Examination of Witnesses (Questions 229
- 239)
TUESDAY 5 FEBRUARY 2002
RT HON
CLARE SHORT,
MP AND MR
ANTHONY SMITH
Chairman
229. Secretary of State and Mr Smith, thank
you very much for coming and talking to us today about the EU
budget. As you know, the Committee have been to Brussels and they
have been taking evidence from Commissioners, and clearly the
Commission is part-way through the reform process. I suppose it
is always going to be a question of whether the glass is half
full or half empty. One of the things that Chris Patten said yesterday
which struck me, he made the point that Poland gets more help
from the EU external affairs budgets than the whole of Asia. It
was quite clear listening to Chris Patten that he felt what the
EU were doing in relation to aspirant states, the European Union
and the Balkans, was all sensible stuff in terms of EU foreign
policy. It made me think that maybe part of the problem here is
that all this money should not come from your budget. We are concerned
about it because it takes about one-third of your budget. Maybe
all those things in the Mediterranean, the Balkans and Eastern
Europe, which are all perfectly virtuous things, ought to come
from the Foreign Office's budget or the Treasury's Budget and
they should not come from DFID's budget. I was wondering whether
you had any thoughts on that; and whether we should be writing
to various permanent secretaries and saying, "Hands off DFID's
budget"?
(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.
230. Do you feel that the way in which DFID
has contributed to the EU development budget is fair, so far as
you are concerned? Is there any issue you have with the way the
mechanics of that work, which you feel works unfairly against
DFID? It sounds to me, from what you are saying, you have taken
various compensating action where you feel probably the machinery
at Whitehall makes it fair; but are you satisfied that it is fair?
(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 Poul Nielson
(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?
Throw 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 disburse 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.
Mr Battle
231. Before the question of the distribution
of the resources and the way the budget structure works, and you
have been clearer than we have heard in lots of evidence sessions
so far because there is such a lack of clarity between the EDF/ACP
spending Category 4 that there seems to us to not be a clear poverty
focus. Do you think, within the Commission, within the European
Union, there is an agreement, a clarity about who the poor are?
Is there a clear definition? Do they accept the same definitions
of perhaps OECD Category 1? You used the phrase ODA eligible.
Is there a clarity about who should be eligible for the money
in the first place, and could that be agreed upon?
(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 developed 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.
232. To go back to the distribution of resources,
given there is the development money, the Category 4 money, given
you are saying things are getting worse unless money is going
to the poorest, what is the one thing in budgets we ought to be
pressing for; is it for ring-fencing of a particular vote heading
in the budget, or is it to budgetise the EDF? What do you think
is the one thing we ought to press for to make the change and
reverse the way things are going at the present time?
(Clare Short) I do not think there is a simple techy
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 Monterrey
in March. How can we get the chief millennium development goals
in the world? The Zedillo 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. You could increase its effectiveness
and per dollar spend, and have 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.
Tony Worthington
233. Can we stick with the PHARE and TACIS funds
which is in a sense what we have been talking about. According
to the figures we have been given, in 2000-01 in broad terms about
50 per cent of the money that DFID sends to the European Community
goes either to the PHARE and TACIS funds or the Mediterranean
countries; 41 per cent to Central and Eastern Europe. Would you
agree with those figures?
(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.
234. That something like 30 per cent of the
DFID budget goes to the European Union, is that right?
(Clare Short) Yes.
235. Of that 30 per cent, something like half
goes to MEDA, PHARE and TACIS?
(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.
236. How is our percentage contribution to those
budgets determined?
(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.
237. Could you let us have a note on that?[1]
(Clare Short) On how the 19 per cent
is arrived at?
238. Yes.
(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. At the
moment we get money back because they cannot spend it, I think
they are going to get better at spending money badly allocated.
239. These are enormous sums of money, according
to the PHARE website. It is 11 billion euro for the year 2000-2006.
In a sense, that has increased because they are also referring
to the coming on stream of something called SAPARD in agriculture
and ISPA in transport and environment, which has freed up more
money for the PHARE activities, because PHARE does not have to
spend money on agriculture and transport in the same way. Is that
your understanding of it?
(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 SAPARD.
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.
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