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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 179-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE INTERNATIONAL DEVELOPMENT COMMITTEE
AID UNDER PRESSURE: SUPPORT FOR DEVELOPMENT ASSISTANCE IN AN ECONOMIC DOWNTURN
Wednesday 21 January 2009 RT HON DOUGLAS ALEXANDER MP, MR MARTIN DINHAM and MR ANTHONY SMITH Evidence heard in Public Questions 1 - 43
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Wednesday 21 January 2009 Members present Malcolm Bruce, in the Chair John Battle Hugh Bayley John Bercow Richard Burden Mr Mark Hendrick Andrew Stunell ________________
Examination of Witnesses Witnesses: Rt Hon Douglas Alexander MP, Secretary of State for International Development, Mr Martin Dinham, Director General International and Mr Anthony Smith, Director, Europe and Donor Relations Division, Department for International Development, gave evidence. Q1 Chairman: Welcome again, Secretary of State, in front of our Committee. Thank you for coming in. Could you, for the record, introduce your team and then we will proceed? Mr Alexander: Of course. I have on my right Martin Dinham, the Director General of International Divisions within DFID, and on my left Anthony Smith, who is our Director for Europe and Donor Relations. Q2 Chairman: Thank you very much. My understanding is you wanted to update us on the situation in Gaza before we move onto the Aid Under Pressure inquiry, which I think the Committee would very much welcome. Clearly, all of us are grateful, I think, rather than anything else that we have reached a ceasefire, even if we have considerable questions as to quite how this appalling bombardment happened at the time it did, and indeed finished at the time it did. But clearly our own Government, you, have given money and then a second tranche of money. I guess on the basis of that you probably want to tell us a little bit about that, and then we may have a couple of questions following on from that. Mr Alexander: I am grateful for that opportunity. Firstly, let me begin with a very brief overview of the humanitarian situation, as we understand it, and then I will say a word about the steps we are actually taking to allocate the money which has been publicly announced first in the announcement I made on 31 December and then in the subsequent announcement made at the weekend in terms of the additional £20 million. Quite frankly, the humanitarian situation, as it is fully discovered in light of the ceasefire, remains extremely serious, indeed dire, and we would expect there to continue to be significant humanitarian needs from the many thousands of people affected directly by the conflict. As of 19 January, the United Nations estimate that over 1300 Palestinians have been killed and 5,300 injured; four Israeli civilians and nine soldiers have been killed and 182 injured; 400,000 people had no running water even before the conflict; 80% of the drinking water did not meet international standards for human consumption, and access to food items is very difficult, given the security situation and that food prices have increased sharply since the conflict started on 27 December, flour, for example, rising by 45%, tomatoes by 500%. In terms of the action we have taken, I am sure the Committee will be familiar with the diplomatic moves which have been taken, including a visit of our own Prime Minister, to Sharm El Sheikh at the weekend. In total we have pledged nearly £27 million since the beginning of the conflict for humanitarian needs, £1 million for the UN's humanitarian emergency response fund to fund local priorities, £4 million for the UN Relief and Work Agency's Gaza appeal to provide food, water and shelter, £4 million to the International Committee of the Red Cross to help deliver medical supplies and to treat the injured and they are already in the process of moving people who were injured in the conflict across the border and £1 million to the World Food Programme to coordinate the relief items brought into Gaza by both the UN and by the NGOs. We have also invited UK-based NGOs to submit proposals to us. When I left the Department we had received seven already and we expect to make decisions on those applications early next week. Tomorrow I will be meeting with the key UK NGOs active on the ground to discuss their current operations and the challenges they face. In terms of the broader issue following on from the immediate humanitarian response of what follows in terms of reconstruction - and anybody who saw the images of the UN Secretary-General there yesterday on the television will have been clear as to the reconstruction needs - there is an immediate humanitarian needs assessment underway at the moment led by the United Nations. We would anticipate there may well be a further UN appeal off the back of the needs assessment which is being carried out at the moment, but issues of reconstruction are effectively delayed until we have a clearer quantification of the scale of the humanitarian crisis which has been found. A key immediate priority has already emerged, which is the clearance of unexploded ordinance and the Department will be providing funding to carry out this important work as well. Clearly, the Committee is deeply familiar with the issues relating to the Middle East and to the Palestinian Territories. In general it is to state the obvious that presently there is a need both for aid and for access, and in that sense we had Mike Foster, one of my ministerial colleagues, in the region, holding meetings in Israel both with the United Nations and then with the Social Welfare Minister of the Israeli Government on Monday, again pressing the case for greater levels of access for a sustained period. During the conflict there were three hours of humanitarian access being provided per day. That was simply nowhere near enough for the scale of need which was being encountered within Gaza. The Minister for Social Welfare has since announced publicly that Israel will increase the number of trucks crossing into Gaza to 500 in the near future and the Israelis have also committed to simplifying the process for security clearance. That is probably the most helpful thumbnail sketch I can offer, but I am conscious there may be questions. Q3 Chairman: Thank you for that. Given that the Committee was very concerned in the run-up to this, over the months and months beforehand, about the scale of the effective blockade and the hardship that generated and we had on more than one occasion John Ging[1] giving us evidence, both here and live via video-link from Gaza, and he was telling us on occasions, "Nothing crossed the border," or, "We have totally inadequate supplies. We have figures of 80% of the population not getting adequate food, most of the children suffering malnutrition to degrees of severity." So I think the question people want to ask is, yes, we have had a bombardment which has intensified the suffering many times, but what is actually going to be the practicality of getting aid and support through to the people given that at the moment it would appear that access is still substantially controlled by Israel, which has been incredibly restrictive about what it will and will not allow in, both in terms of specific materials and the volume which is needed? Mr Alexander: As you say, Chairman, the Committee has perhaps a clearer understanding than many as to the scale of need ahead of this crisis in the sense that if one looked at the effect of those restrictions on access, in particular the crossings, on, for example, the provision of medical services and health services in Gaza ahead of 27 December this was a system which was on its knees or worse even before the bombing began. In that sense the capacity, the resilience of both the economy and the public services within Gaza were commensurately diminished even ahead of the conflict beginning. I think it is fair to say that the issue of the crossings begins and ends with the interwoven issues of politics and security and that is why it is not coincidental that when we had the Prime Minister in Sharm El Sheikh arguing for effective humanitarian access and progress in terms of the humanitarian challenge which is faced it was in the context of a recognition that there needs to be an addressing of the issues which have given rise to the political impasse, which in turn led to the breaking of the ceasefire, which in turn led to the action which was taken on 27 December. We have from the outbreak of this conflict argued both for unfettered humanitarian access, both privately to the Israeli Government and publicly, and also argued for an immediate ceasefire and in that sense there has been a consistency of our approach in seeing that there needs to be that unfettered humanitarian access. We have as recently as the meeting in Sharm El Sheikh reiterated the offer on behalf of the European Union that the EU BAM (as it is known), the Border Assistance Mission, is standing ready and is able to help contribute to the security at the border. The Israelis are on public record as having stated their concerns in relation to security, not simply the continued and wholly unjustified use of rockets from Gaza to the Israeli population but the smuggling of arms through the tunnels, which was an issue of real concern to them, and that is why we welcome the initiative which was taken by Hosni Mubarak[2] in terms of seeking to galvanise international opinion. If we are able to stem the flow of arms into Gaza it would have two complementary effects. On the one hand it would both add a degree of assurance which clearly the Israeli Government is seeking in relation to the risk to its population, but it would also have the effect of strengthening the possibility of reconciliation within the Palestinian Authority because as long as there remains contested authority within the Palestinian Territories, essentially the Palestinian Authority's capacity to assert its authority within Gaza being undermined, then the prospects of the Palestinian Authority being able to be an effective negotiating partner as part of a conclusive peace process is diminished. I wish I was able to give you a more definitive answer. We have, as I say, already since the weekend sought assurances from the Israeli Social Welfare Minister that given the present facts on the ground there will be an increase in the level of access because whether it be Karni or elsewhere, the principal means by which humanitarian assistance can be rendered to the people of Gaza. will continue to be through the crossings. However, that will itself be affected by the continuing assessment of the Israelis in relation to the ceasefire, the continuing work of the Egyptian Government and others in relation to trying to put in place the framework which will turn what was at the weekend a temporary unilateral ceasefire into a more permanent ceasefire. Q4 Chairman: When we published our last report we were supporting the proposed UN humanitarian access cell and the Government's reply was that this was to be operational by October. That is what I think people from outside cannot understand, why the UN as an international agency, albeit in cooperation with the Israeli Government, cannot actually provide the basis for much freer access. The feeling that people get thwarted by is that Israel almost is calling the shots even to the international community as to what it will or will not allow. Mr Alexander: The international community's voice has been clear on these issues. As I say, if one looks at the terms of the Security Council resolution which we contributed to and then supported, 1860, if you look at the statements which were made both publicly and privately by our Foreign Secretary and our Prime Minister, we have been entirely consistent in the advocacy of the access which this Committee identified last year.[3] That being said, the continuing absence of the Palestinian Authority even to effectively control the Gaza side of the border has itself impacted on the willingness of the Israelis to open the crossings in the manner in which we would have far preferred to see whereby, albeit with European Union support, with Palestinian Authority border guards on one side and Israeli border guards on the other, there would otherwise have been a mechanism by which that access would have been taken forward. But clearly that was in part affecting the thinking of the Israeli Government in terms of the judgement they made to take action on 27 December. Q5 John Bercow: Secretary of State, when I leave shortly after your answer for a clashing and unbreakable engagement no discourtesy is intended. You gave a very comprehensive and carefully worded answer to the Chairman's question, which is helpful, but the content was not all that encouraging and you have got to tell it as you see it. If you are reluctant to put a timescale on it I will understand, but in view of the fact that the needs are as great as they are and if unmet or even partially unmet are likely to become exacerbated pretty soon, can you give me some idea of whether the Israelis' assessment of security is going to be something three months down the line, six months, or what? If you are reluctant to do so, can you offer the Committee some sense of what proportion of goods (which in secure conditions would be admitted) in what the Israelis judge to be insecure conditions will not? Mr Alexander: Let me try and answer your question in two parts. Firstly, be assured that the position of the British Government is unyielding, indeed unrelenting, in seeking the level of full access, the aspiration for which I am sure is shared by all Members of the Committee. I am simply trying to be as straightforward as I am able to be with the Committee that as far as I can interpret the view of the Israeli Government - and let us remember that as of Monday morning there is now a process of elections underway within Israel so the composition of the next Israeli Government is itself an unknown in these circumstances - as far as I can tell from the telegrams, the reports and the discussions I have had with ministerial colleagues, a critical factor in exactly that judgement as to the degree of access the Israeli Government will choose, in discussion with the Egyptians and with other members of the international community, to facilitate at the crossings will, it seems, almost inevitably be affected both by the level of violence - whether there is a breakdown of what was at the start a temporary unilateral ceasefire and a continuation of Hamas's unwarranted rocket attacks on the Israeli population - and whether there is tangible and substantial progress in relation to the continuing concerns the Israelis have articulated in relation to smuggling and arms coming into Gaza. Clearly, in addition to the fact that the Israelis are now in the process of an election, we had yesterday the inauguration of a new US President. I said on a radio interview this morning that my sincere hope was that there would be an early and comprehensive engagement by the new Administration in a Middle East peace process, and the urgency of that case had been made by what we have witnessed in Gaza in recent weeks, but I would not want to mislead the Committee that I have any certainty as to what that timescale would therefore be, given an uncertainty as to the position of the Israeli Government and the judgement they will reach, an uncertainty as to the extent to which (as many of us, I am sure, fervently hope) the arrival of a new Administration in Washington will itself help unblock many of the factors which have constrained finding a way forward in the Middle East for a number of years now. But I can give the Committee the assurance that we are, as I say, both in our private and in our public statements continuing to press the urgency in the case. In relation to the humanitarian cell of which you spoke, I would not wish to characterise it as a panacea such that it would itself be able to facilitate the degree of access we would like to see, but it is operational and indeed it was informing and undertaking work on behalf of the international community even amidst the conflict in terms of what was actually the situation at the crossings. But ultimately the Israelis are still making judgements on the basis of what they judge to be their national interest in relation to the degree of access they were facilitating both prior to the IDF[4] moving into Gaza and certainly where there are IDF troops still within the Gaza territories. Q6 John Bercow: Just to be clear, with restricted access, which is obviously a very considerable albatross around the neck of the international community, you cannot realistically, Secretary of State, can you, guarantee that need will be less in three months' time than it is today? Mr Alexander: No, I am certainly not in a position to give that guarantee, although my fervent hope would be that if we see the ceasefire become permanent or at least endure for the three month period which you describe that would create conditions in which certainly a higher level of humanitarian access would be secured than we have seen in the last two to three weeks, but I think it would be a rash politician at this moment of continued uncertainty who would give undertakings. I do give the undertaking that we will, both in our diplomatic work and in our humanitarian work, do everything we can to lighten the level of immense suffering that we are only beginning to fully appreciate in light of the access which is now available to Gaza which simply was not there prior to the weekend. Chairman: Maybe John Battle can give us some personal experience of that. Q7 John Battle: Two things. The first is that on this Committee we have pushed very hard and it is a compliment to our Government that it was leading the emergency rapid response. Our Government is leading the response to the post-conflict situations and the list of donors is commendable. I am just worried that it all ends up parked outside the place it needs to get to. I am worried that in fact what happens is that we have had the conflict but that number of 5,000 people who were injured ends up in many more deaths because they do not get medical supplies. I am worried that because people cannot get food and water we actually end up with a starvation situation and the food stacked outside. Perhaps I ought to declare an interest. Members of my extended family through marriage have lived in Gaza and are there now, and they tell me that the short-term needs for food and water and medicine are paramount now. I just want to perhaps more positively make a suggestion. Wherever you look in the world where there is conflict, whether it is in African countries, even in Zimbabwe, the aid agencies can get in and people can walk away and move away from it to some extent. We know they go to camps, but they can get out of the heart of it. Here they are locked in with two or three grip points, the check points, except that there is a beach. Why do I say that? Because when we had the conflict in East Timor that I was involved with as a minister a UN ship was parked outside Dili and the aid went to the ship and from there to the people who needed it. I just wonder if as a gesture we the international community could put some more imagination into finding a way to get safe aid, food and water through. Of course, I accept if we have crossings they will be stood at crossing gates and queuing and if they want to check for arms for everybody going through it will take years. People will die while they do the checks. We can argue whether the checks are legitimate or not, but why not look at other more imaginative ways to make sure that aid which we gather together, medicines, food and water which is needed now is not parked outside while people die? I just think we have got to put much more international effort into finding a way through. My suggestion is to park a big ship off the shore of Gaza, protected if you like with the Royal Navy, and see that supplies get into it and then are fed in through there. Mr Alexander: Thank you for those highly relevant points. Part of the reason I wanted to share with the Committee the extent to which already we are allocating the money I announced on Sunday morning is, as I am sure this Committee has deliberated on in the past, all too often there have been politicians in circumstances of natural disasters or man-made disasters who have been willing to make, with fanfares, announcements about the intention of their national governments to make a contribution but the lag of time between the announcement and the allocation has been far too long. That is why literally while I was making that announcement on Sunday we dispatched Mike Foster to sit with representatives from the World Food Programme and others in Jerusalem and have these discussions and we are allocating already against the money. So when you make the powerful case that there needs to be food as a matter of urgency, £1 million has already been given to the World Food Programme on the basis of the announcements. Q8 John Battle: Can they get in, though? That is the question, Secretary of State, because they cannot even get in to do the assessment. That is what is worrying me. We give it to them, but can they get in? Mr Alexander: What I would say is this: we are working with the United Nations in looking at all options in terms of how best to facilitate access to the country. I would simply make the point that in terms of access by sea, if the politics and the security situation lead Israel to a judgement that it is not in Israel's interests to facilitate the level of access that we would like to see, it is as likely that that would find expression in relation to the sea as to the crossings. I make that observation without prejudice to the fact that we are actively exploring whether the sea is a more effective means by which we can facilitate that access, particularly the priority at the moment, given the Egyptian border, access through Rafah is one of the key priorities for the international community's efforts. In that sense, whether it be the Egyptian border, whether it be the Israeli border or whether it be by sea, all options are being considered on the ground, but all of them in part will be affected by the continuing dynamic of the security and political situation. John Battle: Thank you. Q9 Richard Burden: First of all, on the issue of access, if I heard you right in your opening remarks you were saying the Israelis were saying that the number of trucks entering could rise to 500? Mr Alexander: They have made a public announcement of that. Q10 Richard Burden: I have just had a quick rummage through the United Nations OCHA[5] Report from 3 to 16 December last year, in other words before the attack on Gaza started, where they gave the figures of what had been happening to trucks before, which is that they had gone down to 16 a day, and then it said down from 123 truck loads per day in October 2008 and 475 trucks per day in May 2007. That was listed almost as the high point, but I recall that our last report after we had visited the area was looking at the performance of the Agreement on Movement and Access, which in 2006 was not getting enough trucks into Gaza. So the conclusion I rather draw from that is that 500 trucks a day would itself be inadequate at the best of times and in a situation of grave humanitarian crisis such as we have now it would be even more inadequate. So the first question really is, are we saying 500 is not enough? Mr Alexander: We have consistently argued for unfettered humanitarian access. In that sense, the context in which I mentioned the figure the Israelis publicly announced was in the factual update to the Committee as to what has subsequently happened since Monday. We are not in any way suggesting or judging that 500 itself was sufficient in the face of the needs that we are only beginning to discover in terms of the full needs assessment which is being carried out by the United Nations at the moment. We have taken, if you like, a fairly - I was going to say absolutely - straightforward position of saying whatever level of access is needed for humanitarian assistance and for humanitarian workers in order to adequately respond to the level of humanitarian suffering should be facilitated. Q11 Richard Burden: Thank you. That is helpful. The second thing I was going to raise - and I think you may have started to answer it in your opening remarks - arose out of a communication we have had through from the Yibna Refugee Camp, which is near Rafah, which is concerned about two things happening simultaneously over the last few days. One is the appearance of a large number of tents on the Egyptian side of the Rafah crossing apparently without explanation in the refugee camp. The other is that they are saying that the Al Sarayh neighbourhood of Rafah has been sealed off - the message came through on 19 January - for the last 48 hours. There were many injured people trapped in there, the Israelis are not allowing access to the Red Cross and many people are dying of their wounds, isolated and with no medical treatment. The message from that refugee camp is that they are putting two and two together and, who knows, they may be getting five, but they are worried, understandably, about lack of access to the refugee camp. They are also worried that what is going on here is an attempt to transfer people from that camp over the border into Egypt. So those tents may be what you are talking about in relation to facilities to ship the wounded out of Gaza, but can you throw any light on that at the moment? I expect you probably cannot, but if you cannot could you let us have a note on it? Mr Alexander: I fear the look on my face revealed the fact that I am not able to throw any light on that. Suffice it to say the Egyptian Government has had real concerns in terms of the Rafah crossing, with which you will be very familiar, in terms of not wishing to assume responsibility for the scale of the humanitarian crisis which they judge others bear responsibility for. I will certainly be happy to make enquiries through our offices and perhaps write either to you directly or to the Chairman of the Committee.[6] Richard Burden: That would be very helpful. Q12 Chairman: Secretary of State, can I thank you for that. I think you can detect from our questions that the Committee first of all very much appreciates the prompt response of the Government, not just in terms of statements but action, and I have to say that is something I think the Government can be pleased about on a number of other occasions where we have been very often the first in the field and we want to show our appreciation for that, but I think also continued support for saying that certainly from the Committee's point of view we are, I think, continually shocked at the conditions the people of Gaza must be facing and that, as John Battle has put it, that people could still die as a result of the conflict even though it is currently over and therefore for anything and everything you are able to do you have the full support of the Committee, I would suggest. Unfettered access, or as close as possible, is what I think we see as being necessary to enable anything like normality to be restored, so you have our support for that, and thank you for giving us the update. Perhaps - and it is not irrelevant, of course - we could move on to our inquiry into Aid Under Pressure and the changing situation, obviously partly because of the economic downturn. I wonder if I could start by asking if your Department is able to assess the impact of the downturn on developing countries and what effect this is likely to have on poverty reduction? Just as a sort of intro, ActionAid has given us an estimate and others have as well. There are a few which we can give you suggesting that growth will decline to 4.5% that is in developing countries, and that the cost between 2008 and 2010 will be $414 billion of lost income and that the number of people earning less than $2 a day will increase by 100 million in the coming year. I think that is the World Bank estimate. So, first of all, does your Department have an indication in terms of what you are engaged with and what it is, and the effect on poverty reduction? Perhaps related to that, when we discussed it before you told us about your matrix of vulnerability where you were identifying which were the most vulnerable countries which you could prioritise. Are you able to give us a little bit more information as to how that might be being applied? Mr Alexander: Of course. Maybe I should start with ActionAid's statements, because I recognise a number of those statistics and it might be helpful if I share very briefly with the Committee our sense as to how what began as a financial crisis is now impacting in terms of anticipated growth and impacting on poverty in developing countries, and then say a word in terms of the analytical tools we are using as part of our vulnerability matrix to try and assess the relative vulnerability of individual countries. Since the financial crisis took hold last September the impact directly on a number of developing countries has been more limited than might at first be imagined and has so far been limited relative to the impact of rising food and fuel prices in the course of last year in the developing countries, which I think helps account for the 100 million figure which was used by ActionAid. That was a figure which Bob Zoellick[7] used in his speech immediately ahead of the Washington G20 Summit. Q13 Chairman: That figure, if I remember, was to do with the food crisis rather than the financial crisis? Mr Alexander: Yes, exactly. He basically was using a figure of 100 million even prior to the financial crisis as the impact in terms of the combined impact of food and fuel price rises, so we started with 100 million more people even ahead of the impact of the financial crisis being felt. I have actually got the latest figures because I sat with our chief economist recently and asked him to take me through that. It might be helpful. In terms of the food prices figures, as you said, 2005 to 2007 the estimate is 100 million, as used in Zoellick's speech. In terms of the growth shortfall on the basis of the World Bank's own projections, we are estimating around 66 million people who would themselves be vulnerable to poverty as a consequence of the decline in growth, but the falling food prices since Bob Zoellick made those remarks would take another 25 million out of vulnerability, so essentially we are talking about 140 million as a combination of food prices and the financial crisis is played through in terms of lost global economic growth. In terms of the impact which is being felt, the IMF and the World Bank have both revised their growth projections downwards. In reports which were issued respectively in November and December the World Bank projection is for global growth to slow to 0.9% in 2009 before recovering to 3% in 2010. Most of this growth will continue to be in developing countries, 4.5% which I think was the figure quoted by ActionAid in 2009, and 6.1% in 2010. It is, of course, possible that these figures will be revised but it is on that basis that these figures have been generated. Consequently, DFID has been working with Government partners and other donors to identify how we can most effectively help countries impacted by these changes, for example by re-programming our assistance by focusing on new priorities such as support for growth and enhanced social protection, where possible accelerating planned payments in terms of being able to sustain levels of demand and providing access to higher quality levels of advice. All that being said, however, as we understand more deeply the impact of the consequences of the financial crisis on the developing world the degree of specificity which is needed for each individual country becomes ever clearer. Broadly we are thinking in terms of two axes. On one hand you have the country's exposure, which itself depends on, for example, exposure to the contracting financial sector, dependence on external sources of private finance, dependence on official capital flows, that is ODA,[8] dependence on exports, dependence on commodity prices, dependence on remittances. Within that axis there clearly is variability, but as well as exposure there is also a second question, which is the level of resilience of the country's economy, whether it is the size of the fiscal balance of payments deficit, the level of reserves or the capacity to borrow to manage the adjustment, and in that sense we have an ever clearer picture as to the impact on individual countries. The vulnerability matrix which I showed in its first cut to the Committee aims to capture these effects in a simple and effective way. The matrix shows that for a number of sources relating to different types of potential vulnerabilities for 28 countries, including 22 PSA[9] countries plus China and South Africa. In addition to that we are, as I say, working with our country level programmes. We would not regard the vulnerability matrix as being the last word in terms of the impact, but we are already finding it a useful analytical tool to lay alongside the other published work which is now being produced by the World Bank, by the IMF and by others in terms of the impact on individual countries. Q14 Chairman: It would probably be invidious to ask you at this stage which country you thought was most vulnerable, so perhaps I should not. There are two other things which relate to that and then I will move the questioning across the table. One is that the value of the pound obviously reduces the purchasing power, particularly as most of this is expressed in dollars, and indeed when you were committing funds for the World Bank and others, for IDA[10] and so on, we of course were the biggest single donor but partly because at that time the dollar was weak relative to the pound. So have you made an assessment of what the effect of that is, and perhaps if I can link the question, you have said in the context of your press release on Copenhagen and climate change, that you would be producing a new White Paper outlining the UK's response to the "global challenge of securing our common future". Could you perhaps indicate the timescale for that? Knowing how the Department works, I guess it will not be quicker than this Committee's report - Mr Alexander: I take that as a compliment on the speed with which the Committee works! Q15 Chairman: - and quite what securing our common future means. Mr Alexander: Yes. Firstly, in relation to the effect of currency changes, as you know it is not customary for ministers to give running commentaries on the level of sterling, but it is clear that the changes in the level of sterling have impacted directly, as you say, on our purchasing power in a number of developing countries and also is impacting on our contributions to multilaterals. So in terms of our own internal budgeting processes, to continue to make our assessed contribution to the European Union's development efforts is calling on resources which would otherwise have been available in other circumstances for other parts of our programme, whether multilateral or bilateral, so it is a challenge for us. That is one of the reasons why we have been working so hard to ensure that our payments reach the populations which actually need them. Q16 Chairman: Just a point of clarification. Our commitments to the World Bank and to the European Commission are made in sterling, are they? Mr Alexander: No, because, for example in terms of our contribution to the European Union we are paying our contribution in euros. Q17 Chairman: That actually is rather a significant factor, is it not? Mr Alexander: I can assure you it is, yes. Chairman: I think we may need to return to it but I just wanted absolute clarification. Q18 Hugh Bayley: Could I just ask in relation to the IDA replenishment, is that a sterling contribution or a special joint rights contribution? In other words, do we remain the largest contributor to the new IDA? Mr Alexander: Yes, we do, and we are not in the same position as we are with the euro in terms of - Q19 Hugh Bayley: So IDA is in sterling? Mr Alexander: IDA is sterling and so is not appearing on our "How do we fund this list?" because it is a continuing commitment. The European Union is in euros, so it is suddenly a very real and immediate call on what would otherwise be contingencies or sources which would be available for other programming. Martin, do you want to maybe share with the Committee on the back of the vulnerability matrix some of the policy judgments we have made in terms of allocation of resources, because it has actually already impacted in terms of our thinking, in terms of the sequence of payments for individual countries? Mr Dinham: Yes. We have looked already at a number of countries which have been badly hit by the crisis and in those cases we have brought forward or are planning to bring forward payments maybe into this year which were going to fall into next year. We are also looking in terms of each country which has been hit by the crisis at how open they are for fast disbursement of resources, because there is no point in putting more money in if we are not going to be able to make the difference with it quickly. So have they got social protection mechanisms in place, are they eligible for and could they use budget support or balance of payments support quickly? Do they have health and education government systems into which we could kind of plumb money at an early stage? There is a number of commitments we have already made in the last few months. We have put £15 million for social protection into Ethiopia, additional funds for social protection in Bangladesh and Mozambique. We have scaled up emergency aid in Kenya and Ethiopia. We have brought forward - an example I was giving - £2 million for education in Bangladesh which was going to fall into next year. We have brought it forward because of the currency depreciation issue. That has gone into funding for BRAC schools, which has meant that some 200,000 kids who would otherwise not have been able to go into school for the first six months of this year have been able to. So we are looking at the impacts, we are looking at the quick disbursing ways in which we can tackle that, and we have done it through the lens of the vulnerability matrix reinforced by information from the country offices and indeed reading across to the World Bank and other analyses as well. Mr Alexander: I will just make one brief point and then I will come to your securing a common future question. I also took the opportunity last week to have lengthy talks with Bob Zoellick at the Bank in terms of the steps they are taking. Essentially, they are almost tripling their level of lending to fulfil obligations. We are in discussions with them in terms of the most effective use of the balance sheet in these circumstances, but our sense of urgency is not limited to our bilateral programme. We are already actively engaged with the Bank in terms of what the multilateral system can do in recognition of the kinds of emerging challenges we have just been describing. That will, in turn, in part affect the agenda for the G20 taking place on 2 April here in London and it was really partly in anticipation of that that I was keen to speak to the President of the Bank at the start of January. In terms of securing our common future, we have now announced a White Paper, as you describe. I do not know what timescale the Committee is working to in terms of this report - Q20 Chairman: About May, I think. Mr Alexander: I would not want to reveal too much in front of two senior officials, but I think we will make it under the wire and be in a position to influence! In all candour, I hope that we will be able to publish the White Paper this summer and in that sense I think the timing is actually very apposite in terms of the report from the Committee coming in May. In terms of the thinking behind it, there has been a brief description in terms of the public statements I have made. Essentially, Securing Our Common Future seeks to capture - which I discussed in some length in my last appearance before this Committee - both the continuing moral imperative we feel to support our fellow global citizens who are suffering continually obscene levels of poverty but on the other hand recognising that if our aspiration is to be an effective development ministry in addition to being an outstanding bilateral aid agency then the instruments necessary for the achievement of development, notwithstanding indeed in part because of the scale of changes we have seen in the global economy in recent months, argues for a comprehensive range of instruments, whether that be a full understanding and awareness in our response to the threat posed to development by climate change, whether it be the continuing centrality of global trade to the prospects for the world's poor, whether that be the need for a clear-headed understanding of the importance of areas perhaps like security sector reform - which have not always been central to the development debate. But when I travelled to the DRC within the last week could not have been a more graphic illustration of the fact that if we are to see the context in which sustained economic development can happen in that country then a capacity for the state to have a monopoly of force rather than to have three militias in eastern DRC is itself vital. So whether it be in terms of a clear-headed understanding of the needs of fragile or conflict-affected states, whether it be climate change, whether it be the continued urgency of growth or whether it be the role of the multilaterals in ensuring that organisations like the World Bank bare their share of responsibility to affect the scale of change we need, it seemed to me to be right both to strengthen the public articulation of the range of instruments which DFID has at its disposal and seeks to use at the same time as making the case for development in circumstances of a global downturn because, as I sought to suggest to the Committee at my last appearance, one can either take a view of the last six or eight months, when our respective constituents have ended up paying more to heat their homes or to fill their cars with petrol, that ultimately they will somehow give up on development or take a different view which says there is a real opportunity for a deeper understanding of the extent to which our fates are now bound together in as interconnected a world as this and that can manifest itself in benign or malign ways, and for DFID to not run from but to embrace the need to understand this interconnected and globalised world and to make the case for development therein seems to me to be both timely and actually quite urgent. Q21 Chairman: So that is essentially what Securing Our Common Future means, is it? Mr Alexander: Yes. Q22 John Battle: It was part of the different world, was it not, the "Drop the Debt" campaign and the HIPC[11] initiatives? I think DFID particularly, the ministers in our Government, helped to get two short-term financing mechanisms for developing countries. One was in the EU, the FLEX mechanism, and the other was the one in the IMF which I think was called the External Shocks Facility. Some critics or commentators are telling us that with these facilities, firstly there are not enough resources, but also there is conditionality back in there, but perhaps most importantly of all that it is taking much too long to disburse the funds to those who need it. Has this crossed your radar, that these two mechanisms are not quite working as they ought to in the present circumstances and can we do something to sharpen them up? Mr Alexander: This was one of the issues in terms of the capacity of the multilaterals to act rapidly in response to exogenous shocks which I discussed with Bob Zoellick last week. Firstly, I think it is fair to say, if you look at the World Bank's response to the global food crisis last year, it acted with urgency uncharacteristic of the institution in the past. To me, that is just the Bank doing its job, but to many people in DFID who have worked with the Bank for many years they saw that as good news. So essentially my pitch to Zoellick was to say, "Listen, you have proved the capacity of this institution to be able to respond effectively. While we welcome the statements which have already been made in terms of increased levels of lending, we do need to recognise that this continuing financial crisis is going to affect different countries in different ways. In terms of the exogenous shocks facility, he was clear that there has been a reduction in the level of conditionality that is available to countries. In terms of the FLEX mechanism, it is being used, I understand, for ACP[12] countries by the European Union and there are discussions in terms of candidates at the moment, but I was impressing upon Bob Zoellick in anticipation of the London summit the fact that the response from the Bank I think needs to reflect both a capacity to increase levels of lending to fulfil its historic and countercyclical role and secondly a clearer awareness of the need for social protection, that is protecting the poor from the worst effects of the downturn, and we are in active discussions with the Bank as to what that instinct that the Bank itself can lead on this issue of social protection can look and feel like. I cannot give you a clearer steer at that stage, although there was some talk previously in terms of whether there should be a new facility in relation to rising oil prices and the Saudis were in discussion with the Bank on that issue. Given that I think the price quoted on the markets yesterday was $34 a barrel, down from a high of $170 or so last year, while the immediate need in relation to fuel may have fallen, whether it be food or fuel, or now the financial crisis, it has reminded all of us of the extent to which the Bank needs a capacity to respond to a range of different exogenous shocks. So my plea to Bob Zoellick was to say, First of all, make sure that if we have facilities in place, we are using them and we are using them quickly. Secondly, let's look at the particular issue of social protection and whether there is more that the Bank can be doing, whether that be through cash transfers, whether that be through social protection, at the same time as doing what we can to help boost global demand at a macro level and meet particularly infrastructure needs as capital markets dry up to not just low income countries but middle income countries as well. Mr Dinham: Could I just add on the range of interventions which are now going on across the multilateral development banks, the Secretary of State has mentioned the World Bank and the increase in the resources from there, but the African Development Bank has produced an emergency liquidity facility, the Asian Bank is increasing its lending, the Inter-American Development Bank is putting $2 billion more in this year, the European Bank for Reconstruction and Development similarly, and of course the IFC[13]. What we are urging those banks collectively to do is to put in something like $35 billion more in 2009 than previously, so these are really substantial amounts, but we are keen that it is not just money but that it is actually taking into account the social protection aspects as well. Just on the exogenous shocks facility, I think there has been a real improvement. They have got a rapid access facility, which is low on conditions and is available immediately, and it has been used already and they are looking at it for Ethiopia and for DRC as well. But we would like to see increased amounts going through that and possibly softer terms, so we are still pushing but those are real positive developments. Q23 Hugh Bayley: What recent assessment have you made of the commitments of other donor countries to meeting their ODA commitments and would you agree with the view expressed by ActionAid that the reason why those countries which have backed away from commitments they have previously made at Gleneagles and elsewhere have done so is because of a lack of political commitment to development? Mr Alexander: In terms of the two most recent events at which this has been directly relevant, I welcome the statement which was contained in the G20 Washington Summit communiqué and I would hope that we would be able to take that forward in terms of the coming London meeting. Secondly, I welcomed the fact that there was a reaffirmation of the ODA commitment set out in Doha which the donors had previously undertaken to provide. I fully appreciate that there are some who, for honourable and important reasons, said, "We should set the bar higher at Doha. We should be urging countries to go beyond their existing commitments." The judgement I made - and it was a judgement I engaged in with colleagues across government - was that in the circumstances of the global financial downturn which we have described there was a significant prize in a re-statement of the commitments which countries have made. In terms of the benchmarking of those commitments, the next opportunity - and I will ask Anthony to say a word on this - at which, at a European level, we will be able to both see and anticipate the trajectory of spend committed to by these countries will be at a Development Committee ministers' meeting which is taking place in May when the latest numbers will be produced. Q24 Hugh Bayley: What specific steps is the UK taking to put pressure on countries which have backed away from commitments previously given to reinstate those commitments? I welcome the G20 statement, but there are some countries where decisions have been taken which run contrary to that. Is your Department approaching them and making representations for them to reconsider? Mr Alexander: Yes. We use every opportunity to engage with partners and encourage them to meet the commitments they have made. That is reflected in the fact that both in our bilateral contact with countries we argued that commitments which have been identified should be met, but also - and again I reflected this in my remarks in the session we had after the High Level Event - we recognised that one of the critical factors in terms of countries judging that it is the right thing to do to meet the commitments they have given is both public scrutiny and public support. That is why we work so hard, for example in Doha, to get the right language into the communiqué. That is why we worked so hard at the UN High Level Event. That is why we will work hard to make sure there is an awareness and appreciation of the development dimensions of the global crisis of the financial system when the G20 leaders meet here and in Washington. So if I was to anticipate in the months ahead what will be the next practical expressions of that approach we have taken, which is to say maintain pressure or discussion as much as we can effect at a bilateral ministerial level, simultaneously seek to sustain support not just here in the UK but elsewhere for countries meeting their commitments and also make sure that there are opportunities at which countries are tested in their willingness to re-commit and to re-affirm those goals, I would say the G20 meeting which is coming up here in London on 2 April will be another opportunity for significant numbers of donors to make clear their support for development. There will then be a G8 meeting taking place in Italy in July. We are already anticipating that there will be further opportunities to try and press that case. Mr Smith: I think that is right, Secretary of State. I think I would draw the Committee's attention to two documents. Just before Doha the OECD DAC[14] published an account of the way trends have gone since Gleneagles for those who had made commitments there and what would need to happen, essentially a sharp upward turn in the graph, for them to meet the commitments they set out. That could only be based on what the DAC already knew about spending which had already taken place. I think the report the Secretary of State mentioned which the European Union will discuss in May, which will be produced by the European Commission on the basis of discussions they will have with each Member State about their forward spending plans, is a very important opportunity. It will do as much as we can politically to draw out from each Member State the way in which they will take action to deliver on the commitments they have made. That is an important political opportunity for us and the general public and parliamentarians to say, "These two things in some cases do not seem to add up. You have made a commitment in the European context to reach a certain level of aid by 2010 and then 2015. Your trajectory and your spending plans do not seem to be taking you there. What are you going to do about it? It is part of an important global commitment which we have made which involves us taking action, providing resources, others taking other action, improving governance, improving policies. We need to do this together." Q25 Hugh Bayley: I have not seen the OECD DAC document. Is it in the public domain? Mr Smith: It is, I am sure, on their website. Q26 Hugh Bayley: Good. I will look for that. I was pleased to hear, Secretary of State, you saying you would use the General Affairs Council to exercise pressure on backsliding EU Members, but with the Italian Parliament having approved a cut to their aid budget of more than 50% for 2009, does that not undermine the credibility in this area at least of the Italian presidency? Mr Alexander: This is an issue we discussed and I would want the Committee to be clear of the terms in which the Italians have spoken to us and in terms of the judgement which was reached about the overall foreign affairs budget. Anthony, do you want to maybe share with the Committee our understanding of the position as explained to us by the Italians in the first instance and then I will explain our response? Mr Smith: The Italian officials we speak to about that fact you have mentioned say that the foreign affairs budget, the aid budget, provides a certain amount of the overall Italian ODA but not all of it. They themselves do not know what their ODA ratio will be yet as a result of the cuts they have made, but the fact remains that even starting from where they were before, to get to the level they have committed to for 2010 would require a multiplying by several times of their aid expenditure. So the two do not seem to be compatible. Q27 Hugh Bayley: Where we are working together with other bilateral donors on a partnership basis in a particular country, what impact would you expect there to be on our joint working arrangements where the donor partner fails to meet agreed ODA spending levels? Mr Alexander: Certainly I am not aware in recent months since September of any of the specific programmes on which we are working with others being imperilled by another development ministry coming to us and saying, "I'm terribly sorry, we're going to have to stop doing this," or, "We're going to retrench on that." I cannot speak for every programme without checking with colleagues, but in that sense it has not yet played itself through in terms of a flurry of requests coming to us saying, "Can you bear more of the burden in providing teachers, or immunisations," or other things. Clearly, the fiscal situation for a number of OECD countries has significantly worsened in recent months and it would be disingenuous not to recognise that, but equally the impact of this crisis has been felt most acutely, as reflected in the opening remarks on this part of the session, by the 100 million or more people affected by rising food prices and the other 40 million affected by the declining global growth. So in that sense the need for continued development assistance could not be clearer. I cannot legislate for or demand that other countries share the commitment which we have repeated, but I can assure you that our efforts are unstinting. We regard the G8 meeting as a further opportunity to seek to influence and to shape the thinking of leaders on these issues and our Prime Minister's commitment and concern to try an influence the international community on these issues is undiminished by the events of recent months. Q28 Hugh Bayley: Would you therefore be willing at the G8, at the G20 and in the General Affairs Council to advocate that every donor, including ourselves of course, should put in place published annual milestones towards meeting the 0.7% target so that it is open and transparent and we can monitor what progress this country is making and what progress our partners, OECD DAC members, are making towards a commitment? Mr Alexander: The position of the British Government is a matter of record in terms of where we are on the Spending Review, but we did argue that in the European Union in terms of the report which will come through to the development ministers and the General Affairs Council in May. That is a reflection of us continually arguing, not least in the light of the prize of the commitment of development ministers and finance ministers ahead of Gleneagles in 2005, that there should be not simply a historic account of levels of expenditure but also a forward projection in terms of what does that mean to get you from where you are to the commitments you have made under the EU Agenda for Action. Q29 Hugh Bayley: Forward until - let me get the date right - is it 2013? Mr Alexander: Under the Agenda for Action it is 2015. Q30 Mr Hendrick: Chairman, the Secretary of State has been quite encouraging in terms of his willingness to put pressure on other countries to live up to their obligations with regard to ODA allocations. He will be aware as well that Joseph Stiglitz, who is chairing one of the UN Commissions, has said that aid flows to developing countries need to be increased by anything up to 20% "to ensure that they can afford to implement their own economic rescue packages." Clearly, given the issues we have discussed around, for example, the fall in the value of sterling and other factors affecting it, is there not a case now for pushing both ourselves and everybody else in the direction of the 0.7% as quickly as possible, partly as a counter-cyclical response but also because of the difficulties which countries will be finding themselves in because of how sterling has decreased in terms of British contributions? Mr Alexander: I would make three points in response to that question. Firstly, we do not need to look far within the development community to find somebody who tells you that you should be spending a lot more money, and in that sense the fact that even somebody as distinguished as Joseph Stiglitz is arguing for additional money is not itself a revelation. Secondly, I do think there needs to be a degree of realism in terms of the capacity of any one government, however well-intentioned, to effect the changes we would like to see in other governments' public expenditure plans. In that sense, there are always judgements to be made and I have tried to be candid with the Committee in terms of the judgement I made ahead of the Doha meeting that for us at that juncture to argue for significant uplifts from other countries did not strike me as a particularly astute judgement as to where they would be when they arrived in Doha in terms of the fiscal position they were leaving behind back home and that it was a bigger prize to get a reaffirmation of the commitments which had previously been on the table. The caveat to that would be, not least in relation to the Gulf, that we are always keen to encourage non-traditional donors to come on board and to make new commitments in terms of development expenditure. The final point I would make, however, would be that I think we need to be careful without in any way diminishing the continuing importance of levels of ODA to avoid a rather reductionist conversation in which every negative consequence of the global downturn finds its remedy apparently in ever higher levels of public ODA. I think that would be to go against the very logic that I was trying to set out and which we are keen to tease out in the White Paper, which says that where there is a critical role for increasing levels of development assistance - and that is why we are proud of our record and continue that progress - we have a subtle and sophisticated enough understanding of the interlocking nature of these challenges to recognise that there will never be sufficient levels of publicly provided ODA to meet the challenge of poverty if we have the wrong policies on trade, on climate change, on a whole range of policies. One part of the jigsaw is to have properly funded levels of influence, but it is now commonplace at this point in the conversation to observe the fact that global flows of remittances exceed the approximately $100 billion a year which ODA contributes to developing countries. So whether it is remittances, whether it is trade policies or whether it is policies in relation to climate change, ODA would only ever be one - a hugely powerful, but only one of the instruments we need to tackle these challenges. Q31 Mr Hendrick: Obviously I do accept that there will never be enough aid. I think that goes without saying. Everybody, including prominent economists, would agree that at a time when there is such a dramatic and drastic downturn if we can move towards the 0.7% - because there is never a right or a wrong time to do this - while things are so bad, then clearly when there is an upturn in the economy that can bring so much more added value because that 0.7% would be worth a lot more. Mr Alexander: My responsibility before the Committee is to set out the Government's position. Our position is unchanged and we are on track to meet the commitments we have made. That is without prejudice to what judgements we as a party or we as a Government, I believe, were we re-elected, would make in terms of the appropriate levels of development assistance. Mr Dinham: Just to add to that, obviously what the Secretary of State was saying before about the pressure we put on others to make sure they are meeting their 0.7% commitment is really important. Looking at additional likely sources of finance, what I was saying earlier about the multilateral system, what we have there particularly with the World Bank and others are organisations with significant levels of capital which they can use to actually gear up more resources, which is what we have been pressing the Bank to do and a series of banks and that will add $35 billion next year, which is a substantial additional amount of money beyond what they are already lending. That is one thing. The other is looking at innovative financing mechanisms where you can sometimes use some amount of ODA to gear up financing by getting financing from other sources or, for example, with the International Financing Facility for Immunisation, which is aiming to gear up $4 billion of new resources. We have got other mechanisms, for example the Private Infrastructure Development Group, a set of donors which provided half a billion dollars in resources which has geared up $7.7 billion from private sources for infrastructure needed in those countries. So we need to be really imaginative, particularly at this moment, in looking at other areas where we can use the money we have to gear up other options. There is the taskforce on innovative financing for health systems initiative, which the Prime Minister is co-chairing, which is aiming to do just that in the health area. Chairman: There is going to be a Division at four o'clock and we have quite a bit to cover, so if I can ask colleagues - and I want to bring in Richard Burden - to try and be a little bit quicker because I think probably we would prefer to finish at four o'clock than come back after the Division. Q32 Richard Burden: One of the things which has come up time and again in our discussion this afternoon has been the importance of timely, accurate and sensitive data on exactly who is doing what, what ODA levels actually mean, and there has been a lot of concern about time lags in the publication of ODA data. The problem with that is that we might only know what the impact of the international financial crisis is on ODA when it is too late to do anything about it. You have mentioned some of the initiatives you have taken, particularly at a European level, to get data flows going a bit more quickly, but could you perhaps say a little bit more, particularly in relation to the International Aid Transparency Initiative which was launched in September last year and how that is going? Mr Alexander: Let me make a political point and then I will ask Anthony to say a word in terms of publication. Because there is not always the degree of immediate transparency as in us knowing what the finance ministry or the development ministry in respective countries are doing on a real-time basis, I would not want that to leave the impression that somehow we would not be always mindful of the need for making the case for people meeting their commitments. It is not for us contingent on discovering that somebody is not meeting their commitments before we have a conversation, and in that sense not least the continuing scale of need which is being uncovered in consequence of the financial crisis is itself a spur for us to be having these conversations with other partner countries. Anthony, do you want to say a word? Mr Smith: As the Committee will know, the main statistical body for publishing work on donor flows is the DAC of the OECD and, as you know, they have a well-established annual process for collecting and publishing the data. They work on a calendar year basis and in some member states that does not quite fit with their own fiscal and budget year, but aside from that there ought to be a regularity for it. We ourselves have to make adjustments in order to fit with the DAC year. I would suspect that the main issue around the DAC is giving it enough publicity. The annual publication of how people have done, their ODA to GNI ratio, will have more bite the more publicity it gets and the more that advocacy groups and parliaments around DAC member states focus on it, so I think where there are delays among OECD countries, if there are delays in providing the figures they need to the DAC that is in a sense a political rather than a technical problem. We all ought to be able to manage that and at least get the data which looks one year back at what they have spent. Forward projections are a different matter as well. Mr Alexander: Martin, do you want to say a word in terms of the International Aid Transparency Initiative? Mr Dinham: Yes. Just prior to that, one of the important issues about data is actually, as was raised earlier, the importance of getting our annual timetables up front because what you actually spend is always going to have some kind of line but if there is absolute clarity about what you are planning to spend - and obviously we have announced that until 2010/11 the whole of this spending period is very clear, so we are very explicit on that issue, so I think that is an important aspect of it. On the International Aid Transparency Initiative, we have been making progress on getting additional players interested in that. The Canadians have expressed an interest in joining as well and we are now putting together the work which is needed to make that a reality, but we can keep the Committee updated on progress on that. Q33 Hugh Bayley: I was very pleased to see the Doha declaration emphasising the importance of developing countries having fair and transparent taxation systems, both because it is important for them to have dependable sources of revenue and because it is an important indicator of Good Governance. But what assistance is DFID providing to help partner countries to strengthen their taxation systems? In which particular countries does DFID have major programmes of this kind and are you planning to increase the amount of our aid programme which goes to support the taxation systems of our partner countries? Mr Alexander: Between 2001 and 2006 we undertook 181 tax-related projects or programmes in 44 countries with a commitment of about £159 million for that endeavour. Just to give the Committee one example of that, in Rwanda, for example, our support enabled the Rwanda revenue authority to double the tax revenue between 2002 and 2005 to 14% of GDP. In addition to that, we are involved in a number of multilateral initiatives along with the Treasury and others, for example the International Tax Dialogue, but you are right to recognise that one of the ways we have sought to engage with this issue has been consistent with a country-led approach to build the capacity of the revenue authorities in the countries in which we are working. Q34 Hugh Bayley: Will you do more work of this kind in the future? Mr Alexander: That is largely going to be determined by the needs of the country in which we are working. As I say, I was in the DRC within the last fortnight. We are doing work there in terms of health and education. We are doing a huge amount of humanitarian work relative to the size of the overall budget. I came away from that visit concerned that if the revenue raising capacity of the state does not increase along with serious security sector reform, then the prospects are significantly less bright for the country than they might be. That being said, I would not want to be in a position - this is an example - of committing my country head in the DRC to spend a significantly larger amount on revenue raising when he has to in this case reach judgements in relation to, for example, the level of political commitment to that undertaking. For example, there has been a change in the defence minister in the DRC in recent months and that opens up different possibilities in relation to security sector reform. A similar position holds in terms of taxation. Where there is a willingness to engage, for example in Rwanda on that same trip I travelled to Kigali, there is absolutely no unwillingness on our part to do what is often deemed not particularly glamorous but vital work in terms of building public financial management and revenue raising capabilities. Sierra Leone is another country which comes to mind which I visited in recent times and have seen for myself the need for an effective revenue raising capability and the resources that we are putting behind it. Q35 Hugh Bayley: Does that not sit naturally alongside where we are providing direct budget support? This is going to Tanzania, for a number of reasons, but looking at the budget support there is going to be a certain logic that if we are giving budget support we should also be giving help to ensure that they have the capacity to increase their revenue? Mr Alexander: Of course, but I would also argue there are certainly places, and the DRC is an example of that, where well before there is any consideration of budget support there needs to be consideration of revenue raising capability, and in that sense my thinking on this is in part shaped by discussions I have had with officials on issues of state survivability as in what are the core functions of the state that are required to create a context in which development can happen? One of them is undoubtedly the capacity to generate revenue itself. Q36 Andrew Stunell: At Doha the G77 countries clearly wanted to play a more active role in the taxation policy issues. They wanted to see the creation of a UN body to deal with this and it did not happen. Can you say something about the role of the UK Government and northern governments in general in responding to this policy wish? Was there a block put on, and if so could you say why, and are reports that maybe even the UK Government was somewhat at sixes and sevens right? I am sure you want to put us straight on that report. Mr Alexander: I am not sure it was as much the creation of a new body as what the powers of the body should be and an assessment of where that body lies at the moment. This is a discussion in terms of the UN Tax Committee. Essentially, we were strongly in favour of strengthening the effectiveness and capability of the UN Tax Committee. The G77 were of a view that what was paramount was the status of the committee, whether it should be intergovernmental, and there were discussions, and I will ask Anthony to say a word about these discussions in a moment or two. We wanted to be in a position whereby a committee (which at the moment has, if I recollect, personal rather than national membership where levels of attendance at the committee is variable, sometimes it is well attended, sometimes it is not) moved into a position where it could be effective in its response to some of the challenges we face. There was a view expressed within the G77 that this should be an intergovernmental body but, as I say, our concern was to ensure that there was an effective body and we worked to strengthen the UN Tax Committee to support developing countries. But we were not convinced of the case for it being an intergovernmental body given that the position of the British Government is that we would not want to be in a position where ultimately decisions of sovereign governments in relation to taxation were being subject to an intergovernmental UN Taxation Committee. Anthony was our lead official in terms of the discussions with the G77 and the issue of the UN Tax Committee was one of a number of issues which saw quite strong discussions in the months preceding Doha but ultimately got to a position quite quickly in Doha where there was a degree of broad consensus between the G77 and the European Union. Q37 Andrew Stunell: Just before your colleague speaks, is not the issue which was troubling the developing countries the question of the balance of representation, intergovernmental or otherwise? Is that not the issue? Mr Smith: That was part of the issue and I would say to the Committee that we also had discussions with the NGO community, which played an important role, I think, in providing some analysis about why this was an important issue. I think it is clear that taxation issues are important, there is no dispute about that. We, like everyone else, want developing countries to be able to have fair and effective tax systems. We and developing countries share an interest in getting rid of tax havens which allow illegal earnings to be sheltered from financial regulation and there is a lot of discussion which is going on in different fora around that issue. I think the particular issue of that committee for our Treasury, who lead on this, was that you want it to walk before it starts to run, that it is a committee which has started out being personal representatives and sometimes people do not attend, its forward agenda is not that clear and its capacity to communicate with the OECD, with the World Bank, with the IMF is not very high. These are not areas which are traditionally areas of UN strengths in dealing with tax revenue issues. So the first step was to make it better able to function, have proper representation including regional representation, so you had full developing country representation, an assurance that if a particular individual was not able to attend a meeting there would still be somebody there in the seat, that it had a clear forward agenda, an ability to manage its work properly before you got to the stage where you had upgraded it to a body which potentially could have an important role in issues which are generally quite important in the national responsibility of individual member state governments. So that was, I think, the area where we differed with the judgment of some of the advocacy groups which were talking about this. But the underlying issue is absolutely crucial to us in the development community of getting efficient and effective national tax authorities and proper international cooperation on the areas where that is needed, including tax evasion, criminal activity around money laundering, et cetera. Mr Alexander: The other point might be just to manifest that commitment in terms of ongoing work in relation to the G20 meeting, because this issue of how do you have effective financial supervision is clearly very much of the moment and without prejudging where those discussions will reach, the whole issue of how do we have better financial supervision, including in relation to taxation, is something which I understand our colleagues in the Treasury are working on in relation to the G20. Mr Smith: The Washington Summit had some text on the Financial Action Taskforce which deals with money laundering and criminal activities around tax and mandated work to be taken forward and reported back in London. Q38 Hugh Bayley: Christian Aid has made an estimate that developing countries lose $160 billion a year through tax evasion, one and a half times the global annual aid budget. Do you think that figure is the right order of magnitude, and although this is a problem of companies and individuals in developing countries not paying taxes which they should through tax evasion, frequently they hold their resources offshore, sometimes in British dependent territories. What can the UK do to make such territories change the basis upon which they manage offshore banking so that it is not possible for companies and individuals from developing countries, or indeed from anywhere else, to evade taxes which are due in the regimes in which the money was acquired or the profits made? Mr Alexander: Let me say a word generally in terms of some of the figures which are used in this debate. I cannot speak to the particular figure which Christian Aid uses because I do not have its source in front of me, but the veracity of some of these figures is, shall we say delicately, open to dispute. At least one of the academics who have written on this elides the distinction between tax avoidance and tax evasion and you can appreciate that the definition of tax avoidance is fairly elastic in terms of the academic literature. That being said, I cannot really state it better than Anthony stated earlier. We, of course, want to avoid circumstances where tax evasion and the illicit use of funds, without any effective scrutiny, or money laundering takes place. In that sense, there was also an announcement, if I recollect, at the time of the Pre-Budget Report by the Treasury on exactly that issue. You might want to say a word in terms of the Treasury's thinking. Mr Smith: I am not sure if the Committee is aware that in the Pre-Budget Report the Treasury announced a review to look at the issues around British offshore financial centres, looking at financial supervision and transparency of taxation around financial stability issues as well, crisis management and international cooperation. So these issues are very much on our agenda and from the development perspective are very important as well. Mr Alexander: One other point is that my concern in terms of the figures should not be taken as, "This is very hard, but we don't want to quantify the issue." We are actually already working with the Treasury to see whether we can get to a clearer evidence base to establish figures with which we would have confidence. Q39 Hugh Bayley: I was just debating with the Chairman whether I would ask a supplementary or put down a PQ, but could I ask the Secretary of State to write us a note? I realise this is a matter of making an estimate, but to give us an estimate - Mr Alexander: To be honest, I would not be able, and it is better to be honest with you in the sense that we are simply at the point at the moment of agreeing terms of reference with the Treasury, which is the lead Department in this area, for research into this issue. So I would not be in a position to offer you an estimate because we do not have the evidence base. I can give you an assurance that we are concerned by the lack of evidence on this, not least given how prominently some figures are bandied around and that work is underway with the Treasury. Q40 Hugh Bayley: Maybe you could write to the Chairman at an appropriate time? Mr Alexander: Certainly. Q41 Mr Hendrick: I think it is generally agreed that a successful completion of the Doha development round would bring significant reductions in poverty around the world. Can I ask you, Secretary of State, how optimistic you are that Ron Kirk, the new US trade representative (USTR), will push for a final deal on the Doha round? Mr Alexander: Time will tell. I have a meeting tomorrow with Pascal Lamy[15] and I will perhaps be in a better position at that juncture because I have not yet spoken since the inauguration of the new USTR. It may well be that Pascal has taken the opportunity today to do so, but Pascal Lamy will be with me in the Department tomorrow and we will have a clearer sense there as to his judgement from his position within the WTO as to where matters stand. That being said, I took the opportunity at the time of the Annual Meetings last October to meet with representatives of both the Obama campaign and the McCain campaign who were leading on trade policy and an individual who I met was keen to impress upon me that there had been language included in the Democratic platform relating to the completion of the Doha round, which given a lot of the rhetoric and a lot of the debate around trade during the Presidential campaign he took to be a not insignificant achievement in terms of the framing of the platform. But as I say it is very early days, indeed the earliest day in the Administration, and we will obviously take the opportunity to press the case with the incoming Administration as we did with Susan Schwab, his predecessor as USTR, but not least given the state of the global economy at the moment there is a real case for multilateral agreement being agreed. Q42 Chairman: Secretary of State, if the bell rings I might ask you to complete the replies in writing, but first of all I would say that you have repeated a number of times the Government's commitment to achieving the targets and to recognising the need to maintain development and find creative ways of doing this, and I think that is welcome. As our inquiry continues, hopefully we will get more evidence which might reinforce that and make some further suggestions which you would find useful, but one particular thing coming up is obviously the G20 meeting hosted by the UK in April. Can you give us an indication of what your Department will be doing within that to reinforce the things you have been telling us and reinvigorate the Financing for Development process and ensuring also that developing countries have a real part in that process so that they will hopefully be represented? Mr Alexander: We would of course want a summit which reflects the continuing challenge of addressing the continuing financial problems of the global financial system, but we have been working hard to make sure that the development perspective is an element within the package emerging on 2 April. In particular, we are looking for faster, better financing from the multilaterals. Again, that was in part why I met Zoellick last week, to impress upon him the urgency of delivering on the undertakings he has made and urging him to consider where he can go further in terms of counter-cyclical lending along with protection of the poorest, which is what I spoke about earlier, in terms of social protection programmes. Thirdly, there was also helpfully - and we were supportive of this at the time - language included in the Washington communiqué which, as well as dealing with crisis management, anticipated more fundamental reform of the IFIs,[16] both the IMF and the World Bank, and in that sense there have been four working groups established after the Washington meeting. In December we had a French and an Indonesian co-chairs on the World Bank Working Group, but we are actively engaged with the French and the Indonesians in terms of what we would be looking for as an outcome, recognising that the focus of most of the time at the Summit will be on the immediate challenges both for the poorest and for the rest of the world but not forgetting the prize of more fundamental reform of the IFIs. So there are those three broad categories, faster and better financing from the multilaterals, social protection as a key instrument to protect the poorest from the effects of the downturn, and thirdly the broader issues of IFI reform. Q43 Chairman: But will the developing countries be represented in some way at this Summit? I know it is a G20 Summit. Mr Alexander: Yes. I repeat the undertakings which I gave to President Kikweti, who I met when I was in Doha, which is that our Prime Minister is committed to active engagement with developing countries. The exact form of that engagement will emerge in the weeks to come. I know that my colleague, for example, Mark Malloch Brown, is holding a whole series of meetings about the G20 London Summit when he travels to the EU Summit in Addi Abasa. In terms of the exact attendance, that has not yet been determined. Chairman: Thank you very much. The bell is going. My thanks to your colleagues. As I say, I hope we will be able to produce a report which will be timely and relevant and may have some additional ideas to put into the pot. Thank you. [1] Director of Operations in Gaza for the UN Relief and Works Agency [2] The Egyptian President [3] See Eleventh Report of Session 2007-08, The Humanitarian and Development Situation in the Occupied Palestinian Territories, HC 522-I [4] Israeli Defence Force [5] Office for the Coordination of Humanitarian Affairs [6] Supplementary written evidence submitted by the Department for International Development [7] President of the World Bank [8] Official Development Assistance [9] Public Service Agreement [10] The International Development Association of the World Bank [11] Heavily Indebted Poor Countries [12] African, Caribbean and Pacific Countries [13] International Finance Corporation (Part of the World Bank Group [14] Development Assistance Committee of the Organisation for Economic Co-operation and Development [15] Director General of the World Trade Organisation [16] International Financial Institutions |