those details until as late as the third week in December, it will be extremely difficult to achieve an effective consultation before the time when the scheme has to be finalised, which, under the Government's proposals, is 31 January—not a great deal of time in terms of the council’s own decision-making process leading up to a budget, but certainly virtually impossible to have a meaningful consultation, given the Christmas and New Year period and the rest of it, within that very short timescale.

In addition, the council will have to consult the police and fire authorities, which are major precepting authorities, and of course in shire areas there is also the question of individual billing authorities, which might have a different approach—they are perfectly entitled to do so under the provisions of the Bill—within the county. The county will also need to be consulted. I suspect that counties are part of the hidden agenda of this whole measure regarding the transitional relief; it seems, cynical though some of your Lordships might think this, not unconnected with the fact that next year we have county council elections in which a great number of Conservative Party seats are at risk. Mr Pickles is an astute politician, and I suspect that this transitional relief may really be designed to offer somewhat more than transitional relief to current serving Conservative county councillors. However, no doubt the electorate will come to their own conclusions about that.

The purpose of the amendment is to seek from the Secretary of State regulations that would allow for a proper consultation to take place in terms of the change that the Government have introduced at this late stage in relation to the transitional grant. That might mean extending the period by which the scheme

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has to be settled. That seems probably one of the more sensible ways of dealing with what might be a difficult situation. The danger otherwise is that councils would think that they cannot safely consult—my noble friend Lady Hollis rightly referred to the possibility of judicial review if such consultation was not deemed to be effective—and if councils were relying on a position that was valid until just last week in terms of the scheme that they had devised. Given the financial consequences to which I have referred, although I emphasise that they are possible consequences, in my submission it would be a brave council that decided to go ahead without the security of a further consultation.

Again, I am not expecting a commitment from the Minister, but the amendment would not really change legislation; its thrust is to try to secure some consideration by the Government, within the context of the procedural regulations that they will be making, to ensure that such further consultation as may be deemed necessary and desirable can actually take place with effect. I beg to move.

Baroness Hollis of Heigham: My Lords, I support my noble friend. He is absolutely right. When we raised the issue of whether changes in the scheme following the transitional grant would require going out to consultation, the Minister seemed to indicate that they would not. Some of us were worried about judicial review. Since then, she has written a letter to my noble friend Lord McKenzie in which she says that individual councils must take their own legal advice on the matter. That suggests to me that the department is no longer as clear as it at first was that local authorities might not be exposed to judicial review if they were substantially to change their scheme from, say, a 30% minimum down to virtually nil or 5% as a result of the transitional grant without going out to further consultation. Given that, I hope that, as a result of the move that the noble Baroness has herself made between the earlier stages of Committee and Report and her subsequent correspondence, she will give some consideration to how best she can meet my noble friend’s concerns.

Baroness Hanham: My Lords, in responding to the noble Baroness, Lady Hollis, I have always made it clear that local authorities are, or have been, out to consultation. I think that those consultations are due to close very shortly and may in many cases already have closed. There is no requirement on the Government, and we are not going to make any regulations, on consultation. I have made it clear, and I do so again now, that if a local authority thinks that the changes that it is going to make as a result of the transitional grant are so significant that it changes its scheme so much, then it must decide whether it thinks that it needs, for its own protection, to go out to further consultation. It will seek its own advice about that. I cannot answer the noble Baroness any more clearly than I already have.

Baroness Hollis of Heigham: I am just wondering whether the noble Baroness can give an example of what would constitute a significant change triggering possibly going out to consultation.

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Baroness Hanham: No. Local authorities have their different transitional schemes. A transitional scheme has come in. It will provide local authorities which wish to take it up with extra resources to help them ease into the new system. They must know themselves if they decide that they need it. In many cases, it will not be necessary but, if they need to, they will take that advice.

Local authorities now know what they are going to get from the transitional relief; that has already been published. They will know whether they need to change their scheme according to what they have received from transitional relief and on the basis of what they are proposing if they are going to amend it.

I do not believe that they need extra time. January 31 is, after all, a full four weeks. Most local authorities can undertake a quick consultation on this. I imagine it will be very limited indeed. Most local authorities which are principal authorities are very quick and adept at having consultations with other councils. I must resist the amendment on the basis that it is completely unnecessary.

Lord McKenzie of Luton: My Lords, I respond on behalf of my noble friend as this is the last time that we will be speaking on the Bill. With great respect to the Minister, she has not fundamentally dealt with the point that my noble friend was probing. We accept that it would be up to local authorities to make a judgment as to whether or not they needed to consult. However, given where they are and the processes that councils have to go through to come up with a revised scheme—and sometimes the agonising decisions as to whether they can put in the additional funding to close the gap because the transitional money is not going to cover it all in many circumstances—I wonder whether there is time to do that. It would be perverse indeed if, in attempting to take advantage of these provisions, the system simply did not allow them to do that in time to hit the 31 January deadline. That is the point that we were pressing, and it has not been fully addressed. However, we are where we are on it.

I close by saying a brief thank you to some people, certainly to the Minister and the Front Bench for engaging on this Bill and to all noble Lords who have participated. Around the Chamber, we have seen a lot of expertise and wisdom, some of it very long-standing, brought to bear. I certainly thank my team, both Back Bench and Front Bench. I conclude by thanking the Bill team. I know that we see a bit of what the Bill team does. A lot goes on behind the scenes and I am grateful for what it has done on this piece of legislation.

Baroness Hanham: Having seen the noble Lord rise, I apologise for the number of times that I have tried to out-step him throughout the Bill. I am grateful for the noble Lord’s good humour. I am grateful to all Members of the Opposition for the way in which they have put their amendments. I am particularly grateful to those of my political colleagues who have, in most cases, supported me. I have enjoyed taking the Bill through the House. I also thank, of course, my Front Bench and also the Bill team who has been completely outstanding.

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Lord Beecham: I beg leave to withdraw the amendment.

Amendment 15 withdrawn.

Bill passed and returned to the Commons with amendments.

European Council


6.26 pm

The Chancellor of the Duchy of Lancaster (Lord Strathclyde): My Lords, taking advantage of this spirit of good will and excellent relations across the Dispatch Box, perhaps now would be an appropriate time to repeat a Statement that was made earlier on this afternoon by my right honourable friend the Prime Minister. The Statement is as follows.

“With permission, I would like to make a statement on last week’s European Council. The European Union faces important choices in the coming months, to meet tough economic challenges and to deal with the problems in the eurozone. There were no landmark decisions at this Council, but there was some limited progress on both issues.

As I said, we are in a global economic race. All European economies need to become more competitive. That means taking steps like expanding the private sector, reforming welfare and improving education. In terms of action at the EU level, that means, in our view, lifting the burdens on businesses, completing the single market and taking forward trade deals with the biggest economies and the fastest growing countries and regions in the world.

I have consistently promoted these solutions and at the Council we made some good progress. On deregulation, I joined with others to secure a new agreement that specifically refers to withdrawing legislative proposals from Brussels that stifle our businesses. Now, of course, we need to see specific actions, but it is worth noting that the conclusions refer to the,

‘intention to withdraw a number of pending proposals and to identify possible areas where the regulatory burden could be lightened’.

On completion of the single market, as I reported in June, there is now a proper plan with dates and actions for completing the market in energy, services and digital. Once again it is important that these are followed through to secure jobs and growth.

On trade, the Council agreed an ambitious agenda to create 2 million jobs across Europe. This includes completing free trade deals with Canada and Singapore in the coming months, and starting negotiations with the US next year on a comprehensive transatlantic trade and investment agreement. And we made some progress on the launch of negotiations with Japan ‘in the coming months’. This deal alone could increase EU GDP by €42 billion.

Turning to the eurozone, Britain is not in the eurozone and we are not going to be joining the eurozone, but it is in our national interest that the uncertainty surrounding the eurozone comes to an end. I have argued for some time that a working eurozone needs a working banking union. It is one of the features that a successful single currency needs. Obviously, you do not need a banking

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union because you have a single market; you need it because you have a single currency. So Britain should not, and will not, be part of that banking union.

Britain’s banks will be supervised by the Bank of England, not the ECB, and British taxpayers will not be guaranteeing or rescuing eurozone banks. But we do need eurozone members to get on and form a banking union. At this Council I joined those arguing for progress to be made on the plan announced in June. Put simply, it is not enough to have a banking union that is stripped of the very elements, such as mutualised deposit guarantees, a common fiscal backstop and a framework for rescuing banks, that are needed to break the dangerous link in the eurozone between sovereign debt problems and the stability of eurozone banks.

However, because not all countries outside the eurozone, like Britain, will want to join such a banking union, it is also essential that the unity and integrity of the single market is fully respected. The organisation that currently ensures a level playing field for banking within the single market is the European Banking Authority. We need to make sure that it will continue to function properly, ensuring fair and effective decision-making. This is specifically recognised in the conclusions. More broadly, as eurozone countries take steps to deepen their economic and monetary union, as they will, I also secured an explicit commitment in the conclusions that the final report and road map in December will include,

‘concrete proposals to ensure that the integrity of the single market is respected’.

Finally, the next Council in November will discuss the financial framework for Europe between 2014 and 2020. We have not put in place tough settlements in Britain in order to go to Brussels and sign up to big increases in European spending. I do not believe that German voters want that any more than British voters, and that is why our Governments have led the argument in Europe for fiscal restraint. I therefore put down a marker that we need a rigorous settlement. As the letter signed in December 2010 by a number of European leaders said, given the tough spending settlements that all member states have had to pursue in their own countries,

‘payment appropriations should increase, at most, by no more than inflation over the next financial perspectives’.

On foreign affairs, the Council, led by Britain, once again discussed further restrictive measures on the Syrian regime, and made it clear to Iran that we will increase the pressure if there is not progress on the nuclear issue.

Our agenda is, therefore, making our economies competitive, dealing with uncertainty in the eurozone, keeping the EU budget under proper control, and making sure the EU speaks with a strong and united voice on the key international challenges”.

I commend this Statement to the House.

6.32 pm

Baroness Royall of Blaisdon: My Lords, I thank the noble Lord the Leader of the House for repeating a Statement given in the other place by the Prime Minister on the recent European Council meeting.

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We on these Benches associate ourselves with the summit’s conclusions on Iran and Syria. The dangers of the civil war in Syria spilling over into the wider region are now all too apparent, and we strongly support the EU playing its part to seek to prevent this happening.

However, the backdrop to this summit is a Europe where there is low or no growth. Five and a half million of Europe’s young people are unemployed, and long-term unemployment is stubbornly high across all countries. I regret that the Prime Minister seemed to come back from this summit with nothing to make a difference to this situation.

First, can the Leader of the House tell us why the Prime Minister went to the summit with no proposals on the immediate economic situation facing Europe or on how growth prospects could be improved in the short term? Europe urgently needs co-ordinated action to boost demand, but yet again there was nothing forthcoming from this summit.

Secondly, the Government boast about progress on the single market, which is 20 years old this year. In particular, the Statement repeated by the Leader of the House points to progress in energy and in digital, and says, with the humility so characteristic of this Government:

“Which is the country that is saying … ‘Let’s get a date for completing the energy market … the digital market’ ... Who is driving the agenda which has made so much progress this year? It’s Britain.”

After the veto that was not, I would have thought that the Government would have learnt about grand claims that fall apart.

On energy, the Council conclusions also sounded very familiar. Will the Leader confirm that the conclusions were exactly the same as the conclusions from the Council 18 months ago?

Concerning trans-European networks as mentioned in the conclusions, I was there at their birth, about 20 years ago, and it is imperative that their development progresses a little more swiftly than it has been of late.

On services, it is all familiar again—exactly the same conclusions as those from March 2012. So much for progress at this summit.

Thirdly, on banking, big issues face Europe as a result of the move toward a banking union in the euro 17 area. The Government are keen to point to paragraph 8 of the Council’s conclusions, which calls for,

‘an acceptable and balanced solution’,

on voting weights. However, this is rather unclear. Will the Leader clarify what is the Government’s key demand in relation to the crucial issue of voting rights, as banking union goes ahead? What special safeguards will the Prime Minister seek? Will the Leader also tell us what support the Government found at the meeting for this position, and how the Government will build on that support?

That takes me to the real problem that Britain faced at this summit. This is what Finland’s Europe Minister said at the summit:

“I think Britain is ... putting itself in the margins. ... it’s almost as if the boat is pulling away and one of our best friends is somehow saying ‘Bye bye’ and there’s really not much we can do about it”.

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That is not the French or the Germans—it is Finland, and their Europe Minister is an Anglophile. He is one of Britain’s friends, but this is what he thinks about where Britain is going under this Prime Minister. The Government do not seem to realise that all their bluster about fighting for Britain is meaningless if the Government alienate our natural supporters.

However, the really worrying thing about the Government’s position is that the Government are not just isolated. They appear to exist in a parallel universe. When the Prime Minister was asked about his isolation he said this:

“We are actually a very, very important and influential player ... Britain is right there in the vanguard...”

The vanguard? Do the Government really believe that?

Last October the Prime Minister said:

“This is not the time to argue about walking away”.

However, is that not exactly what his Cabinet is doing now? It started with the decision to leave the European People’s Party. That is why, when 15 centre right leaders gathered on Thursday before the summit, the Prime Minister was not there. We then had the veto that was not, and the treaty that went ahead anyway.

It would appear that the Prime Minister has lost control of his party on Europe. We have a Prime Minister outside the room looking in at Britain’s empty seat at the table. There is one thing that our allies in Europe and the Government’s Back-Benchers agree on: the Government are a shambles, and it is Britain that suffers.

6.37 pm

Lord Strathclyde: My Lords, the noble Baroness the Leader of the Opposition started off well by associating herself with the conclusions on Syria and Iran. I am very grateful for that. However, I am afraid to say that it was downhill after that. Let me try to tackle some of the questions that she raised and give some answers and get some clarity on where we are on this. This is the first of a series of European Council meetings up until the end of the year that will increase in importance. This is an opportunity to set the scene, to clear the undergrowth and to sort out the most important issues that we need to resolve.

The noble Baroness asked why the Prime Minister did not go along with his plan for growth. When it came to the budget negotiations, he was the first to ask why, if we have to restrain spending in the United Kingdom, we should see profligacy in Europe. I would hope that the noble Baroness would agree with that and look at some aspects of where the United Kingdom is doing well in Europe. In the United Kingdom we see falling unemployment, rising employment, falling inflation, and low borrowing rates which preserve our triple-A rating. These are all things that the noble Baroness the Leader of the Opposition should support, and I hope that in future she will use them in her speeches.

The noble Baroness specifically asked about two aspects: energy and digital. She went on to say that these conclusions look remarkably like other conclusions that we have seen from the European Council. Remarkably, yes—I agree with her up to a point.

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However, she will know from her own experience in Europe that very often the same old problems come round again and again, and some of these are longstanding issues that have taken a long time to resolve. This year, we celebrate the 20th anniversary of the single market. How come it has taken so long to complete the single market when the noble Baroness’s Government were in charge for 13 years of those 20 years?

The Council did not discuss energy policy in detail but the conclusions refer to an agreement reached in March, which recalls the need to complete the internal market by 2014. It referred to new proposals for a connecting Europe facility. That is a continuation rather than the same point that was made in previous conclusions. Likewise, on digital, it is important to maintain the focus on areas that we have agreed. It would be a mistake to chase the new and neglect to hold others to account. Sometimes agreements are made but we need to make sure that they follow through, which is entirely sensible.

The noble Baroness asked an entirely sensible question—I am not saying that the rest of her questions were not sensible—about the banking union and our key demands in terms of voting rights and specific safeguards. The point was that we have not so far been clear as to what it is that we want. This is entirely deliberate. We have not been explicit yet over what we want to see in terms of a voting regime for X and Y. Several possible proposals are floating around, some of which are quite technical. We want to make sure, for instance, that the ECB does not get a de facto vote. Others are concerned that, should more countries join the euro, the UK does not end up with a veto. Overall, we want to see what I suspect in her heart the noble Baroness also wants to see—an acceptable solution that protects the single market through a change to the modalities of decision-making under the European Banking Authority regulation.

The noble Baroness had some fun with the quotation of the Finnish Minister. I think that he was in the boat and we were on dry land. Dry land might be quite a good place to be over the next couple of years. But she went on to say that we had been left isolated in the EU. We do not think so. We believe that we are an active participant in EU negotiations. We lead the EU on many issues—for instance, improving Europe’s competitiveness, the single market, trade and taking tough action in Syria—and eurozone members are often our closest allies, including the Finns. Member states with different interests do and need to work together in different ways. The EU is not and should not become a matter of everything or nothing.

That is the point of all this. From everything that has happened in the past two years, it is clear that there are stresses and strains within the European Union, which largely emanate from the financial crisis and the terrible problems that the eurozone countries have got themselves in. On banking, it is the responsibility of all of us to work together to try and solve that. In that respect, we are as good Europeans as anyone else.

6.43 pm

Baroness Falkner of Margravine: My Lords, staying with the financial framework, perhaps I may congratulate the Prime Minister through my noble friend on aligning

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us to the German position. However, he will no doubt be aware that the German position is probably to have a compromise on the budget, which will be to cap EU spending at 1% of European GDP. That, of course, is backed by Austria, Finland, Sweden, Denmark, Netherlands and the Czech Republic. Therefore, will my noble friend reassure the House that when Mrs Merkel meets the Prime Minister in early November, he will not be wedded to the position of no increase whatever on the basis that we need further compromise at the December summit and that we may need to give a little bit here to meet the Germans in order that they might support us in December?

Lord Strathclyde: My Lords, I do not think that I can give my noble friend what she would really like, which is an agreement with Chancellor Merkel’s position. The Prime Minister has said that he is willing to do a deal on the budget in November, so long as it is the right deal for British taxpayers. Given the tough trading settlement that all EU member states have had to pursue at home, there simply is not the case for increases in European spending that are above the rate of inflation over the coming financial framework, which starts in 2014 and goes on until 2020.

Furthermore, Chancellor Merkel and three other leaders in 2010 joined the Prime Minister in writing a letter for a call for action to curb the progressive increase in EU spending and we remain committed to that objective. Last Monday, Chancellor Merkel and the Prime Minister discussed the budget and, I gather, reiterated their ambition to limit increases in the budget. Of course, they agreed that officials should work together on this before they meet early in November.

Lord Williamson of Horton: My Lords, I recognise that the so-called banking union involving monitoring and in some cases intervention in banks within the eurozone but not in the UK could be advantageous if it helped to stabilise the financial situation in the eurozone, although some related issues could give rise to problems. It was expected earlier that the European Council would decide to complete the banking union at this meeting but, of course, the conclusions obviously do not do so. Indeed, among the 3,164 words—that is my count—in the conclusions on economic policy, it states on completing EMU that “informal consultations will continue” and that the European Council looks forward to a road map,

“at its December 2012 meeting, so that it can move ahead on all essential building blocks”.

That is not exactly a rousing conclusion. Will the Leader of the House give us a reasonable estimate of the timetable now for the completion of the banking union?

Lord Strathclyde: My Lords, that is a very seductive question. But it is really not possible for me or the British Government to give a view as to when we think that those negotiations and discussions will be completed. Apart from being extremely good at counting the number of words, the noble Lord probably has also read many reports in the press over the past few days about the view of other countries on the banking union, and he will understand just how difficult and

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complicated that is. However, we will continue to play a lead role in the development of common rules for the single market and encourage our colleagues to come to an agreement as quickly as possible.

Lord Grenfell: My Lords, one of the less kindly remarks that Winston Churchill made about Stanley Baldwin was that he was a man who occasionally stumbled upon the truth and that he then got up, dusted himself off and hurried on as if nothing had happened. I think that that is a charge that one could probably level against this Prime Minister when it comes to Europe. Will the Leader of the House tell us whether he honestly has not understood the degree of irritation among our partners at the way in which the United Kingdom is behaving within the councils of the European Union?

The Prime Minister told us in one breath, for example, that he is prepared to do a deal with Chancellor Merkel over the budget but immediately went on to say that it would not be an increase, which is not a deal. That is not a deal in the minds of the rest of our European partners. Chancellor Merkel has offered a reasonable compromise. I notice that he says in his Statement:

“I don't believe that German voters want that”—

meaning an increase—

“any more than British voters”.

If you read about the rapturous reception that Chancellor Merkel got yesterday from, of all people, the Christian Social Union Partners in Bavaria when she went back to report on the results of what she had done at the summit, one would have the impression that probably she had a large section of the German population behind her.

Does the Leader of the House really believe that if the Prime Minister’s so-called deal, which is not a deal, produces no increase, he is prepared to veto the budget? Does the Prime Minister also understand Angela Merkel when she says that if he does that she will call off the budget summit anyway? I do not think that the Prime Minister has many of the attributes of Samson but surely he must understand that if he is going to pull the whole structure down around him because he insists on absolutely no increase, none of his European partners will have a good word to say for him.

Lord Strathclyde: My Lords, the noble Lord, with all his experience and knowledge, asks whether I understand how irritated other members of the EU are at the Prime Minister’s stance. I understand how irritated the British people would be to see budgets for austerity in this country and profligacy in the EU. That, of course, is what is uppermost in the Prime Minister’s mind.

The Prime Minister and Chancellor Merkel have agreed to meet early in November. There are, of course, huge budgetary pressures throughout Europe, including in this country. Let them meet. The Prime Minister said what he has said, echoing the words that Chancellor Merkel agreed and signed in 2010. Actually, I think that increasing the EU budget in real terms is a very

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fair deal for the people of Europe, particularly given that Britain is the second largest contributor to the EU budget.

Lord Stoddart of Swindon: Britain is not a member of the eurozone. We have decided to keep our own currency. There is no prospect of our joining the eurozone. So why on earth does our Prime Minister keep lecturing the eurozone as to how it should carry on, including whether it should have a banking union? Since we are not part of it, it is nothing to do with us, and we should keep out of it.

The second point I want to raise has already been raised—that is, the position in relation to Angela Merkel, the German Chancellor, who seems to be throwing her weight about increasingly these days. The Prime Minister does not have to satisfy Angela Merkel; he has to satisfy the people of this country, and the people of this country, we understand, will suffer austerity for the next 10 years, which means that they cannot afford to pay any more than the £10.3 billion that we already pay into EU coffers. I hope that the Prime Minister realises that he is not answerable to the EU for taxation and our contributions. He is responsible to the British people, who show increasingly that they are not very happy about remaining in the European Union, and who will be even unhappier if they are asked to pay even more towards it.

Lord Strathclyde: My Lords, that is the point that I was trying to make to the noble Lord, Lord Grenfell. I have every sympathy with the view given by the noble Lord, Lord Stoddart. It is entirely correct that, although we believe that the economy is heading for a state of recovery and long-term growth, many budgets are being cut in Britain, and we are not in the business of seeing them being increased in Europe, where British taxpayers will have to foot the bill. But that is a discussion that will take place, first between the Prime Minister and Mrs Merkel and then, later on, in the Council of Ministers.

As for the noble Lord’s question as to why we are interested in the banking union, self-evidently financial services and financial matters are incredibly important to the United Kingdom—it is one of our key interests—and to the City of London. It is entirely right that we should take note of what is happening in the zone where nearly 40% of our exports go. One of the many reasons why this economy has suffered in recent years is because of the uncertainty in the eurozone, which we believe needed to be resolved—and one way in which to do that is through the banking union.

Lord Soley: I notice with interest the deft footwork on the part of the Leader of the House on answering a question about the budget and the meeting. It should get him a place in the finals of “Strictly Come Dancing”. But in all seriousness, the story on the front page of the Financial Times says very clearly—and it is a very reliable newspaper on this—that Chancellor Merkel is considering cancelling the summit if the British threaten to use their veto and want no increased expenditure at all. Can he tell us—and I am sure the Financial Times, too, and the people of this country—whether that story is correct or incorrect?

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Lord Strathclyde: My Lords, I am not quite sure what I am supposed to confirm or deny. I can confirm that there was a story on the front of the Financial Times, but I cannot confirm that it was right that Mrs Merkel has issued a threat. She may have done—I have absolutely no idea. But it must be in everybody’s interest to seek an agreement on the EU budget, and the Prime Minister is quite rightly standing up for British interests and has explained what his position is—and I think that it is a very sensible position.

Lord Hannay of Chiswick: Will the Leader of the House accept a warm welcome for the recognition in the Statement that he has just repeated that it is better to be there at the negotiating table in the European Union than to wield vetoes that are not really vetoes and absent yourself from the subsequent negotiations? It is a distinct improvement on what happened in December last year that the Prime Minister is working at the table and will continue to do so to make sure that the interests that he is quite rightly seeking to protect of the single market, and the way in which the banking union will interact with the single market, are defended by being at the table.

Secondly, on the budget in the Statement and in what he has subsequently said, the Leader has reiterated again and again that the British position, which incidentally is supported by your Lordships’ European Union Committee, is that there should be no increase in real terms. But those words never manage to get past the lips of the Downing Street spokesmen; they just talk about no increase. The Leader knows quite enough about these matters to know that between 2013 and 2020 no increase in real terms will mean considerably higher figures in nominal terms—that is, by the amount of inflation. It is really not sensible to give the impression that we are trying to keep the budget steady at nominal terms, when that is not what we are trying to do. All that does is to distance ourselves from the other members of the European Union that take very similar views to our own.

My own view is that we are heading towards a very satisfactory outcome to the budget negotiations if we play our cards right. There is a solid body of support for a very low outcome, way below what the Commission proposed, and I just hope that we are not going to snatch defeat from the jaws of victory.

Lord Strathclyde: I have two points on that question from the noble Lord. First, we have every intention of continuing to work at the table and to be part of the negotiation. There are some very important and crucial issues that need to be resolved over the next few weeks, and I will be back at this Dispatch Box discussing and debating them, as I have done over the past two and a half years. But it is important to get some sense of the economic reality, which is very different to when the last EU budget was negotiated. For example, the level of public debt across the 27 EU member states in 2012 will be 50% more than it was in 2007. Across the EU on average, countries are expected to see expenditure as a percentage of GDP fall by about 8% between 2010 and 2014, and more than 16% of Commission officials earn more than €100,000. At a time when we

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are trying to boost growth, it is hard to justify a budget in which 45% is spent on the common agricultural policy.

Let me deal head-on with noble Lord’s concern that when we talk about a nil increase we mean a nil nominal increase. We do not. We mean that we do not see the case for increases in spending that are above the rate of inflation.

Lord Brooke of Sutton Mandeville: My Lords, in the Statement the Prime Minister specifically quoted, and thus emphasised, a passage in paragraph (g) of the European Council conclusions on the right regulatory framework for growth. The conclusions go on to state:

“The European Council looks forward to the Commission communication expected in December, which will take stock of progress and signal further action to be taken by the end of the current parliamentary cycle at the latest, including the follow up on the top 10 most burdensome pieces of legislation for SMEs”.

Will my noble friend remind your Lordships’ House of whether this is an actual or approximate date that constitutes the end of that parliamentary cycle so that our anticipation can be further whetted?

Lord Strathclyde: My Lords, I think that the parliamentary cycle comes to an end in 2014. However, we would like to see real progress on deregulation and dealing with regulation, particularly as it affects businesses and small businesses, as soon as possible. What was apparent at the end of last week was that that was a view shared not just by other member states but by the Commission itself. There are important prizes to be won here. If we can make the economies of Europe more efficient and effective, that will lead to growth, which is something that we all want to see.

Lord Skidelsky: My Lords, I agree with the Leader of the House that the British people will not support profligacy abroad while having to suffer austerity at home. Is not one way of trying to bridge that gap to have a bit more of what he would call profligacy at home, in which case at least the economy might start growing again, which it has notably failed to do over the past two years of coalition government?

Lord Strathclyde: My Lords, as I said earlier to the Leader of the Opposition, it has been a difficult two and a half years in Britain. What have we seen? We have seen nearly a million private sector jobs being created in the past two and a half years. For the first time since 1976 we have seen net exports of motor cars made in the United Kingdom. We have seen the AAA rating and record low levels of borrowing. Employment is the highest that it has ever been and unemployment is falling. I hope that the noble Lord, Lord Skidelsky, agrees that these are very good signs for our long-term growth prospects.

Lord Lea of Crondall: Will the noble Lord confirm that he is about to ring the editor of the Financial Times to say that the Government’s policy is that when they talk about no increase it is in real terms, and that Chancellor Merkel takes some heart from that clarification?

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Lord Strathclyde: My Lords, I wrote down what I said and am very happy to repeat it. I said that we do not see the case for increases in spending that are above the rate of inflation.

Lord Willoughby de Broke: My Lords, one of the Council conclusions on which I hope the noble Lord can enlighten the House is headed, “Developing a tax policy for growth”. Is this a tax policy for having higher taxes or lower taxes? Secondly, the same paragraph of the conclusions refers to,

“enhanced cooperation to be launched on a Financial Transactions Tax”.

Was that supported by the British Government?

Lord Strathclyde: My Lords, on the first point, we are not in favour of any new taxes emanating from the EU. Secondly, we have not supported a financial transactions tax. We know that certain elements within EU countries have got together and decided to impose a financial transactions tax. I believe that in the long term that will prove to be against their interests.

Arrangement of Business


7.03 pm

Baroness Stowell of Beeston: My Lords, the next business is not time limited. As noble Lords are aware, the Companion guidance on debates such as this states that the mover of the debate—in this case my noble friend Lord MacGregor of Pulham Market—has about 20 minutes in which to speak and the Minister responding has about the same time. All other noble Lords contributing to the debate can speak for up to 15 minutes. I and other Whips on duty this evening will do nothing other than help noble Lords to follow the guidance in the Companion. However, as the debate is starting just after seven o’clock and 22 speakers have signed up to it, noble Lords might like to know that if the House wishes to rise at about 10 o’clock this evening, the average time for people to speak in order to come in at around that time would be in the order of six to seven minutes. However, I stress again that the Whips on duty will not try to intervene in any way. I just thought that noble Lords would find it helpful to have that guidance.

EAC Report: Development Aid

The Economic Impact and Effectiveness of Development Aid

Motion to Take Note

7.05 pm

Moved by Lord MacGregor of Pulham Market

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

Lord MacGregor of Pulham Market: My Lords, I have great pleasure in moving the Motion that stands in my name. Before I attempt to summarise some of

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

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

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

As the first words of our report say:

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

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

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

“Aid is almost a sideshow in the portfolio”.

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

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

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

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

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

The Government should prepare an early exit strategy from the very substantial bilateral aid programme for India. It is true that India’s impressive economic growth and technological attainments coexist with widespread extreme poverty, but British development aid to the poorest Indian states may provide a perverse incentive

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to the Indian Government to use less of their own resources to relieve poverty. We recommend that the Government should make plans to run down the British bilateral programme in India.

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

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

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

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

I come now to possibly the most controversial aspect of our report and our recommendation. The committee parts company decisively with the Government over their commitment rapidly to reach the UN target

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of spending 0.7% of gross national income, or about £12 billion a year, on aid. Whatever its merits when it was adopted in 1970, we do not accept that meeting the UN target by 2013 should be the main yardstick of British aid policy. This part of our report is so important that it is worth quoting our main reasons from the report itself. In summary, we gave four reasons. The first was that the policy,

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


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


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

and, fourthly,

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

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

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

In conclusion, I thank, above all, my parliamentary colleagues on the committee for the huge contribution that they made. They were stimulating, probing, thoughtful, experienced and always a pleasure to work

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with. I wish that I had more time to comment on other parts of our report but, given the lateness of the hour and in the interests of other speakers, I commend the report to the House.

7.20 pm

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

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

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

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

For this country and elsewhere around the world, these are no doubt difficult times. We live in an imperfect world where every decision made, particularly in fragile, delicate or post-conflict countries, can have messy outcomes. However, the United Kingdom also has a duty and a responsibility to meet its international obligations and to be a force for the stabilisation of fragile states and, of course, for the reduction of global inequalities and poverty. That is a necessity. It is in our interests here in the United Kingdom—economically, environmentally, socially, diplomatically and particularly perhaps in relation to our security—just as much as in individual developing countries or the communities that make up those countries to ensure that the gaps between the developed and the developing world are minimised. However, there is also a duty on the United Kingdom—partly because of our colonial past and partly because of our responsibilities as a permanent member of the UN Security Council, as a leading member of the European Union, as the heart of the Commonwealth and due to our role in many

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other international institutions—to be at the forefront of the global efforts to deal with conflict and poverty. In this country, we should ask not only what is in it for us but, crucially, what is the right thing to do.

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

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

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

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

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debate on the amount of spending out of party politics and ensure that we spent our time in this Chamber and in the other place concentrating on how that money was spent and on making sure that it was spent more effectively in the years to come.

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

7.30 pm

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

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

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

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

That speaks volumes. The other area of great consensus across the field is that private investment and capital flows, along with remittances, are far more powerful

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levers and actually do most of the heavy lifting when decent governance is in place and countries are able to move from being low-income countries to middle-income.

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

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

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

I know that the committee was rather taken with the evidence of Mr Rory Stewart, who dismissed the concept of a “lessons learnt” model whereby one can to some extent extrapolate from one particular circumstance to another. Although I agree with the idea that there is no template for stabilising post-conflict situations, we do have useful experience to draw on. Mr Stewart, in my view, misunderstands what he describes as liberal imperialism. The idea was founded in the 19th-century context that if you were going to expand empire to other parts of the world, you should try to promote standards there that reflected what you

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thought was successful at home. The idea that our development assistance today, whether disbursed bilaterally or multilaterally, is to replicate “civilisational standards”—in the lexicon of 19th-century liberal internationalism—is, frankly, to treat today’s endeavours with contempt. I wonder whether the role of the Marshall Plan in providing aid in post-conflict Europe or the writing of the Japanese and German constitutions to entrench the rule of law would count as liberal internationalism. Furthering gender equality or the rule of law is the right thing to do in a post-conflict society and some of us are sure that Afghanistan will emerge the better for our engagement there, even if it takes longer than we expect.

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

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

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

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

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

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

I wholeheartedly support the target but am concerned about enshrining it in law. However, I accept that all political parties committed to this and that it is part of

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

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

7.40 pm

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

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

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

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not forget that by setting the target in terms of a percentage of the donor’s gross national income, the system already takes account—the noble Lord, Lord McConnell, made this point—of recession or stagnation in those economies.

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

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

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

Secondly, there is the future of the United Nations’ millennium development goals after 2015. The Prime Minister is joint chair with the presidents of Indonesia and Liberia of the UN panel set up to prepare the post-2015 phase, which is a welcome tribute to the role

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that Britain is playing on development issues. Perhaps the Minister could say something about our approach to the MDGs post-2015. How can we get a better focus on the problems of that bottom billion? How can we refine the very broad-brush approach of the present MDGs? How can we ensure better monitoring of the recipients’ performance in using and in matching up to their own targets? She may also take on board that it might be really good if we had a full debate in the House, in government time, before too long on the post-2015 MDGs and the objectives that the Government are pursuing in respect of them.

7.48 pm

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

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

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

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

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

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

7.54 pm

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

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

This country’s aid programme stands out in at least three ways. First, as my noble friend said, we give more in overseas development aid than any country in the world with the sole exception of the United States. Secondly, while in order to achieve sadly necessary fiscal consolidation, all other public expenditure

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programmes are being either frozen or cut back, the UK overseas aid budget is roaring ahead—at a time when most other countries are slowing down on this front. Thirdly, we are doing this explicitly in pursuit of a pledge to meet the 42 year-old United Nations target of spending 0.7% of our GNP on aid by next year; and, unlike any other country in the world, and in contrast to all other areas of public expenditure in this country, we have said that we will introduce legislation to bind this and all future UK Governments to maintaining this level of spending in perpetuity.

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

Baroness Royall of Blaisdon: Hear, hear.

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

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

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

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

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

We did not go deeply into the question of why development aid does not, on balance, promote economic development, although we did point to the malign

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relationship between aid and corruption, which has already been mentioned in this debate. But corruption—important as it is—is only part of the story. The real issue is more fundamental than that.

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

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

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

Be that as it may, Acemoglu and Robinson continue:

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

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

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

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

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

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

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

8.06 pm

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

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

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

I regard myself as a friend of the Department for International Development and appreciate enormously

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

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

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

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

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

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

My final point is one where, again, you come up against the theology within DfID and the most amazing resistance to co-operation with the Ministry of Defence.

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

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

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

8.22 pm

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

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

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between countries and peoples, and in making the world a safer and more secure place by spreading wealth and opportunity.

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

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

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

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

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

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

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

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

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

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

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

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

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

I am reassured by that and I hope that means there can be a meeting of minds. I am very happy to spend 0.7%, but the impression has been given that it is

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

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

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

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

Health projects like that drive growth because people are well.

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

This is not just about 0.7% or any other number; it is about doing what we can and should do to help poor countries to grow their way out of poverty. It also means the Government reassuring everyone that

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there is indeed capacity in DfID to spend effectively and, in so doing, to build public support for development aid.

8.35 pm

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

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

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

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

That the developing world needs more aid can hardly be in doubt, considering the effects of poverty, conflict and climate change. Agriculture in Africa, above all, as the noble Lord, Lord Boateng, said, requires much greater investment at a time of extreme

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weather conditions and rising populations. India will continue to have a large proportion of the world’s poorest people, and I disagree with the committee about an exit strategy; with the benefit of our historic experience and partnership with India, there is a moral as well as an economic imperative to defy the critics and keep at least three or four Indian states inside our aid programme.

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

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

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

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

I will not go into the issue of corruption because DfID’s anti-corruption strategy is still at an early stage. No kind of aid can be free of it altogether, but I

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think there is some exaggeration of deliberate corruption. Much of it can be incompetence. Those of us who have visited UK projects overseas will recognise what might be called the “muddle factor”, which is where perfectly good, well designed programmes are brought down by incompetence both by donors and recipients. I will give one example from Nepal. DfID’s once excellent Livelihoods and Forestry Programme in Nepal—which the Minister may remember visiting with the Inter-Parliamentary Union a few years ago, and was seen more recently by the Commons International Development Committee—was notable for its direct involvement of the local community through forestry user groups. However, in the past two years the whole programme has stalled during an attempt to upgrade it into a multi-stakeholder project involving the Swiss Government. There have since been management failures, expertise and jobs have been lost, and there is still doubt whether the new programme in its revised form will go forward.

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

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

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

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