TUESDAY 5 FEBRUARY 2002
Tony Baldry, in the Chair
Memorandum submitted by The Department for International Development
Examination of Witnesses
THE RT HON CLARE SHORT, a Member of the House, Secretary of State for International Development, examined; and MR ANTHONY SMITH, Head, European Union Department, Department for International Development, further examined.
(Clare Short) Yes, but it is slightly more complicated than that, in that countries that do not count as ODA-eligible, that money is not part of Britain's aid budget but the Treasury has to agree which government department will take the draw-down in order to get the money properly handled. It is not logical that it should come on to our budget when they are not ODA-eligible countries - but if the Treasury's judgment was insofar as it is possible to try to ensure money handled through the EC is well handled it is more likely to happen if it drew-down on our budget. In the Comprehensive Spending Review an allowance was made for the likely non-ODA costs of this activity. Indeed we took the risk, on the prediction that the EC would not be able to spend as quickly as they claimed, we might be able to get the money back from ODA, and we did. That could be a dangerous game if one continued. There is an issue for the future of the countries that are candidate countries for the EU, when they continue to get funds for structural adjustments so that they can be fully part of the European market; once they have joined I think the case for the money not drawing down in any way on our budget is overwhelming. I am a bit worried because (crudely, we are better at managing money) if it was argued it should continue to draw down on our budget the spend will get up to speed and it could start endangering the ODA money. I think that is the place to draw the line, if that is clear. It is a red herring on aid. It is about the handling of money to help countries that are going to join the EU that are not ODA-eligible; but Albania is. Albania is so poor that it is.
(Clare Short) If I could just step back a bit. We inherited a situation as a country where the amount of our development assistance that went through the EC had grown very considerably as a result of a settlement reached at the Edinburgh Summit under John Major's government. The problem is, as you know, when you get a summit and people are trying to reach agreement, giving more aid money through the Commission was perhaps thrown in to settle the deal, and it shows really the low level of respect for this endeavour that goes on across the international system. We inherited a position where a third of the budget went through the EC. The quality was very poor. There was an inability to spend and it was skewed against poor countries. In the short-term it was unchangeable so we set ourselves to really try and drive the reform agenda. Some people say, "Let's stop the Commission doing any development work because they are so bad at it", to which obviously you have to get all countries to agree, and you could only agree that at a future summit. It is highly desirable if we could get the Commission working more effectively because it could be such a powerful force for good. No one country can be represented and have a development programme in every single country in the world, but the European Commission can; and of course it is the largest single market destination for the exports of developing countries, so it could be more generous to them. If we could drive forward a really coherent committed development agenda throughout the Commission it could be a fantastically powerful force for good; both because we could not cut the amount of money that went through the Commission anyway in the short-term, and because it could be such a force for good; we have worked enormously hard trying to drive forward a commitment to reform. I think the push came out of the UK. People who were pro-European tended to not talk about it because it was so embarrassing and, therefore, Euro-sceptics would climb on the bandwagon as another way of attacking the EC. So it is a bit of a secret how appalling things were in the past. We broke that out into the open, and your predecessor select committee (and some of you served on it) really did strong, committed and important work on this. I am sure on your visits to Brussels and in your meeting with Chris Patten and Paul Nielsen (whom I assume you met with) they have said there is a strong reform agenda, it is in place and it is being implemented. That is a great achievement, but, firstly, it is going to take ages to drive through and really affect what happens on the ground; so although we have achieved a lot for the really poor people in the real world it will be a considerable time, many years, before they get to feel any real benefit; secondly, and this we just have not won and have not moved, if you look at the resource that goes from the EC, together the EDF under Lomé now Cotonou and the budget, the money is massively skewed against poor countries. You know the figures. Some years ago it was 70 per cent that went to the least developed countries and it came down to 52. We have just done some work on the new figures and it is down again to 38 per cent. You get this argument within the Commission and around the development argument amongst the Member States as well that the EDF is for the poor, and the budget money is for something else. Of course, by definition, because the ACP countries are Africa, the Caribbean and the Pacific, that spend will go overwhelmingly to poor countries. Unless we can win this argument, that the whole budget must be looked at together, with the same kind of disciplines that we have tried to impose on ourselves - and it is clearer and clearer in the use of ODA that you need to put it where the poor are and behind reform efforts, and that is when it is at its most powerfully effective in lifting large numbers of people out of poverty and speeding up development. We must get the Commission and the Member States to take this argument seriously. The biggest thing of it is the massive under-spend in Asia. In India alone a third of the poor of the world live. It is a country of a billion people and the EC's contribution is very small indeed. Of course, the battle we have just had about Afghanistan and getting a Commission commitment at the Tokyo Conference is very interesting. What tends to happen in the arguments in the EC is that the General Affairs Council, which meets monthly, (the Development Council meets only twice a year, and is overwhelmingly foreign ministers) have a "let's throw some money at the latest problem" mentality to catch a headline; and, "Oh, dear, what shall we do about the Balkans? Thrown some money at it. Oh, dear, there's a problem in the Middle East", or, "We're worried about people having refugees from Africa, let's throw some money at the Med". Then you get, "It's not thought through. There are no plans for spending the money properly". It does not promote development or help the poor in middle income countries to throw money at them; in fact it often props them up in not reforming because they have got some extra money to disperse and therefore do not have to face up to the fact that the poor of their country are not properly included in educational opportunities, health care and things that enable them to become part of the economy. I think the glass has moved. There is some water in the glass on the reform effort, but it will take many years to be carried through, and we are not winning the argument on the distribution of the resource, we are going backwards, and that is very serious indeed. It means lots of money is being badly deployed and it is not assisting the poor; in fact, throwing money at middle income countries has an opposite effect, in my view - it holds back the reforms which are need for their economy to prosper and for the poor of those countries to be included in the chances of economic growth.
(Clare Short) There is absolute clarity in the international development system. The Development Committee of the OECD all countries that provide aid report to, and they issue a published report on how that aid is used and what proportion goes to the least development countries and to low income countries as a category, and so on. There can be no confusion intellectually or conceptually. I think what there is is a lack of commitment to spending the bulk of the resources on development for the poor. There is a constituency that says, "We are concerned about our near abroad, the Balkans, the candidate countries", and they want to say, "Oh, the UK is concerned about the poor of the world, but we're concerned about the fate of the EU and our own near abroad", and that means the Balkans, North Africa, the Mediterranean and so on. I think a lot of people just believe that is a difference of political view, but you need to unpack that. All the evidence on effective development and good use of ODA resources says that is a mistaken view, that throwing money around in middle income countries does not produce good effects for poor people or sustained development; it is a misuse of resources. It is a political argument rather than a confusion I think; or it is a difference in definition of the poor; a development effectiveness argument we have not won. There are a lot of people in the development argument, they have either got it in the charity box in their head - "Oh, dear, all these poor people, we'd better give them a bit of help" - or it is a handout rather than an investment in creating conditions that will enable the economy to grow and for them to get the public services to enable them to improve their lives. That is one argument in the whole international system we are beginning to shift but I think we have not won. This has been a lot of the history of aid, as you will know, especially in the Cold War years. We saw it as a tool of politics. Maputo being the famous example. The West threw money at him; they knew he was a corrupt kleptocrat, but he was a pro-Western kleptocrat, and he carried on until it was just too embarrassing. Obviously, post-Cold War the examples are not as extreme, but there are still a lot of people who see a budget as deeply political; as tying countries in alliances; as helping trade prospects. We would argue, not only is that morally questionable, it is not caring about the poorest of the world who deserve a chance in life, but it is an ineffective use of aid resources. It is the effectiveness of aid argument we need to take further and win more converts.
(Clare Short) I do not think there is a simple ticky answer. This is a political battle about what aid is for and how it is best used effectively, and what is the role of the EC development effort. I do think we should try and get finance ministers more engaged. Crudely, foreign affairs ministers like a big aid budget to throw around and it is politically-led then rather than poverty reduction investment-led - that is across the world. You are not going to win it there, crudely. We are all getting ready for the Financing For Development Conference to be held in Monterey in March. How can we get the chief millennium development goals in the world? The Zedilla(?) Report suggests we need a doubling of ODA in our system from the 55 billion we have got, to double that. There is a lot of pressure on European Union finance ministers to come up with some goods, and yet a lot of what they are finding already is being so badly spent; and you could increase its effectiveness and per dollar spend; how much effect on reducing poverty, by spending it better. I think we should open that channel. I think Gordon Brown is interested in that. I think we have to take this argument across Europe and win it. It really is the argument about how you deploy resources; and what is aid for; and getting that whole argument to become more grown-up and sophisticated. There are certain NGO links across the EU. I think your Committee previously did try to link up with parliamentary committees in other countries. I think we need more of that. I must win this argument but there is a way to go.
Mr Battle: We are intending to do that.
(Mr Smith) PHARE deals with Pre-Accession countries. I would have to check the figures, but that might be broadly right.
(Clare Short) I think it is crudely; I could not say the figures are right. Given that things are skewed away from low income countries, the logic is the kind of picture you have drawn.
(Clare Short) Yes.
(Clare Short) It goes to non-low income countries. It is worse. This year it has gone down to only 38 per cent going to low income countries. We have gone from 70, to 52 and now this year worse again.
(Clare Short) In two different ways, as I understand it. On the Lomé/Cotonou negotiations there is then a deal to replenish. It used to be every few years but, at the end of Cotonou, we slightly changed it. There is a horse trading final settlement when you have got the Lomé Agreement or the Cotonou Agreement and 13 per cent of the total. Then there is another set of horse trading around summits and so on and 18 per cent of the budget.
(Mr Smith) It is 19. The budget is not so much horse trading as the formula. I imagine there is horse trading about the formula, but the formula is rather mechanical based on GDP, population and customs receipts.
(Clare Short) On how the 19 per cent is arrived at?
(Clare Short) The EDF is more political. Obviously there is an expectation on countries in relation to the size of their economy and so on; but there is a formula for budget money. One thing I forgot to say in my introductory remarks - there is a nightmare scenario that we push on with the reform agenda; we need to win the argument about distribution; but, in the meantime, the reform agenda works to some extent and the spend speeds up; so even more of our budget will be badly allocated. That is my nightmare, and I think we are going to see some of that. The moment we get money back because they cannot spend it, I think they are going to get better at spending money badly allocated.
(Mr Smith) In the 1999 Berlin Summit it was agreed to establish a separate category in the budget to deal the applicant countries, and it was proposed on three lines, the ones we have mentioned - PHARE, which used to deal with Eastern Europe in general, including the Balkans and then focussed on the accession countries; plus the new ones ISPA(?), and Sappard(?). Together they have a separate category in the budget, which is the one the Secretary of State referred to, and that was dealt with in the Comprehensive Spending Review.
(Clare Short) Not all the money in my budget is aid money. That is the original question the Chairman asked me.
(Clare Short) I do agree completely. We do have programmes in transition countries. Clearly it is really important that countries of the former Soviet Union and of the Communist system are helped with sustained help to continue their reform effort to have a well managed market economy with good public services. Lots of them have not done well, as you know. We have programmes in most of these countries, as you will also know, and then part of our effort is to deploy people and quality inputs to try to make sure that the money that goes through TACIS is better spent. We have two inputs, and then do not put a lot of bilateral spend through my direct intervention, but try to put in people and influence to get the money that is spent through the EC better spent. That is what we do.
(Clare Short) But this is an argument about how aid is effectively spent, and what are the appropriate interventions in middle income countries and so on - it is connected. Spend, for example, is highly committed to the maximum possible spending in Latin America and in the Mediterranean for obvious historical and geopolitical reasons. I do not know whether we have shared with the select committee the report we have done on the most appropriate relationships with middle income countries. When do you deploy money? When do you deploy expertise and a reform effort to help countries build their institutions? Obviously the transition countries need a lot of help with building their institutions and so on; and they need appropriate resource transfers. The EEC should of course not be turning its back, any more than the UK should. We must have programmes and help reform effort in these countries; but we should deploy money appropriately. It is disproportionate - the amounts that have been allocated to those countries - of the EC budget when you look at the needs of the world. I personally think, in this globalising world, this concept of near abroad is becoming really very foolish. Africa is Europe's near abroad anyway and has so many failed states within it, it is causing enormous human suffering and great danger; endless war and small arms and diamond smuggling, and all the criminality that causes human suffering but also is the place where you get the nasty, ugly forces hide themselves. After all, bin Laden was in Sudan before he went to Afghanistan. We should engage in a well managed world where all countries have the chance of improving the lives of their people and having a mature relationship with the rest of the international community. We must stick with the transition countries and help them to make that transition better; but we should then allocate money in proportion to need and where it most effectively speeds up the reduction of poverty. That allocation of the EC resources is flawed. David Dollar has done a lot of work in the World Bank on the World Bank's best allocation of resources, based on lots of studies of how spending money helps to reduce poverty. There is a study showing that the EC allocation is skewed away from effective spending of resources. It says: "Do you engage with the country? Yes. What kind of expertise do they need? What help do they need to build their institutions? How much financial allocation will help them?" We have also got the European Bank for reconstruction and development. We have also got World Bank programmes. Sometimes using lending well to generate reform is a better instrument. You have got to look at all the instruments you have got and them deploy them effectively to help countries move themselves forward.
(Clare Short) Since 1997 there has been more scrutiny. It has become a political argument. There has been probably more interest in this question in this Parliament than in many other European parliaments. As I understand it, the way in which other countries handle their contributions to the EC development programme vary. I think with the Scandinavians, who tend to think the same as us in general development argument across the world, it draws down on their budget differently; so they are worried about the Balkans because it is right next door to them.
(Mr Smith) As the Secretary of State was saying, in many other countries their finance ministry is responsible for all of the budget payments across the board and they do not have the system of draw-down on particular ministries for the relevant areas. When you speak to our equivalents in other countries many of them do not have the same immediate impact on their overall budgets that we have; and, therefore, tend not to perhaps be as motivated or as strategic in the way in which they deal with the issue.
(Clare Short) TACIS money is virtually all ODA, but not PHARE.
(Clare Short) Actually there was no suggestion that the UK is in the sin bin. This is partly trying to ensure that the Financing for Development Conference is a success and I think it is important it is a success anyway but, post September 11 I think it is even more important, because post-September 11 it is all about one world and we had better take responsibility for it. If at the first UN conference, when it says how are we going to finance development in the poorest countries, it goes sour, it could sour the international atmosphere in a really quite destructive way. We had this discussion with the Development Council who agreed, because the argument in the US is so anti aid and Japan, because of its difficulties, the second biggest economy in the world, is cutting its budget there is a real danger of a sourness at Monterey. We were very keen for the EU to put forward an initiative to at least put the world on a forward foot; although Germany has got budgetary problems, and France is not proposing an increase. The UK is known to have turned the point and be increasing. We are just coming up to the Comprehensive Spending Review and I hope you will all watch it with great care. Cus Rochelle(?), Director General for Development was charged with responsibility by the Development Council of visiting all the Member States and looking for what kind of package we might all be able to sign up to that would mean the EU's input to the Monterey Conference would be a positive and forward-looking one and, therefore, try to prevent this international souring. He has worked on lots of different formulas. The Scandinavian countries who were up at 0.7 want more pressure on others to make that journey; but you cannot go for a demand that not all the Member States will sign up to. He has come up with a package and it is not putting the UK in the sin bin. We are seen now as a very effective player with a growing budget, and everyone wants us to grow it more, but that is the bin we are in.
(Mr Smith) This is not public yet. I can say what we know and what his thinking is so far. It has to be discussed by the Commission as a whole later in the week. He was, on aid volume, looking first for agreement that at least those countries which are not yet at the EU average in terms of percentage (and the EU average is 0.33 per cent) those countries should move up to that figure; and then the EU should set a new target based on the new average because the average would have gone up at that point. You would have a mechanism for continuing forward progress.
(Clare Short) He is looking for inventive formulas that will push the effort up so that everyone can sign up to it and that puts us on the front foot going to Monterey.
(Clare Short) Let me just be clear because you will have been told when you visited Brussels and all the rest how much the reform agenda is moving forward, and I agree with that. We have worked for that and there is a reform agenda in place and I do not want to belittle that; but I want us to be clear about how long it is going to take to create benefit and how we have not cracked the argument about the distribution of the whole resource. I do not want to be unbalanced and say that it is not true. There is a commitment and a reform agenda.
(Clare Short) Indeed. I tried to answer the question you ask now in my preliminary remarks. There are two answers to this: you could say the EC is so ineffective let us just work for a reduction in the amount of money that the EU Member States put through the Commission. You do get a muddle in the public debate here. I think a lot of people think that what the EC spends is additional, so it is more aid; and they are in favour of it even if it is poor; but they do not realise the Member States' measurement includes the amount which goes through the EC, so you get a muddled debate there. If it is additional income it is not very good. "We're in favour of it",says the development lobby. You can either conclude it is hopeless and unreformable and we should renationalise (a phrase in Germany) the aid budget; or do you try and reform it. I am back to my original argument: one, we have to try and reform it because we could not renationalise it in the short-term anyway; two, not all Member States might agree, even if the UK concluded that we might not get the consensus. Three, an EC effort that was well organised would be a phenomenal force for good in the world. 60 per cent of worldwide ODA is the Commission and the Member States. In terms of a role for the Community acting together in the world, given that the US is not comfortable with this agenda, that could be an enormous force for progress and development across the world in trying to make sure that failed states do have a better future, and poor and middle income countries are included in benefits and economic development and so on. I think the case for really trying to get to improve the Commission's effort as part of a really important contribution the European Union could make to the future safety and security and decency of the world is the overwhelming argument and worth a lot of effort and we are trying.
(Clare Short) It is the first I have heard of the campaign, which may say something. As I have said, I think challenging the ever-smaller proportion of the EC budget, taking EDF and budget together which goes to low income countries is an overwhelming imperative for reform. I am not at all sure that campaigning for the accession countries to say, "Money you had should now be given to someone else", is the best way of winning countries' support. They will continue to get funding to make their adjustments, just as Portugal, Spain and Ireland did (so successfully in the case of Ireland); so I think the psychology of it might need changing a little. If you ask countries to say once you join you get no money and it goes to the poorest -----
(Clare Short) As I tried to make clear at the beginning, it was not the last Comprehensive Spending Review it was the one before that, the first one after we had formed our government. When this issue came up, some money was allocated to my budget that was not ODA for the reasons I described earlier. I do hope that when those countries join that extra funding for them ceases to go through my budget because I think it could end up swallowing it up; but that part of the money will then be sliced away from my budget. No Treasury will say, "Now we have changed you can keep all the money you had before". I do not think that would work.
(Clare Short) Maybe they need to define their campaign a little.
(Clare Short) I will ask Anthony to come in on Category 4 overall. This question is linked to the question of what people call budgetising EDF, which I have an open mind about but people get very passionate about open text. I think it is not going to happen immediately, so one has to work with what you have got even if you think that is desirable in the longer term. I am tempted to say, yes, it is a highly desirable thing to argue, because then we might get a more intelligent allocation of resources; but I am not sure that a technical fix would not lead to the better allocation because the political desire to spend the money is so great. Before I bring Anthony in on the whole Category 4 business, part of our problem and the reason why it will take a long time to get any reform in reality is that the EC goes geographically and makes an allocation and a settlement and a programme for the Med, or for Latin America, or TACIS, or whatever and then it is tied down for a number of years. Therefore, even if you get the best commitment in the world to reform it is going to take quite a lot of years before you modify the allocations, because it goes through the geographical allocations.
(Mr Smith) I think that there a few things in Category 4 which are clearly not development spending. There is money for fisheries agreements; there is sometimes money for trade promotion; there is talk about money for programmes to prevent migration, or to return illegal migrants. Internally in the UK, DFID in its annual negotiations with the Treasury has been pretty successful in saying that should not be for DFID to pay for, and that goes to the appropriate department. On the whole, Category 4, when the money is spent in developing transition countries, there is a pretty big overlap between development objectives and other objectives. The Mediterranean for example, these are all developing countries and the objectives are, broadly, political stability, poverty reduction and promoting trade access. It would be difficult to say what bit of that should be for a development budget and what should be for a foreign policy budget. I think the key thing is, how much money should you spend in those regions to achieve the objectives that we have got? That goes back to the argument and the point the Secretary of State was making before. It might be that there is a high political priority for the Union in dealing with the Mediterranean, because it is a neighbouring region, whatever the logic of that might be; but, because of the high political priority does not mean you throw money at it in an ineffective way. You need to deal with effectiveness rather than trying to separate the budgets in some way. It would be impossible to do that.
(Clare Short) This is presumably part of the Kinnock reforms which, bravely, he has fought for but will take time.
(Mr Smith) I wish I could say I was a great expert in financial management - I am not. Activity-Based Budgeting, briefly, is part of a reform of the accounting and financial management systems of the Community. It follows a pattern of changes that have been made in other countries and institutions, including in the UK, where you move to a system of resource accounting, which perhaps the Committee will be looking at when it looks at DFID's annual report next year. The mechanism is that, with each annual budget, instead of just having a line with the name of the programme, Mediterranean, and an amount of money, you have a text which describes the objectives of that activity and should include indicators which show how you tell whether or not that expenditure has been successful. That is one element. The second element is that you relate parts of your running costs to activities. Instead of just having a programme budget and an administration budget, you say for the activities around the Mediterranean, for example, we will use the following staff and other administrative resources for those purposes. You can get an overall picture of what your effort is in resource terms.
(Clare Short) Public financial management systems across the world are trying to move to a better capacity to measure outputs. In education reform, health reform, everywhere, people say, "How much are you spending on it?" How can you make the systems better measure the effectiveness of the spend?
(Clare Short) Absolutely. With our own programme, but also because of course we put money into the World Bank, the UN system and so on, it is no good having the perfect British programme if the rest of the international system is not functioning, it was part of our campaign to get everyone signed up to the Millennium development goals and then to get better statistical capacity and measurement into the thing; so that country by country, year by year, we can measure how effective the reform is being in terms of how many children are in school, is maternal mortality reducing, is infant mortality increasing. Both with our own efforts and with the whole international development system we have been struggling to turn it round and measure its effectiveness by these outputs. We have now got the world lined up. We need to improve the measurement systems across the international system, but that is what we are trying to do and have made some progress.
(Clare Short) Does not DAC report on the EC spending.
(Mr Smith) It does. I think Mr Bayley is making a slightly separate point, which is the way in which, for example, the UK's programme is recorded in categories about poverty and change in environment, and the EC is just developing that system and needs to use the same categories as everyone else.
(Clare Short) Indeed, and there is a big push in the Parliament. Richard Howitt has been working very hard to get reporting against objective, because the Parliament has tended, for the best of reasons, not to be a ally in all of this. The way it saw its power was to demand a new budget line - a budget line for NGOs. You can see why they went down that road, but then you had even more complex allocations of funding into more and more ineffective spend. That all needs to be turned around to, what are the objectives measuring the effectiveness. That is a struggle, but Richard Howitt, in particular, is trying to take it forward. There is a seminar, and you will have heard of this probably in your travels, about to be organised by the Parliament to try and take this argument forward. On the Kinnock reforms, they are very important. Prior to these reforms, not only was the money badly allocated, it could not be spent; it was like concrete. Because there have been problems abroad over the years, there were so many checks on the spend. There is a famous trolley that had to go to 42 different people to sign to change any one thing where the money had been notionally allocated before; I think that is down to six or eight now. Improving the financial systems is important but it will not deliver different political priorities. You need to improve the financial systems so that they can follow the shift in political priorities. That is an important reform agenda, but if we do not win the political argument about where aid is best allocated we will just have a more efficient way of measuring spending that is skewed against the poor.
(Clare Short) With the programme we had in the past, there were not even any reporting systems where you could properly see broken down into detail effectiveness of spend. We have just achieved an annual report for the first time, which is a pretty terrible document if you look at it, but at least we have got to the notion that there should be a report and that it should track right down where all the money is spent to try and increase the accountability, so we have been working on that and I think they really are trying to get a better one for this year. I want to comment on your first point, that it is now widely accepted that aid is most effectively deployed when targeted at the poor. That might be accepted notionally by some, but it is not politically accepted throughout the international system. On the needing of an extra 50 billion of ODA, if the existing money in the system was deployed according to its greatest effectiveness in reducing poverty by untying it and allocating it to where there are poor people and where there are reformers and taking different strategies for non-reformers - you cannot ignore them, it is no good throwing money at a non-reforming country - we could probably double the value in terms of poverty reduction of the money we have got in the international development system. So it is accepted here across party, but it is not accepted in all countries and we have got more to do to win people over to that. In the EC, and again I will bring in Anthony, it was essential to fight for evaluations of EC programmes even to generate the willingness to reform. I used to travel and get people pleading with me to get the EC to stop offering them money for something. I remember when I was in Tanzania, there was a very impressive guy in one region and he had had an offer from the EC for water reform and he said, "Oh, this is a real problem" and I said, "I will get on to them in Brussels", to which he said, "Please don't. Please get them to withdraw their offer because I can't get any help from anyone else and when they have offered, it never flows". So you get stories like that and you go back to Brussels and you say, "This isn't very good", and people would say, "You're knocking the EC". That was how the old argument used to be, so then there was a big struggle to get some evaluations and the evaluations came in and were very critical indeed and that opened the door then to more seriousness about the reform effort. We are some way from the kind of level of reporting that we have tried to have in the UK, but we are moving down that road now and I think there is a commitment to the annual report and to the reporting and this effort that is going on in the Parliament. I do not know if you want to add.
(Mr Smith) Maybe just two things. One is that there are of course the DAC peer reviews which take place and the one in 1997 in the EC was very influential and it then led to the overall evaluations which the Secretary of State has just referred to, and of course if you want to look at the UK's evaluation reviews, you can alongside them. The EC is in the middle of being reviewed again by the DAC, so that should come out later this year, and the UK of course has just been reviewed, so there is a comparison. The second thing, going back to what Mr Bayley said, is that in order to be clear about the effectiveness of the multilateral institution, you really need to get the institution to have an effective performance management system in place and the EC does not. It does not have corporate objectives for what it wants to get out of its programme. It has an overall development policy now for the first time and that was a real advance. You never knew what the objective was and now the objective is poverty reduction and that is clear, but not a system in management terms for measuring progress against objectives at a corporate level and then you would work down to programme and country level and indicators as well and the DAC reporting system in terms of categories will be an essential underpinning to measuring progress against objectives, but we need to get the objectives, I think, as well and that is partly what that Parliament seminar is about.
(Clare Short) I touched on it before. I think in the past there was a sort of "bilateral is best" mentality. "Oh, what a pity we have to give money to the World Bank, and the EC" of course, and we understand that one, "to the UN agencies, or whatever and we want to have a lovely British programme". We shifted that and of course we want a quality, state-of-the-art, leading-edge British programme and we both should have a British programme to contribute to the whole effort and also to learn from it, so you can feed the lessons of better practice back into the multilateral system, but the biggest and best possible British programme will not function in every single corner of the world, whereas a well-functioning World Bank, Asian Development Bank, American Development Bank, Caribbean Development Bank, UN system and so on is reaching every corner of the world. Therefore, we have put a lot of effort into reforming the effectiveness of the multilateral system and our part within it and I am sure that is right. As I say, we really did this big push to get everyone to sign up to what we used to call the 'international development targets', and now the same things, but known as the 'international development goals' because we had the big success of the Millennium UN conference attended by more Heads of State and Prime Ministers than any previous UN meeting who signed up so clearly to the goals, so we worked very hard to improve the effectiveness of the multilateral system in order that there is a system which will be working in every single country of the world and that no one is left out.
(Clare Short) This is ECHO of course and in the past it has been very bad at deploying the resources. This happens throughout the international development system. When there is a crisis, people will make pledges on the television and it is a very varied speed with which they are delivered on to the ground in different countries in different systems. We are fast because we have got arrangements within the Department where our Conflict and Humanitarian Unit has discretion to deploy funds without reference to Ministers if necessary. If there is a crisis over the weekend, obviously there are budget ceilings and we manage them, but you have to give discretion in order to be very fast and you need to know what your policies are and you give the discretion within the policy. ECHO has improved, but is not that fast, but I simply make the point that you do not have to have eight signatures and it is a matter of will and choice how you set up your systems, whether there is enough discretion to go there. I am not sure that I am aware of how rapid it has been. There has been improvement in ECHO, we know that. As to how rapidly any ECHO commitment got through on to the ground in Afghanistan, Anthony?
(Mr Smith) Their commitment of course goes through other organisations, NGOs and UN agencies. They certainly committed very quickly, but I do not know off-hand.
(Clare Short) I think I should check. Our Conflict and Humanitarian Unit will be aware and of course this is true for all of us. The food that was getting into Afghanistan was being carried by the World Food Programme and then delivered out of warehouses to people by what are called NGOs, a lot of which were Afghan community organisations. When that term gets used, one gets images of Northern NGOs, but a lot of them were Afghan community groups. The point is to be able to put it into the hands of the World Food Programme so that it can order the aeroplanes and it knows the money is coming so that everything can move forward more quickly and I think ECHO has improved, but could still be better is my sense of it, but I think we should get you an expert assessment of how they did and we can easily do that. The second part of your question was about the commitment to the reconstruction. There was a battle over this. Of course it is connected to the low allocations to Asia, so there was not so much funding available to allocate to Afghanistan, and a lot of countries were saying that the European Union should only make a one-year commitment and we were of the view and Chris Patten was very much of the view that we must commit multi-years to Afghanistan. The cameras will move away and this country cannot reconstruct itself in a year. It is just too cynical for words to make one-year commitments when the cameras are on and there was a real battle in Brussels before we went and then we met with Chris Patten who was co-chairing the conference on behalf of the European Union and we pushed the commitment pretty strongly. Obviously the budgetary commitment needs to be followed through year on year, so he was not allowed to say the billion euro that he was advocating, but he pretty well said it and it is the determination of some of us to make sure it will be delivered in future years, but that was a political battle. People were worried that if we committed years ahead to Afghanistan, it would take money away from the Med, Latin America and so on, some countries were worried.
(Clare Short) I am sure we can. I get a weekly report. I hope, when you take the evidence, that you remember how inaccurate some of the NGO complaints were during the crisis.
(Clare Short) Yes, but I simply repeat that some of those who are active on the ground mis-described the situation during the crisis.
(Clare Short) It is very, very important to see whether food is getting through and how everybody is doing, but to get the information is also difficult. Yes, I am sure we can give you a report. Catherine Bertini from the World Food Programme, I think she has given evidence to you before, she has just been on a visit because obviously the World Food Programme has to stay engaged and there is still no food being grown and there is a real danger of another year of drought, but we need to modify the way it is being delivered as the situation unfolds, but yes, we will do that.
Chairman: Then there is budgetisation. We ask some of these questions about budgetisation simply because we need to try and understand which bits of the secret garden we need to be concerned about and which bits of the secret garden we can ignore.
(Clare Short) On the first question, it is not a cynical position about excluding the Parliament. People argue about it very passionately and when Rosemary Stephens was doing Anthony's job, I asked her to do an assessment and I think we could share that note with you, so there are both, "Is it desirable?" and "Is it politically going to happen?" questions. If the UK changes its view, if others will not, then it is worth debating, but it is not going to lead to any change. I think there is an argument about desirability and it is very unlikely in the short term. I think Germany is adamantly against, though I am speaking from memory. I think we should share the note with you because also it is a complex issue and what is this funny phrase? You will know, Ann, because of your time in the Parliament. There is some funny word. "Comitology" comes into this.
Ann Clwyd: It was not there when I was there.
(Clare Short) It is in this note. People have passionate arguments about comitology which is all part of this, but the short answer to your question is that the Parliament has not been an ally. The Parliament has got geographical blocs that tend to speak to the geographical bloc pressures of the Commission and the progressives within the Parliament have tended to go for a budget line for NGOs, for HIV Aids, and of course one understands that, but that is just even more complexity of little amounts of money and not getting any reform in the fundamental money. So we are working on it. It is not sort of bad faith so much as the debate has never been deep enough and there has not been an alliance of Members of the European Parliament who have attended to this argument in depth and got behind a reform agenda. That is what we need and we have been trying to work on it, but we are not there yet by any means.
(Clare Short) I think there is no imminent proposal that it will be, so it is not a danger to which I have addressed myself. On the ACP countries, you will know that Cotonou also has a sort of political layer and there are big meetings of ACP ambassadors in Brussels and you have periodic meetings - we went to that one in Barbados - and it is said that this makes the development relationship more equal and it is good to have a political process and I think in theory that is true. In practice, I do not think the processes are very impressive or lead to better deployment of aid, but many ACP countries are very attached to those political processes and I think would be hostile to a suggestion of budgetising that took away their political input. Certainly, to be fair to the political process, when we were renegotiating the Lomé into Cotonou and trying to get some reform and commitments on trade, it was important that the ACP countries were at the table. They were part of the negotiation and we could not change the agreement without their agreement, so that cuts across the budgetisation argument, but let me let you have the note and then you will be able to decide for yourselves how you think that argument flows, but I think change is not imminent, so we need to have a reform agenda in the meantime.
(Clare Short) I think my sort of anecdotal view, because deconcentration is taking time to roll through, as you know, but where there has been more discretion given to the people operating in developing countries, there has been some improvement. Obviously you get variable quality of people across the world, but in the past they could not do anything anyway. Everything was so controlled by a bureaucracy flowing back to Brussels that even when you got someone who was really progressive and wanted to deploy the money well, they just had to keep sending messages back to Brussels, which was enormously frustrating, so obviously deconcentration means that they can operate with other countries, representing their country and negotiating directly with the governments. There has been some improvement, that is my anecdotal sense of it and the feedback from our officials around the world. I do think here we need to pause and be careful. We should not make every development agency a replica of each other, but we should have some degree of specialisation between us. The EC has traditionally done lots on roads. Does everyone want them to sack all the engineers and do only health and education or if we are doing health and education and if the Scandinavians are doing health and education, could not the deconcentrated staff with some discretion, where the UK or Sweden or whatever had done a lot of work on education, put some money in, and you do not need another heap of specialists going all over it to see if it works, and then decide a bit more where the EC will concentrate its effort? I personally think they should stick with roads and improve roads. Rural roads are fantastically important to the livelihoods of rural people. Subsistence farmers will not grow more than they can eat if they cannot get everything to market. There are really good studies which show that good rural roads, and you can employ people building them, can lead to people growing more, getting their produce to market, increasing their family income, being able to get their children to school and so on. So I think it is fair to say that the EC is now employing more people because it has been enabled as part of the reforms to pay for some specialists out of the funds for development itself, but I think what we must do is decide where the niche and the expertise should be so that we have complementary bundles of skills rather than all replicating each other. There is this piggy-backing, they call it, do they not, the possibility of the discretion being at the local level and the EC delegation being able to decide to put some of the money into other reform efforts that Member States are helping to drive and know that the money will be well spent. I think we should do that too.
(Clare Short) Because my worry then was that everything was appalling and then they say, "We need more staff to spend it better", so we were going to throw an even bigger resource away. "My dead body" has sort of emerged to life a bit behind the reform agenda and improving its ability to employ some specialists out of the funds in order to get reform because obviously you need to redeploy staff behind a reform agenda. My fear was that it was an excuse for no reform agenda and then there was just going to be a whole bunch of new staff, so it was even more having good money thrown after bad, good staff thrown after bad money.
(Clare Short) We talked a little bit about better management of public finances and more focus on outputs which is a challenge across the world. I think the motivation and morale of people who work in the public services is also part of quality services and it is not surprising there has been a lot of demoralised people running this poor programme with very rigid bureaucratic systems, being criticised quite reasonably because it is such a bad system, and then people who are out in country offices, when they have really tried, having no discretion, and endlessly sending messages back to Brussels and not being able to produce any effect. That is likely to demoralise the staff who work for reorganisation and I think that has been the case, and then reorganisation is always threatening, though necessary, and I am told, and I will ask Anthony to come in, that there is quite a demoralised atmosphere, but I repeat, and this is just dependent on where I travel and when I ask, that some of the deconcentrated offices are getting some live sparks who are really starting to use the discretion that they have been given and to join up with others, so I see signs of improvement. Would you comment on the broader picture?
(Mr Smith) I think that is right. Our offices overseas have told us that of course there is variable quality and there are real problems in some countries, but there are also some very good examples of committed people out in Commission offices. I think that what they are doing with deconcentration by giving people more responsibility and discretion should encourage people, plus they are doing two other things on staffing for deconcentration. One is recruiting more development experts, and people who are committed to development and that is their career and who have not really been able to join the Commission to work with them properly before because of limitations on contracts now should be able to be employed for five years or so in a country and that will bring fresh blood. Finally, they are getting more local staff, not just drivers, but policy analysts, specialists and advisers as well, and that should also increase levels of activity and commitment.
(Clare Short) I do not know how the decisions were made. Do you?
(Mr Smith) It was an internal Commission decision based on, I think, some assessment of where, if their programmes were employed, they could make a difference, but Kenya is one of the countries.
(Mr Smith) I am sorry, I thought you said Nairobi. Their programme in Nigeria has actually been rather smaller, though it is growing, but ----
(Clare Short) And in danger because of course Nigeria is not reforming. We have got a democracy in Nigeria, but no reform and no improvement in the life of the poor which is partly why we are getting all this tension and conflict, so I think they are talking about budgetary aid and we need to be a bit careful that the EC money is deployed in a way which will help reform rather than prop up bad systems, so we have got that one in Nigeria. I think we should ask Poul Nielson how the countries were chosen. Pound to a penny, there were politics in it, but I cannot see the politics in that decision.
(Clare Short) I think it would be a disaster if DG Development disappeared in a round of reforms. There are also questions about councils because of course as the Union widens and we get more and more Member States, the existing structures are not going to work and there is going to have to be a lot of reform, otherwise the whole organisation will be just so blocked up, it will not be capable of making decisions, so it is quite right to look at the structures and see how they can be made more efficient. Certainly the Development Council, because it meets only twice a year, tends to have good generalised policy debates, but then the General Affairs Council meets monthly and ends up deploying the money and it is part of the problem, so there is room for a debate about whether the Development Council and the General Affairs Council ought to merge or whatever. I am not saying they should, but how can we get the development perspective more thoroughly into the month-by-month decision-making? This argument has gone on in many countries of whether you do development out of a foreign ministry or whether you have a stand-alone development department and lots of countries have experimented with different structures. My view is that it is better to be stand-alone as we are because it is not only the foreign ministry that you need to influence; it is also the trade ministry, it is also the view of your country on sustainable development, thinking about poor countries, it is also your treasury and their influence on the IMF and the World Bank, unlike in our case, so I think to get coherence and to get the development perspective into all areas of policy, you need a unit whose job it is to look at the world from the perspective of the developing countries and how you can get more equitable rules into the system. If the proposal is, and again I do not think we currently think that this is decided by any means, to get rid of DG Development and to see it all as part of broadly foreign policy, I think we would be going further down the road that we are on at the moment and getting less effective development.
(Clare Short) Certainly not.
(Clare Short) We did not particularly favour EuropeAid because we integrate the management of our programmes in the UK, but many others, the Scandinavians and so on, have an agency to deliver after the policy decisions are made separately, but given that it is in place, I think we strongly think we should go with it. You cannot stop in the middle of a reform effort and change your mind or you waste another couple of years. I think it is too early to say whether the fact is that all those Commissioners sit on the board percolating a development perspective through the Commission. I think it is too early to say and I do not think the evidence is strong that it is. Pascal L'Amy had an interest in development before he went to the Commission when I first met him at IDS in Sussex when he was at one of the events there, so I know it was not just a theoretical interest, but he was engaged, and of course the truth is on Doha that there would not have been agreement on the Round without developing countries getting involved. That is the beauty of the WTO, that they are there now at the table and they get something or they would not agree to another trade round, so Pascal L'Amy does have a commitment to development personally and that is very welcome. I do not see any signs or hints that DG Agriculture has thought about an interest in developing countries, and they have got complicated things to think about, so we will see whether it has the optimistic effect, but I think we should stick with the structure and drive it forward and try and make it work and not suddenly change it all again.
(Clare Short) No. When we moved with others, which cost a fortune, to get advice about whether the WTO Rules were being breached in their regard, we had a fantastic fight, and this was before L'Amy's time, with DG Trade who said, "You can't fund developing countries to take action against us", to which we said, "We have legal aid for murderers in our country". It was a very passionate argument and they tried to block us, so you can see how far DG Trade has moved. They were absolutely opposed to the funding of the legal advisory service so that the poorest countries would have the capacity to use the WTO Rules just to get their entitlements under the rules of the system. There has been change both because there had to be change post-Seattle to get a deal at Doha and Pascal L'Amy's interest and the decision that the trade part of DG Development was taken over into DG Trade. That was argued about at the time, but obviously you need the trade department to think about development and maybe it was desirable. There was agreement at Doha that there should be more commitment to capacity-building on trade and we have done quite a lot in our Department, but there has been not much of it across the world and I think there is now a commitment to put more resources into it so that countries both can negotiate their interests in the Doha Round and apply the rules to their own country and get the benefits because some of the trade rules are very complicated rules of origin and phyto-(?) conditions. You could think you have got trade access and then you cannot get through some of those rules, so I believe it was agreed at Doha that the EC would put considerably more resources into this, but they have not been a leading player up to now.
(Mr Smith) It goes back to the Cotonou negotiations as well where it was agreed that for ACP countries there should be a capacity-building programme, though it was a bit slow to get going.
(Mr Smith) The budget lines do not belong to particular DGs.
(Mr Smith) I think that for the trade capacity-building activities which are focused on ACP countries, they come out of the European Development Fund. I think in effect the management of the programmes is conducted jointly by DG Development and DG Trade.
(Clare Short) Under the Cotonou Agreement it was agreed that regional free trade agreements would be negotiated. I saw the pain of the negotiations of South Africa with the EU, and that is a sophisticated country with lots of capacity, so imagine some of the poorer regions of the world negotiating a trade deal with the EU and we have yet to enjoy that experience.
(Clare Short) Thank you. Could I just say I would be delighted to have that meeting, but I think in financing for development, finance ministers become potential allies and they would come at it differently. The study said that EC spending could be 50 per cent more effective in poverty reduction affairs if it was deployed differently, so they should be our allies.
Chairman: And we are hoping to get the Chancellor to give evidence to us, but it just seemed an absolutely convenient opportunity of taking some of your time. Thank you very much.