The World Bank - International Development Committee Contents

Examination of Witnesses (Questions 1-74)

Rt Hon Alan Duncan MP, Anthony Smith, Rachel Turner

23 November 2010

  Q1 Chair: Good morning, Minister. Welcome to the Committee. This is your first appearance before us. We are very pleased to see you and thank you for coming here to help us with our inquiry into the MDGs and the World Bank. For the record, will you introduce your team?

  Mr Duncan: Certainly. Thank you very much for asking me here. As you say, it is my first appearance before a Select Committee, having previously sat on one. I am supported today by Rachel Turner, on my left. She is the director of the international finance division. She leads our multilateral aid review and covers the World Bank, global funds and financial institutions. On my right is Anthony Smith, the director of international relations. He covers the United Nations, Europe and engagement with other donors.

  Q2 Chair: We are always optimistic in this Committee in that we try to get through our evidence in about an hour and a half. We nearly always fail, but our questions will be brief and I think that we shall get through what we want to ask you. I appreciate that the Department is re-evaluating, re-prioritising and reviewing, in particular the bilateral and multilateral splits and priorities, but can we start with getting some idea of what you see as the advantages and disadvantages of channelling our aid and overseas development assistance through multilateral agencies, especially the World Bank? What are the advantages of doing things that way that will encourage us to give them a substantial amount? What are the reservations or disadvantages that suggest that that does not deliver everything we want?

  Mr Duncan: The multilateral review process is designed, in part, to ask that fundamental strategic question. The brief that I have been given by the Select Committee seems very wide, and I understand now that you want to focus primarily on the World Bank and other things, but perhaps I can at some stage explain how the multilateral review process is working. It might be of interest to the Committee.

  We have no absolute fixed idea or thinking about how much of what we do should go through multilateral institutions, but, in looking at them, we see that, compared with the bilateral efforts that we make, there can be significant advantages. I suppose they can be listed under a couple of short headings. They have a scale that, because it is a collective endeavour, significantly exceeds anything that we can do on our own. They have a reach that we also cannot always do on our own. Their footprint is wider and, for various reasons that are coming out of the bilateral review, we may choose to delineate our footprint on the world map differently. They are seen more often than not, if not always, to be neutral. As such, they are a benign, non-political influence in the countries in which they work, and they allow for co-ordination of money flows and efforts that again a bilateral effort cannot do on its own.

  There are some structural advantages to the multilateral effort. For instance, a global fund satisfies all those criteria that I have just described, but the World Bank satisfies those criteria, too. The objective in everything we are looking at has to be better quality aid, and multilaterals can often do that, sometimes when bilateral organisations cannot.

  Q3 Chair: I might press you a bit on whether you think there are disadvantages, but can I preface that by asking, is there any strategic objective? When the Secretary of State set in motion the bilateral and multilateral review, was there any guiding idea of what the division between bilateral and multilateral should be, whether it should be 50:50 or was it entirely open?

  Mr Duncan: I think it was broadly open. Correct me if I am wrong, Rachel, but I think we are starting with about 40% of our budget going to multilateral institutions. We are not wedded to that particularly, albeit the 35%, 45% or whatever comes out of the process is what we will live with. Your question is pertinent to where we are at the moment in the bilateral and multilateral review process. We have looked at all the various institutions. We have drilled down very deeply into the workings on the ground and within all those organisations. As the feedback comes in, we have to look at the overall jigsaw and see how it pieces together in aggregate. It is that process of aggregation that we are just beginning to embark on now. It is a bit early to tell whether or not there will be a significant shift in the percentage that goes towards multilateral organisations, but, if I were to put my finger in the wind and hazard a guess, it is more likely to go up than down.

  Q4 Chair: One obvious follow through from that is that if the consequence of the bilateral review were that we reduced the number of countries we were operating in, that would enable us to increase the budget by country, but it would also reduce our footprint. That would imply, would it not, that you would want to put more into multilaterals if you reduced the number of countries you operated in?

  Mr Duncan: Yes, that is exactly where the logic is heading. Looking at our primary objective, which is to concentrate on the MDGs and to look at the reduction of poverty, some organisations can do that on a scale and at a price that turns out to be very attractive. It is not letting out any secrets if I say that some global funds are very effective deliverers of benefit to the world's poorest—on a scale and at a price that are very effective.

  Q5 Hugh Bayley: The G20 ended up in some acrimonious disagreement between China and the United States on trade imbalances. Looking at the crisis in the eurozone—in Greece and in Ireland—the international economic outlook is pretty uncertain at the moment. In your evidence to the Committee, you state that the World Bank responded positively to the financial crisis two years ago. It tripled IDA lending in 2009, and has increased it again by a third in the current 2010 financial year, and it has reduced conditionality. Even so, the poorest countries received a net fall in capital transfers and private sector investment fell greatly. Given the present uncertainty, what is the Bank doing to prepare for another dip, should one come, and what is DFID urging the Bank to do to deal with the global economic uncertainty?

  Mr Duncan: We are getting into quite technical stuff, but you are probably the parliamentary expert on the World Bank, Mr Bayley, so I may have to defer to you on some of this. You cannot plan aid and have a policy based on one summit, and I do not think that that is what you are suggesting. What comes out of this is the essential importance of the World Bank and aid institutions understanding the effect of global shocks or a downturn on the poorest people. It is clear that it is often the poorest people who are hurt the hardest by that, be it food prices, trade barriers or whatever. What matters is that the World Bank is sensitive to the effects of changes in world economics on the poorest people. So, its architecture needs to be shock-sensitive, if you like. On what they are doing at this very moment, I will turn to Rachel Turner if I may, who has been in dialogue over that. I am about to visit Washington, and this matter is seriously on my agenda for when I am there at the beginning of next month. I will turn to Rachel, if I may?

  Rachel Turner: During the crisis, everybody was very frustrated by the inability, particularly of the IDA part of the Bank, which lends to the poorest countries, to have any ability to leverage, find or deliver quickly more money for the poorest countries. As you know, it is a fixed pot of money. Since the crisis, we have put a lot of effort into trying to redesign the IDA architecture. Our proposal was that IDA should have a particular thing called a crisis response window that would allow it to hold back some money in the event of a shock, and also potentially to reach across to the hard lending arm of the IBRD and to leverage some of that money, paying it back over time in the future.

  We also wanted the facility to be able to act very quickly, in a way that IDA does not always do. We are pleased that negotiations on that have gone very well during IDA 16. It was one of our big asks for IDA 16, and it has now been agreed by all the IDA members and will now be a feature of IDA. That has been a big shift in the architecture for low-income countries. It is very important that we all learned from the crisis and very quickly changed that architecture to respond to what we know.

  Chair: I shall bring in Alison McGovern.

  Q6 Alison McGovern: Briefly, if I may, it sounds as if that proposal might have been developed in liaison with certain countries that needed that particular approach. For the information of the Committee, will you say how that was developed?

  Rachel Turner: Yes, this was with the previous Government, but we had a consultation with low-income countries during the crisis. In particular, we had discussions with a number of African Finance Ministers about their concerns about the inability of the architecture to respond and support their needs during the crisis. There was quite a degree of consultation, particularly with African Governments, around that.

  Q7 Anas Sarwar: Good morning, Minister. Thanks for coming to see the Committee. I want to carry on the focus on the IDA replenishment round for IDA 16. One of the submissions that we had to the Committee was from the Bretton Woods Project, which recommended that the UK should not increase its dollar contribution to IDA 16, but should focus instead on achieving substantial reforms of both the World Bank and the IFC. To what extent do you believe it is desirable to withhold an increase in dollar funding for IDA 16, for those reasons?

  Mr Duncan: It is quite a stark position adopted by the Bretton Woods Project. I am not sure whether they're saying, no replenishment, or withhold some, unless they have their conditions fulfilled. We have some sympathy with what they are saying. There are four main things for assessing the merits of an IDA replenishment: results, their ambition, their delivery at country level and their cost control. We are having serious discussions with them, and our influence on the IDA replenishment round is quite strong. You have already heard from Rachel Turner about the crisis response window. That is an ask that I think we have got. We are not really in favour of the stark condition that the Bretton Woods Project puts. Although we understand the objective, we think we are getting that by other means. I don't think waving such a big stick is the right way to go about this. We have spent about 18 months—it predates the coalition Government, but I think there's a lot of continuity—negotiating a performance framework for IDA 16. For the first time ever there will be a report card process, which will demonstrate much more enhanced control and transparency on the large amount of money coming into their coffers. The UK can be pretty pleased with the influence that we have exercised over this. It is a credit to DFID that they have done it.

  Q8 Anas Sarwar: On that point, can the UK attach any conditions and if so, what are they likely to be?

  Mr Duncan: I think, technically, we cannot attach conditions like that, because it is a collective endeavour. There are some technical procedural issues that go along with this.

  Rachel Turner: Shall I expand on that, Minister?

  Mr Duncan: Yes.

  Rachel Turner: The point of IDA is that every three years we have an opportunity to negotiate, and negotiate hard, on what we want to see. The negotiations start after a year and a half, so in a way, we are in an almost constant process of negotiation with the World Bank, over its performance and the reforms we want to see for IDA. We have been doing that, as the Minister said, for the last 18 months. We have been negotiating hard, and we do think we're getting movement on some of the things that are important to us. If every member of IDA was to attach separate conditionality to IDA and every donor was to have its own separate conditionality, there would be absolutely no certainty, no predictability and no ability for countries to know how much money they were going to get, and the whole thing would collapse. I suppose it would be possible to have bilateral conditions if we were pretty sure that no one else would do it, but we really don't that that is a sensible way forward. Rather, we must use those 18 months before each IDA replenishment very carefully and cleverly.

  Q9 Anas Sarwar: So it is more a case of proper negotiations, rather than conditions?

  Mr Duncan: Yes. May I suggest this? I think the UK is in a very, very strong position to influence other people's thinking whenever we take a lead in something like this, because we are seen as world leaders and world beaters in international development. It is a position of which the UK should be proud. I certainly am, seeing what is happening in DFID—the skills and the influence that I have inherited as a Minister. The question is, do we use that well? Are we good negotiators? I think that we are. It is better to be done in a polite and firm way, than with megaphone threats and conditions. I think we go about this the right way.

  Anas Sarwar: Thank you.

  Q10 Pauline Latham: As a contrast, 15 UK NGOs have established a consortium of British humanitarian agencies, which ensure that aid gets to people quickly and efficiently. Do you think that that's a way forward, as well as going into the replenishment and supporting the multilateral? Do you think the bilateral aid is as useful? They are probably more flexible than a very large organisation. If you look at Pakistan, some of the aid was held up for several weeks, whereas the smaller organisations could get it in very quickly.

  Mr Duncan: Just to check that I understand your question properly, are you suggesting that instead of funding a large, established multilateral, we could look at a consortium of NGOs as the body through which aid could be delivered?

  Q11 Pauline Latham: There is an organisation of 15 UK NGOs. I am not saying "instead of", but "as well as".

  Mr Duncan: I don't think we have any dogmatic view about this. As with anything, our approach is: does it work on the ground? Does it deliver effective and efficient aid? We certainly wouldn't say no to this. I am trying to establish in my mind whether we do that in a collective long-term way, or whether it is something that might be procured at a country level bilaterally, for which our offices have a lot of flexibility. We are budget setting at the moment, and assessing all our bilateral priorities. Within the various categories we expect to lay down for the next three or four years, if it fits within those categories, I don't think there would be anything to stop a country office procuring the delivery of aid in that way. Would that make sense?

  Rachel Turner: Yes.

  Mr Duncan: I am speaking sense, I am told. It is a happy moment for a Minister.

  Q12 Pauline Latham: Moving back to ODA, has the UK's decision to ring-fence DFID's budget in order to reach the 0.7% target by 2013 provided the UK with any additional influence within the international community, for example when determining new priorities for IDA 16 or encouraging other donors to contribute capital? If so, can you any give examples of that?

  Mr Duncan: I don't think that our commitment to go for 0.7% has given us clout, as such. I think it has given us enormous respect, and as a politician going around the world, it is very nice to get a pat on the back wherever I go, for once. It is a very nice feeling, for a politician to be praised. The UK should be enormously proud to be the first country in the world to commit to spend 0.7% of GNI from 2013. This should be cross-party pride. It gives us voice and recognition as a world leader.

  Q13 Chair: Sorry, Minister. You said we're the first country in the world, but we are the first G20 country.

  Mr Duncan: The first G20? But I think we're the first to legislate, are we not?

  Chair: No, I don't think that's true.

  Mr Duncan: Okay. In that case, that will be corrected in the Committee's records.

  Chair: But we should be proud of our achievements.

  Mr Duncan: Tell you what, let's just say G20, then I can be certain of my ground. Anyway, we can be proud and pleased.

  The question is: where does the clout come from? Of course the backdrop of being a G20 country with this commitment is important, but I think what has given us greater clout is the multilateral review process. This has been a very thorough process, which has put all the institutions on their toes, and is being watched by every other significant aid donor in the world to see what we do and what we conclude. We don't want somehow to start a stampede whereby every donor does a parallel exercise with every institution, otherwise they would be completely swamped. But I think that as everyone watches us and compares notes, and as we engage more deeply with multilateral institutions, the voice and influence of Britain is significant and growing. I think it's that process, combined with the 0.7% commitment and, at the very least, a solid spend already, that has given us disproportionate influence in multilateral institutions. And they have welcomed it; they haven't been huffy about it.

  The whole MAR and BAR process—the multilateral and bilateral aid reviews—has been entirely constructive, and has stimulated an exciting and constructive attitude and process at both the multilateral and bilateral levels. We have had various DFID offices comparing notes on how they do similar things, but suddenly they have discovered that they do them differently, and each has been learning from the experience of the other. Many of the multilateral institutions are very different; we are having to compare chalk and cheese, and giants and midgets. We are having somehow to compare a lot of very different institutions. None the less, that process has energised all of them. Our conclusions will be made clear in due course and they are quite interesting—some institutions are not coming out of it very well.

  Q14 Richard Harrington: When the Secretary of State came here for the first time in this Parliament, he made it clear that most of the previous Government's policies on international aid would be continued, which we very much support—and we are about as bipartisan a Committee as you could get. But he also explained that there were certain things that he would look to for governance and accountability, particularly transparency reporting—even grass-roots reporting—of outcomes, as well as more official reporting.

  I was not on the trip to the World Bank and the United Nations, but I was in Brussels, where it seemed that the European response—particularly to the grass-roots transparency—was that it was too trivial for people sitting in Brussels to get involved with. Given that that kind of transparency is a Government policy, to what extent can it really be enforced, or hugely influence—we have talked about our influence in institutions such as the World Bank—so that it becomes in effect, if not legally, a condition of our aid expenditure?

  Mr Duncan: Do you mean specifically in Europe or in general?

  Q15 Richard Harrington: No, I know that Europe is not your responsibility. But in general, given that you said you feel that there will be an increase in multilateral aid with different institutions, to what extent can we impose, or de facto impose, those conditions of transparency, particularly at grass-roots level?

  Mr Duncan: You are absolutely right about the premium we set by transparency. In all the discussions, negotiations, or exercises of influence that we have on any institution, we press the importance of transparency. Can we impose or dictate in all cases? Of course not. Can we wheedle it out of some institutions and make progress? Yes, and wherever we can, we do.

  On the EU for instance, it is complicated by treaty obligations and the as yet uncompleted architecture of the External Action Service. Within the EU, we want to fight strongly to keep the European Development Fund separate, so that we can have greater influence over the element of funding that is specifically directed to impoverished countries.

  We in DFID are setting a good example on transparency in everything we do internally and setting up the ODA watchdog, and everything else. We are certainly not pretending when we say that we want transparency in other institutions; we are demanding it wherever we can. You will have to measure the progress over time. Anthony, do you want to add anything on this?

  Anthony Smith: Thanks, Minister. The one thing I would add is that we are not alone in this; there are a number of other countries, donors and others that are focusing a lot on transparency because of the link to accountability and successor programmes. The ones that come immediately to mind are Sweden, the US and Germany. You can get a coalition, both within Europe and beyond, which will be pushing this agenda quite hard, and together, we can make progress in the boards or governing institutions of the organisations.

  Q16 Chair: Minister, you have shared some of the process of the review, which I appreciate is ongoing work, but can you give us a flavour? There are a lot of multinational institutions—are they likely to be significantly reduced? I don't expect you to give us individual accounts.

  Mr Duncan: No. I shall endeavour to say as much as I possibly can to the Committee. We have, through a process of appraisal and evaluation, ranked multilateral organisations according to certain criteria. I think the Permanent Secretary explained the basic principles of that when she appeared before you a couple of weeks ago. Global funds are coming out of it pretty well—they are looking good. Within the United Nations family there is a fair spread, with one or two organisations not scoring very well at all, but most are pretty well in a cluster. The methodology we have designed is proving itself very well, and certainly the institutions themselves think it is fair. We will produce the data and conclusions in the new year. We then have to work out what we do as a result of that. Do we say no money to those who score very low, or do we say, "We'll give you some core funding in principle, but we'll hold it back until you improve yourselves", be it against a transparency measure or a cost or efficiency measure.

  All these organisations are different, so I do not think there is a "one rule, one reaction fits all" guideline. In the end, we are going to have to exercise a measure of political decision to piece all this together, because apart from anything else, as I was explaining earlier, the overall picture, such as the 30% on fragile states, has to emerge from the aggregated picture that we design in response to the material that emerges from the MAR and BAR.

  Q17 Hugh Bayley: The Minister said at the start that he wanted to say a little about the multilateral review, and he has. You talked in general terms about how things look for the global funds and UN agencies. Can you say a word or two about the other multilaterals—the EU and the World Bank Group?

  Mr Duncan: You are tempting me. The EU obviously has to be measured against a lot of the treaty criteria. From Mr Harrington's and Mr Clappison's questions to the Secretary of State earlier, I sensed that you were not terribly pleased about so much money going to Turkey, so I can see your thinking and critique.

  Q18 Hugh Bayley: Perhaps I should leave the EU, because we are coming to that later. But the World Bank?

  Mr Duncan: Okay. Whatever you like. The World Bank? Not too bad. We value the World Bank as a very serious and important partner in our delivery of aid. Crucially, the IDA 16 round is well under way and is reaching—really next month—the moment when clarity will need to be expressed by us to them. We all know there is a collision between the timing of that and the timing of the MAR, but we will sort that to the satisfaction of the World Bank, I hope. They will remain as a significant partner. Put it this way—they are not at the bottom of the class with a dunce's cap on facing the corner.

  Hugh Bayley: Thanks.

  Q19 Chair: This is a genuine seeking of information. We have just had supplementary estimates from the Department, which include £200 million for the World Bank. Is that part of this process?

  Rachel Turner: I don't know. That must be the £200 million that we gave to IDA during the crisis. If you remember, we topped IDA up. I would imagine that's what it is.

  Mr Duncan: I think it is an IDA 15 top-up.

  Rachel Turner: The IDA 15 top-up during the crisis, particularly for social safety nets.

  Mr Duncan: If you would like clarification on that, Mr Bruce, I will be very happy to provide it.

  Chair: I got the e-mail yesterday, but that explains it.

  Mr Duncan: It got to you before me.

  Q20 Mr McCann: Good morning, Minister. Can I move on to worldwide governance? We know that the World Bank has agreed to increase its board size to 25 members in order to accommodate Africa with an additional seat, but it also still recognises that there is a continuing disparity and a need to move towards more equitable voting. What is your view on how we get the balance right between developing countries and developed countries being better represented in the World Bank? In particular, what do you think of the idea that the presidency of the bank could be alternated between developed and developing countries on, say, a four to five-year cycle?

  Mr Duncan: I do not think that we would come down in favour of an automatically alternating presidency. Our approach is to support a merit-based appointments system. That might lead to a president or a top guy of a different nationality, but we would not come down in favour of just strict alternate appointments.

  We were in favour of the third seat for an African country, which has now been taken up. There are parallels with the IMF. I do not think that we have any plans to copy the IMF. The next review of all this will be completed in 2015, so we are aware of the issues and will look at them further. I do not think at the moment that we really want to come down strongly in favour of a fixed and rigid shift. We certainly want to retain our seat.

  Q21 Mr McCann: May I just be more precise about the merit point? I do not disagree with you at all on that, but essentially it will be about the quality of the individual or the country's ability to be able to take the World Bank forward in terms of the presidency. That is what we are focusing on when you speak of merit.

  Mr Duncan: Yes, how to take it on, and their competence as a manager to run a very, very significant global institution.

  Q22 Chair: Is there a likelihood that Bob Zoellick will be replaced by anything other than a US citizen?

  Mr Duncan: It does not look that way at the moment. This has been rumbling on for ages and ages, as have so many other parallel aspects of UN reform. They always take a long, long time. The Bretton Woods settlement essentially means that it would almost certainly rest with an American, but it is not absolutely fixed in stone. Rachel may just want to rescue me here in case I have put an enormous ministerial foot in it.

  Rachel Turner: No.

  Chair: You have just avoided doing so.

  Rachel Turner: As you know, Chairman, we have supported for a long time the argument for merit-based selection at the head of both the World Bank and the IMF. It is perhaps worth the Committee looking at the language in the latest G20 communiqué because there is a shift there. The G20 has fought for the simultaneous ending of the gentleman's agreement for having an American at the World Bank and a European at the IMF[1].

  Q23 Alison McGovern:   I was struck by the emphasis on merit and then the clear conclusion that we were going to see no change in the near future of the default position being an American. Will you say a little more about the language in the G20 agreement? Did DFID and the British representatives choose to press any particular buttons? What is our underlying strategy for shifting the position?

  Mr Duncan: There are lots of meritorious Americans.

  Q24 Chair: Bob Zoellick has been an excellent president.

  Mr Duncan: Yes, we think very highly of Bob Zoellick. We work very closely with him and have a lot of admiration for what he is achieving in the bank.

  Rachel Turner: It has always been clear that, if we were going to secure merit-based selection of the president at the World Bank, the gentleman's agreement—if I can call it that —of having a European at the IMF would have to be part of that negotiation, and move together. There needs to be an agreement that the Europeans and the US move together on this.

  Q25 Chair: We shall watch this space. We met the Independent Evaluation Group when we were in Washington. Given that DFID is setting up its own independent evaluation, we wondered what your judgment was of how effective that is, whether it is burdensome and whether it can be improved. I shall call on Pauline Latham in a minute to pursue one or two specific aspects.

  Mr Duncan: We look upon the Independent Evaluation Group as one of the World Bank Group's key strengths. The quality of its work is high. It evaluates all the bank's projects, and I think it establishes quite a unique level of independent scrutiny, which we approve of. I think this is a plus point for the bank. That is more or less what we think. Anything to add on that?

  Rachel Turner: We do think that the IEG is an asset. I think you asked about whether it was too burdensome, and whether it could improve. What we've asked for in IDA 16 is a particular focus on the IEG's evaluation of the whole-country strategy. As well as the thematic work, it is very important that the evaluation group looks at performance through a country-by-country lens. That is important for us. That forms a plank of our new monitoring framework for IDA 16, which we are hoping finally to agree on in December. We have also asked for it to do a bit more real-time impact assessment, as the bank calls it, which is a little bit more speedy work, drawing out some of the lessons from well and poorly performing projects. I do not think it's particularly burdensome, given the breadth of what the bank does and the importance of the World Bank Group. There are things in the bank that we do feel are burdensome, but this isn't one of them.

  Q26 Pauline Latham: According to the evidence, an IEG 2009 review showed that the World Bank wasn't terribly good at the delivery of health improvements. It found that after 20 months of the new strategy, satisfactory outcomes were reported in only 52% of projects, and that these results compared unfavourably with those of the Global Fund in regard to AIDS, TB and malaria. Would such negative reviews persuade DFID to scale back its funding to less effective programmes or institutions? If not, what other pressure can DFID bring to bear to improve performance? It is a concern in relation to MDGs.

  Mr Duncan: That report on its health performance is a legitimate concern. We totally recognise the validity of the report, and I think the key thing now is how the World Bank reacts. Certainly, our colleagues have endorsed the report and are putting pressure on it to do so.

  The question is: what is the role of the World Bank regarding TB and malaria? It does not do the same things as the Global Fund. The Global Fund is a challenge fund, and what it says is, "We've got all this money. You, as a country, sort out what you want to do to deliver on GAVI, for instance, or FATM, as we call it; how you want to deliver on TB and HIV, or inoculation and vaccination. Come to us with a picture of how you will do it, and then we'll decide whether to give you the money." The World Bank is about designing systems in countries for the delivery of health. You have different sorts of institutions here, and we need to focus much more on improving what the World Bank does than removing from the bank the task of doing it, because there is a big question about who else would do it. I think we have to put our faith in the World Bank to do this, but improve what it does. I fully go along with your perceptions of where it has been deficient on the outside in the past.

  Q27 Pauline Latham: If only 52% of projects are working and the rest are not, compared with Global Fund—okay, it is different—it is still an enormous sum of money that is not being as effective as it might be if it was given somewhere else. Do you think DFID is likely to reduce the amount of money that goes on health projects with the World Bank, and perhaps give more to the Global Fund?

  Mr Duncan: The Global Fund does something different, so the answer, in theoretical terms, is no, because you are not comparing like with like. They are not alternative delivery mechanisms. The Global Fund is as I have just described, and the World Bank is designing systems in a country. One is a not a similar replacement for the other. The answer to the first part of your question about whether we would reduce money going to the World Bank depends entirely on what we think that it is going to do in reaction to this report and what we think will emerge from the effective process of the multilateral review. That is exactly the sort of question that the multilateral review is asking of the World Bank. That is why it is on its toes and doing something about that in many areas, which is why this process is proving so effective. It is exactly because you are asking me this question, that I am asking the World Bank a similar question, and it is doing something about it and, hey presto, we get progress.

  Q28 Jeremy Lefroy: I have a quick supplementary. We quite rightly concentrate on AIDS, tuberculosis and malaria, and I declare an interest—

  Pauline Latham: As I do as well.

  Jeremy Lefroy: As does Pauline. We are involved with the all-party parliamentary group on malaria and neglected tropical diseases. The evidence is quite clear, as I am sure that your colleague Mr O'Brien will be able to inform you.

  Mr Duncan: You beat me to it.

  Q29 Jeremy Lefroy: Treating neglected tropical diseases has an extremely important role to play in dealing with the incidence of AIDS and malaria, in particular, because of their effect on the overall health of the people involved. If people are affected by worms or other neglected tropical diseases, they are more susceptible to things like AIDS and malaria. I wonder if the UK Government with the World Bank and to some extent with the Global Fund—although we are talking here more about the World Bank—might make that input. We should not just be fixated on the big three, but should talk about the neglected tropical diseases, which to some extent are much cheaper to treat and infect a far greater number of people.

  Mr Duncan: If I may say so, this is the exactly the sort of fascinating area that the multilateral review is drilling down into. You quite rightly mentioned my ministerial colleague Stephen O'Brien, who is a parliamentary expert on malaria and he is the man who concentrates on Africa. In conversation, I have heard him raise exactly the same question that you have just put in this Committee. What I sometimes call the jab in the jungle can be easily measured and costed. So if we are evaluating, say, the Global Fund, one of its great appeals is that we can measure by results, and that is clear and wholly measurable.

  Once you graduate from the original inoculation or vaccination and get into the neglected tropical diseases, the model changes slightly, but that does not mean that we should not do it. The cost pattern might change, the reach of what we do might be different and it is not as straightforward as the Global Fund targets that you have just mentioned. But it is an exciting new frontier, which might be exactly the sort of frontier that we should now be pressing towards. That is what we are evaluating in the multilateral review. I cannot give you an exact answer as to where and how we are going to channel money, as we have not yet concluded that process, but that is exactly the sort of thing that we are looking at.

  Q30 Mr McCann: Minister, DFID is seen as a world leader in delivering aid across the globe. It is not only people in the front line who are delivering that; it is also the many staff working behind the scenes in the two headquarters buildings you have in the UK. In terms of DFID's objectives to get to 2% of the budget being spent in administration costs and tying that in to our goal, which will be achieved in this Parliament, to get to 0.7% of GDP being spent on overseas development, is there not an attraction in having that huge uplift of money being spent through multilaterals rather than through the bilateral aid programme? Would you consider that to be a false economy, given that last week the Permanent Secretary explained to us that the average cost of administration for multilaterals sits at around 4.3%? Isn't there a danger that we will lose high-quality DFID jobs in the UK in return for sending our money to less efficient multilateral agencies, which spend more of their money in administration costs than we aim to spend here? Finally, what pressure will the UK place on all those multilateral institutions to achieve a better strike rate in terms of their admin costs to bring it down to the objective that we are trying to get to?

  Mr Duncan: Yes. I am just being prompted slightly. Obviously, Mr McCann, our parallel headquarters is in your constituency. I visit it as regularly as I can.

  Mr McCann: Beautiful part of the world.

  Mr Duncan: It is a beautiful part of the world, and very helpful for our administration costs. It is an essential part of the DFID structure. Administration costs matter, but they are not the only picture. Ultimately—let's say it's 2% administration costs—we have to look at what 98% of the money buys in terms of aid, and where the value for money is in that. That is the massive element in our assessment of what is good or inappropriate aid. In all our discussions, we will bear down on administration costs. We are doing it internally—with a vengeance—and it is quite tough going, I have to say. Everyone says, "Oh, lucky DFID, they've got a ring-fenced budget", but it is only the official aid budget that is ring-fenced, so we, like any other Department, are having to bear down on our administration costs.

  In our discussions with multilateral institutions, we are calling for a complete review of remuneration and reward in these big institutions to make sure that they are not excessive, because they are a significant element of the administration costs—the people. We are doing our bit wherever we can. We cannot just wave a magic wand and make everything 2% or below, but, once again, the effect of our multilateral review is to bear down on that sort of cost, and we are probably the most effective influence in doing that.

  Anthony Smith: The only thing I would add is that the settlement that we have in the budget, which is a fantastic settlement, gives us a level of administration costs that we know about. We are going to use the resource we have—people, the other elements of the administration costs—as effectively as we can. We are looking, as the Minister said earlier, across all the different ways of achieving the maximum value from our programme. That is an exercise that we can do in itself and we will get the answers from that. But we will not be able to get additional administration costs by choosing to use one form of assistance that requires more staff. I am not sure I understood your question.

  Q31 Mr McCann: Let me give you a "for instance". If you have £500 million to spend on a particular part of the aid budget, and in order to administer it in the UK it will cost 2% of that £500 million, and an alternative is giving it to a multilateral that will spend 4% of that money on administration costs, will that influence your thinking and lead you to the judgment that you will spend it bilaterally rather than multilaterally?

  Mr Duncan: It will influence our thinking, but it is not the only influence, because we have to look at the efficiency of what is bought by the 90% that is spent on aid. Of course it's a component, but the danger of looking only at admin costs when you are comparing two options is that—it is not a perfect analogy—the tail wags the dog. We think that our evaluation processes are sophisticated enough to include that as a component but to reach a conclusion based on the broader picture, because in the end it is poverty reduction and aid efficiency that matters most of all. It is that big, total picture that would guide us and steer us.

  Q32 Jeremy Lefroy: Just turning to the policies of the World Bank and, in particular, its lending and also its operation through the IDA on climate change. We have seen some evidence that DFID did not ensure that multilateral assistance via IDA 15 was compliant with our policy on climate change. How can we ensure that that is not the case with IDA 16? Also, are you concerned by the nature of some of the projects of the World Bank, to which we are a significant contributor? Are you concerned that some of the large-scale energy projects do not seem to apply the kind of criteria that we would use on climate change and carbon reduction?

  Mr Duncan: As well as talking to a Minister, you are talking to a former oil trader, so I am familiar with the energy sector and, in particular, the real dilemma that is posed by coal. I will come to that in a second. I appreciate the concern that IDA 15, which predates me, was not really climate change compliant, if you like. It did not seem to be sensitive enough to the needs of climate change. I totally agree that we want to make sure that IDA 16 is climate change-proofed and that it makes sure that investments are less reliant on high carbon. That is not only about energy production, but about investing in projects such as building—looking at climate change danger, so that where something needs to be on higher ground, it is on higher ground, be it on stilts, or moved somewhere else. All that climate change sensitivity is growing, in terms of planning and understanding what should or should not be built. That is a good thing.

  There is a difficult dilemma on energy. Campaigners understandably say that the World Bank should never invest in coal-fired power stations. I think that's fine, if there is an alternative that can be delivered for energy production in that country. Indeed, it's not just fine, it's desirable. But the problem is that in so many countries you cannot, at the flick of a switch as it were, have another source of energy production. Solar power or wind may be insufficient or inappropriate, and there is no gas and there is no infrastructure. What do you do? Do you say, "I am sorry, poor country, you cannot have any energy because we are not going to let you have coal"? Or do we say, "We don't like coal, but if it is the only energy that you can get, you can have it and we'll pay for it, but let's try to control the emissions as best we can and hope that carbon capture becomes a commercial reality one day"? We should not pretend that this is an easy black or white moral decision. It is very vexed and no one has yet come up with a clear and easy solution.

  Q33 Hugh Bayley: Like Jeremy and Pauline, I should declare an interest as chair of the Parliamentary Network on the World Bank, which, as you know, gets some of its funding from DFID. The question on the brief says, "Does DFID have a view on the argument that the World Bank should engage more with civil society and parliamentarians in donor and recipient countries at all stages of the process from the planning stage to the evaluation stage?"

  Mr Duncan: Yes. Any kind of engagement has to be a good thing, but the question is where does engagement convert into complicated governance, to the point where something cannot be run. A lot of the components of the UN are differently governed and differently structured, but in broad language, it's a co-op, in the sense that it needs the co-operation of its participant nations. If you then say, "Well not only does it have a big board of anywhere between 20 and 50 people, which has to keep all countries happy, but it also has to keep all of those countries' Parliaments happy", where does anyone ever take a decision? Yes, of course we want engagement. We want it to understand and to enjoy the support of civil society. The ask, if I can put it that way, that you are calling for needs to be described in terms of its practical effect, for us to have a clear view of whether it really will deliver an effective, working, decisive institution. I am brainstorming a bit on this, but having run organisations in the past, there is a limit to how participative all interested parties can be, if you are going to run that organisation effectively.

  Q34 Hugh Bayley: We, as parliamentarians, would all accept the argument that the legislature should have control of supply. When African parliamentarians complain to me that the rotten World Bank has financed an impossible scheme with intolerable environmental consequences, or whatever the moan might be, I always say, "Why haven't you said to your Finance Minister, 'Come to the Parliament and explain what the deal is. If we think it makes sense for our country to accept loan finance or grant finance of this kind, we will approve it. If not, we won't.'" The Bank has been moving in that direction. Of course, Bank officials ultimately are accountable to the shareholders—to Ministers. But do you think it makes sense for the Bank office in-country—in Tanzania, for instance—to keep in touch with and brief parliamentarians, so that they are better able to scrutinise the executive branch?

  Mr Duncan: Yes. If you are saying, "If the World Bank has a massive project in a country, should it inform and consult the host country's democratic system?", the answer is, "Yes, certainly." Should that system have the right to veto? That depends on the country's own law and parliamentary authority. Many decisions in this country are taken by Ministers with little reference to Parliament, and you might find that we have more infrastructure projects going down that track. We have to look at ourselves to see how we do things before we leap to conclusions about other countries' processes. We have to respect, particularly in properly democratic countries, the sovereign rules and boundaries of decision making in that country.

  Hugh Bayley: Thank you. We approach the issue in very similar ways.

  Q35 Chair: There is obviously a lot more focus on fragile states—the Government have set a priority of 30% of the funding going to them. Is there a danger that the World Bank will divert too much of its resources into that, given that the chances of getting measurable outcomes from fragile states in the short term is, by definition, much more difficult? That is the problem. What engagement do you have with the Bank about what its priority should be between fragile states and, as other questions will explore, the poor people in the rest of the world?

  Mr Duncan: The measurement issue is as much a challenge for us as it is for the World Bank. With aid of any sort, when measuring results—as with the global funds—some things can be easily counted. But at the other end of the spectrum, looking at fragile states, it is much more difficult to count the effect, although as far as we can, we most certainly will.

  I don't quite share the premise of the question—that this is somehow a danger. The percentage that the World Bank spends is probably not far off what we would want to see spent on fragile states, and our objective is to spend 30%. So it may be that there is an even balance between doing it ourselves and doing it through a multilateral institution, but we do not have any firm findings yet on that—we are investigating further.

  Let us take the example of Yemen. I am very active in the Friends of Yemen process and, as you have heard me say in the Commons and in the Chatham House speech, we are very much treating Yemen as a pioneering exercise in trying to apply our aid effectively before a country faces any further risk of disintegration. I am sure that everyone in this Committee values effective early intervention, compared with the much greater cost of having to pick up the pieces afterwards should a state fail—I think that that is a no brainer. In Yemen, that will contribute significantly to our 30%—if we can get our own people on the ground in the country, which is becoming more difficult. If we cannot, we either abandon the place or we have to look at multilateral institutions, probably, to work alongside us with our budget, be it the UNDP, the World Bank or the IMF, which has a significant programme there.

  The IMF programme has been agreed in Yemen, but it will reduce fuel subsidies, so there needs to be a lot of mitigation of the poverty consequences of what will probably be increased fuel prices. That will need a mechanism—a poverty reduction programme. Can we do that bilaterally or do we have to work with a multilateral institution? We are going to have to work with a multilateral institution for most of it. I do not see that as a danger—that somehow it slews our spending in a fragile state too much through a multilateral institution. I see it as an opportunity.

  Q36 Chair: I understand. But there is a practical point in terms of how you divide the resource. The Government are saying that 30% of DFID's bilateral funding would go to fragile states. In that context, would that count as bilateral because it is a partnership directly in-country with the World Bank or is it multilateral because it is the World Bank delivering?

  Mr Duncan: No. I absolutely see what you are saying. If I were to stick my neck out, I would say that it is bilateral and that it would count towards the 30%. In a way, we have to be careful not to skew our spending perversely because we have said the 30% is only bilateral. We have to be realistic about this. That is a perfect example.

  Q37 Chair: I wouldn't anticipate the Committee having a problem with that, but it is important that we understand how it is defined.

  Mr Duncan: I may suddenly have rewritten the rules off the top of my head, but I think that common sense should apply here.

  Q38 Alison McGovern: The majority of the world's poor live in middle-income countries, and it would be helpful if you could say what effect this has had on DFID's approach towards middle and low-income countries. In relation specifically to countries such as Nigeria and India, how does their position in the world economy affect what IDA should be doing to help poor people in those countries?

  Mr Duncan: Anthony Smith has very helpfully pointed out that when the Secretary of State was before you, he confirmed the same point about the 30%. I think you asked whether it was bilateral, and he said, "No, that is 30% of the ODA budget." I think that we can treat that as clear.

  Middle income versus low income? It is very easy to say, "Yes, there are lots of impoverished people in the low-income states, so let's concentrate on it." It becomes much more difficult when you say that there are lots of impoverished people in a middle-income country because you then get a crossover between a country being middle income, but a lot of people within it being very low income. That presents us, when we are making decisions, with a philosophical crunch point about at what point a country is rich enough for us to say, "We'll come out of the country". There may be one or two that have reached middle-income status and whose projected trajectory of enrichment means that we shouldn't really be there because they can be trusted.

  With a middle-income country that has a lot of impoverished people in it, yes we should look at that country as a whole—India is a prime example—and concentrate on poverty reduction within it, if we think the country cannot do so itself.

  Q39 Alison McGovern: When you say that there is a philosophical crunch point, what is the philosophy? Somebody might say, "The only philosophically relevant point is poverty and disadvantage." Someone else might say, "Well actually our diplomatic role as a country has to come into play and the philosophical point is about countries being their own sovereign states with their own democracy". If, at some point, they choose philosophically that as a sovereign nation they do not want to alleviate poverty in that way, Britain as a separate state does not have a role. Which is your preferred philosophy?

  Mr Duncan: It should be accepted as a premise that we should not work in a country that does not want us, for instance. The host country has to be welcoming of our efforts. There may be some cases where the country is so perverse that we find ways of doing it. Perhaps Burma is an example. In a country that welcomes aid activity and has a significant fraction of its population falling short of the MDGs, yes they are eligible for our efforts. We are looking at this, and when we have done the bilateral review we will work out, and say, what our footprint will be.

  There are other considerations, such as, "Do we have the skill and language set? Are other countries and other organisations in there such that it is not a priority for us?" For instance, there may be some countries in francophone Africa that should be handled primarily by other countries rather than DFID. That is what will emerge out of the review. There are no rigid rules.

  Q40 Alison McGovern: So there is not a philosophy, but more a sort of matrix of conditions.

  Mr Duncan: Yes, that is a better way of expressing it.

  Q41 Hugh Bayley: It seems to me, Minister, that the political problem in our country is with explaining to someone on £8,000 or £10,000 a year, who is just within the tax bracket and a small proportion of whose tax goes on British aid, why they pay money to help poor people in, shall we say, India, when people on two, three or four times that income in India are not paying taxes that are used to alleviate poverty in rural areas and poor states. Would it be sensible to set out as a criterion criteria for middle-income countries that if the fiscal system in their country ensures that the country itself is devoting substantial revenues to poverty alleviation, we should assist them? But we shouldn't substitute for an unwillingness in those in a position to pay taxes, whether business or personal taxes, and we shouldn't assist in circumstances where we are simply relieving a burden from people who are relatively well off in those middle-income countries.

  Mr Duncan: I fully appreciate the dilemma. It is an almost insoluble conundrum. It was starkly lampooned, if you like, by, I think, Professor Bower, who said that aid is all about poor people in rich countries paying for rich people in poor countries. I think that is an incorrect caricature, certainly of what we do, but I totally understand that many people, looking at India, will think that the caricature is valid. But then you have to step back and say, "What happens within that country?" The oft-repeated statistic is true: there are more ultra-poor people in India than in sub-Saharan Africa. Are we just going to ignore that?

  I am enormously proud of what Britain is doing. I can walk around the world with my head held high. To anyone who asks, "Why are we giving aid anywhere when granny is losing her benefit?", I say, "Hold on. Don't you think it's right that just over 1% of everything the Government spend goes to the world's poorest?" Then they say, "Yes, 1% or 2% is all right." Looking at the total budget, if people think, "If only we had closed down the whole aid budget, we could solve all our welfare or defence problems," our budget is not of that magnitude and it would not have that effect. There would be destitution for millions of people across the world if we did not do what we do. I am an ardent defender of our policy on what we spend and how we spend it.

  Q42 Alison McGovern: Going back to India for a second, I have a brief question. How do state administrations in India come into play? Talking about India as one country with universal characteristics is about as helpful as talking about the US as one country with universal characteristics. How does DFID work to understand the picture in different states? Is that a relevant part of your thinking about bilateral relief?

  Mr Duncan: You are absolutely right, and I share the validity of your logic. I ask the Committee to appreciate that the Secretary of State leads on India and I don't, so you will forgive me if I don't get drawn into the matter too much.

  Chair: We are doing an inquiry on India anyway.

  Mr Duncan: I don't want to trump the Secretary of State or to pre-empt the review, and I am in danger of doing both. I would, however, endorse what you say about the states. We know that the vast bulk of the poorest people in India are focused in poorer states. Obviously, we are looking at how we engage with that focus.

  Q43 Jeremy Lefroy: Isn't one of the problems the very definition of middle-income countries by the OECD? I know that there are two categories—upper middle income and lower middle income—but the band is huge when you compare it with the low-income country band. We therefore end up with a definition that in my view is not fit-for-purpose. As we will see later, it allows countries on $11,000 a year per income to be classified, in effect, in the same way as India.

  The second problem I see—you may describe it as intractable, but I do not think any problem is intractable—is that we are also looking at countries with vastly different populations. Therefore, to some extent, when it comes to aid, amounts need to be converted into per capita rather than overall figures, which may on their own look fairly large, but when converted into per capita per poor person within that country are actually very small. One of the problems is the very inflexibility of the definitions and the way that they are expressed. I know James or Richard will ask questions specifically in relation to countries in Europe, but I wanted to get your views on that. We seem to be told that there is this consensus, and that consensus is rigid, and we are not going to do anything to upset it with regard to ODA definition. I would question that, when the definitions themselves seem to be very arbitrary and counter-intuitive.

  Mr Duncan: This is one of those moments when the Minister issues a cry for help. I am not familiar with the detailed mechanical workings of the OECD definition on the middle income country, and I do not want to pretend that I am.

  Q44 Chair: I think the range is something between $1,000 and $11,000.

  Mr Duncan: Which I can see is enormous, yes. But, in a way, that high threshold reinforces what I have just said—just because there is a middle income country, it does not mean that we knock it off the list. We have to look at what happens within it. That is what we do. To give you a fuller answer, perhaps I should write to you, Mr Bruce, if that is what you would like. I do not want to give a duff answer now. Perhaps my officials have something to add.

  Rachel Turner: It is a very good point—one that many people are talking about at the moment. As the Minister has said, the onus on us is to look very carefully at what is happening inside the country, and not just assume that because you have suddenly tipped into the definition of middle income country, you have suddenly got a double A credit rating, amazing access to international flows and so on. There are very many different countries in that definition. That is why we want to look at them and their individual characteristics very carefully, which of course is partly what IDA does. The World Bank Group is able to mix its instruments according to characteristics, so some countries can receive both the more expensive hard lending and the softer lending from IDA, particularly countries that are just over the middle income country category.

  Q45 Jeremy Lefroy: A lot of our discussions are centred around the problems of definition. It is not just a technical thing. It is a very political thing, because of the general public's perception. I will not say any more than that. We have talked about Britain exercising influence. The Government are definitely a Government who say that they do not want to be, if you like, influenced by tick-box culture, yet here there is a great opportunity perhaps to exercise some influence and get rid of this tick-box culture definition of ODA.

  Chair: It has certainly been brought into sharp focus by India's situation—the statistical statement that there are more poor people in India than there are in sub-Saharan Africa—but we apparently no longer regard India as a poor country. I think that is the point Mr Lefroy is making. It does seem a very arbitrary and marginal cut-off. I think the point has been well made. Would you like to move on to agriculture?

  Q46 Jeremy Lefroy: Yes, thank you. I was delighted to hear that the Government are placing an emphasis on the private sector and including smallholder agriculture within that. The contribution to development by small farmers, especially in rural Africa, is, as that shows, beginning to be rediscovered after years of neglect. How is the Department collaborating with the World Bank to support smallholders in rural Africa, and indeed smallholders everywhere?

  Mr Duncan: I am not aware of any direct, specific discussions about this, but my immediate, instinctive reply is that such very small-scale micro things are better suited to bilateral activity, and less so to the multilateral activity of an organisation like the World Bank. But if there have been discussions and detailed talks, you will hear about them from officials in a minute.

  Again, there is nothing rigid here. Our abiding concern is, what works on the ground? If something is done bilaterally or through the World Bank for small farmers, we are not fussy about whom we work with, so long as it works, is value for money and can be measured. If the World Bank is deficient in this area, we will do it some other way. You are right to point out the private sector emphasis that we are putting on our activity in this field.

  The Secretary of State has told you, I think, that we will have a dedicated private sector department in DFID. Its shape, purpose and activities are being designed now, and it will focus on matters like this. We would rather find growth in the private sector as a weapon to lift people out of subsistence, and we believe that to be one of the most effective weapons. It will be a major focus for us in the future.

  Q47 Jeremy Lefroy: Specifically on the World Bank, from my own experience I know that a multilateral organisation like the World Bank can sometimes be a great benefit, even when it comes to micro or smallholder agriculture, in providing the infrastructure—for instance, large-scale irrigation systems or provision of microfinance, research and development. What we are perhaps getting at is that the World Bank may have a role to play. How much influence can we bring to bear on that, as something that DFID has identified as a priority?

  Mr Duncan: For things like irrigation—absolutely. We do a lot of microfinance ourselves, and we have had initiatives in Africa that have been quite effective. It is certainly on our menu, as it were, as something that DFID can usefully do in some of the poorest communities in the world. On elementary infrastructure, yes, the World Bank should be doing that sort of thing, and we already work closely with it in various countries on such projects.

  Q48 Anas Sarwar: I want to turn to the issue of tax justice, Minister. In a lot of developing countries, we have corruption by Governments or large business in a country causing tax evasion. For a lot of them, it is not in their Government's interest to have strong tax systems, which therefore makes life more difficult. What are DFID and the World Bank doing to help developing countries counter tax evasion and about the misuse of tax havens by transnational companies?

  Mr Duncan: It depends on the context, but if say an oil company is in a country, it should pay the appropriate taxes for that country. The host country and its jurisdiction should be the body to which that company properly pays its taxes. We do not approve of companies exploiting a country by going there and doing things, but incorporating themselves somewhere else to deny the host country its proper tax revenue.

  Q49 Anas Sarwar: Do the coalition Government support the introduction of a country-by-country financial reporting standard, as in the US?

  Mr Duncan: For whom?

  Q50 Anas Sarwar: For multinational organisations. Should there be a reporting standard about where they are paying their taxes? They would have to report which countries they are working in, for example with extractive industries, and whether they are making profits or paying tax in that country. Would you support a legally binding reporting standard for multinational companies and corporations?

  Mr Duncan: This goes way beyond this Committee, because we are into Treasury territory, I think. In terms of the extractive industries, where such companies have a licence agreement for oil or minerals, they should pay tax to the host countries. If, after they have taken the oil and they are refining it somewhere, they have a tax structure for their broader corporate interests, I may have views on that, but that is not for my role as a Minister before this Committee.

  Q51 Anas Sarwar: But would you recognise that that has a development angle in a developing country where multinational organisations are making money and not paying their taxes properly? Do you recognise why there is a DFID interest in pursuing such a matter?

  Mr Duncan: If there is a structure designed to deny the host country its proper tax revenue, yes, there is a DFID interest, but this is far more complicated, I would respectfully suggest, than the way you have put the question. We are getting into difficult and deep tax territory, which I am reluctant to stray into.

  Q52 Chair: Does the World Bank have a policy on this? Are we aware of that?

  Rachel Turner: I am not aware that the World Bank has a particular policy on country-by-country reporting. At the moment, this discussion is happening in the OECD. A tax development group was set up in the OECD after the work by the G20 last year on tax transparency. Discussions are continuing in the OECD and the pros and cons of country-by-country reporting continue to be discussed by the international community. Much of the focus at the moment is on tax transparency and on helping low-income countries to benefit from the new tax transparency international regime. The OECD is looking at how it can help low-income countries to ask questions of jurisdictions when they want information about financial resources and taxes that are owed by people in those jurisdictions. The focus is very much on tax transparency.

  Mr Duncan: May I ask Mr Smith to add something?

  Anthony Smith: The development angle of this is well recognised. The G20 is doing some work on it and, at the Seoul summit, a development action plan was agreed, which included some reference to the OECD's work on transparency. It also referred to the need to help strengthen the capacity of finance revenue systems in developing countries, and a lot of work is done by donors to support tax capacity in such countries.

  Q53 Richard Harrington: Minister, I understand that you cannot start talking about international tax treaties, and so on, and we would not expect even you to be able to tell us about tax law. But I believe that there are some specific aid issues. We are all—including you in your constituency capacity—lobbied in a number of ways by members of the public, as you said. If I have heard, "Charity begins at home" once, I have heard it a thousand times. We are all lobbied, irrespective of our party. But all of us who believe in everything that DFID and the UK Government are trying to do on this must have the tools to defend ourselves. NGOs give us specific examples. For instance, they mention a World Bank loan to a company in a developing country, in which the tax structure of that company is such that the profits will go abroad to a tax haven. Surely it is reasonable to expect there to be a condition attached to such loans in the same way that a bank has due diligence and makes conditions. That is normal. Surely it would be quite legitimate for these funds to be conditional upon no offshore tax haven structures.

  Mr Duncan: I now see more clearly what you are saying.

  Q54 Chair: Kosmos Energy in Nigeria was a case in point.

  Mr Duncan: The interface between a World Bank loan to a company and what that company is obliged to pay in the host country is what matters. That in itself may be very complicated, and from the example you have just given, it clearly is.

  All I can say, fairly and helpfully, is that I believe that a company that is working in a developing country, that is benefitting from, say, a World Bank loan, should pay its proper dues to the host country under the tax rules of that country. It should not be assisted in escaping that obligation by the nature of a World Bank loan.

  Q55 Jeremy Lefroy: Is there any reason why, just as any World Bank project will have an environmental impact study, there could not be a tax impact study for every project?

  Mr Duncan: Yes, there could be. I do not see why that should not be a proper part of evaluation. Its implications may be deeper than I appreciate at the moment, so do not take this as gospel, but I certainly instinctively have no objection to that and I can see its merits.

  Q56 Chair: Minister, you have been quite clear about your view and DFID's view on this. The Committee would be interested to press you to engage more with the World Bank. The problem that we have sometimes with evidence from NGOs and others is that it is often historic. In other words, the issue has moved on or has been resolved, so we are not fully up to speed. Perhaps you can write to us to indicate what kind of discussions you have been having.

  Mr Duncan: Perhaps I can make a little undertaking. I am going to Washington in a few days.

  Q57 Chair: Even better.

  Mr Duncan: I have just suddenly spotted something extra that will be on the agenda.

  Rachel Turner: The particular issue is around the International Finance Corporation, the private sector wing of the World Bank. We are actively discussing with the IFC at the moment its policy on offshore financial centres. We have seen some early work on that policy and have asked for more work to be done. We are very actively involved. It is something that it would be very good for you to discuss.

  Mr Duncan: I am on the case.

  Q58 Anas Sarwar: Would you legislate on that issue?

  Mr Duncan: Would I contemplate legislation?

  Anas Sarwar: Would DFID consider legislation for multinational organisations in-country? Forget the bigger tax issues. I am not asking for that. It goes beyond your remit, but within developing countries and, making sure that they are abiding by tax laws in that country, would you be willing to legislate on that in the UK, as we have seen in the US?

  Mr Duncan: I cannot commit to that on the basis of a 10-minute exchange in Committee. What I can commit to is studying it further. Instinctively, whether unilateral legislation is the answer, I cannot assess off the top of my head.

  Q59 Chair: There has been legislation in Congress. There have been several EDMs, one of which I promoted. We shall just leave it at that. There is an issue. The US has decided that it wants to legislate. There have been discussions at the OECD. It is a question of where they might end up. Perhaps we can leave it as an ongoing discussion.

  Mr Duncan: Certainly. Okay.

  Q60 Richard Harrington: Before it is done to death, I want to say that personally I do not feel that it is enough for the Government, as reflected by yourself—I say that with respect—to say, "Yes, we should make sure that the laws of that particular country are complied with," because in many developing countries it is very normal for, say, the Cayman Island Trust, to own companies. Whether it is legal or not, it is very normal. There has to be a significantly greater duty in relation to aid moneys. If you would bear that in mind, I think that we should finish the subject there for another time.

  Let us move on to the United Nations, another issue altogether. I will be brief because of the time element. We would be interested in your opinion on the effectiveness of the Delivering as One initiative in improving co-ordination across all different UN agencies, and whether it has helped to narrow the gaps between the humanitarian side, the development side and the environment side. We would appreciate your comments on that.

  Mr Duncan: Soon after I was appointed Minister of State, I went to Hanoi to a UN Delivering as One conference and spoke at it quite robustly, as I recall, chastising the UN in some cases for delivering as 20 when they needed to deliver as one. The malco-ordination of the various elements of the UN family in individual countries can be quite detrimental.

  Each unit within the UN has its own system of governance, lines of accounting and everything else, so to have a near-military command and control set-up with a line of command with one super-boss over all the UN tentacles in any one country is not easy. But it is in large part desirable, although in any one country at any different time in different circumstances, various components of the UN may have greater significance compared with another—in one, the humanitarian side might be important; on the other, the human rights side. Just having a single line of command and saying, "We are going to tell all the various bits what to do so there is one port of call" is not easy. In the multilateral review, we have looked at the Delivering as One funding window and are in the process of assessing it.

  

  Q61 Richard Harrington: Leading on from that, what about the UK's policy and what we are doing to improve the co-ordination between the World Bank and the UN agencies? For example, another thing that is often mentioned to us is that certain NGOs want us to channel more money through the UN, because they think that money should be used for grants, rather than the loans that go through the World Bank. I know that that is a huge subject to answer in a few minutes, but if you could have a stab, it would be appreciated.

  Mr Duncan: Perhaps the area where UN-World Bank co-ordination needs to improve most is in fragile states, where they are not working together as they could and should. That has been the main focus of our study on the co-ordination point. Do you have anything to add, Anthony?

  Anthony Smith: The only thing that I would add is that the UN has many different agencies, so there are lots of different circumstances in which co-ordination and collaboration are important. The point on the multilateral review is: what works best? What is most effective? Where would we get most value for money from our investment and support for the agencies? Fragile states is an area where it is crucial for certain UN agencies to be present. The World Bank's capacity in fragile states is different and it operates in a different way. There will be certain things that we will be trying to promote and the national security strategy and the strategic defence and security review were important in that respect. They have started a process of looking at the institutional structures that we think would be most effective. There are so many different UN agencies, but the general point is that the reviews were looking at which agencies work most effectively in delivery and, as part of that, which ones collaborate well with others and which ones do not.

  Q62 Jeremy Lefroy: When you worked with Helen Clark in New York, she pointed out that there is—I think that this is a British instigation and that Britain has taken the lead on it—an emergency relief fund, which has helped greatly in getting money quickly to a country in need. She also pointed out that medium to long-term funding was usually accessible through the World Bank, but that there is a big gap between that immediate funding that needs to go out and the long-term development funding. We were suggesting, and I think she agreed with this, that we need, within the UN, a sort of emergency 2 relief fund, which would enable countries to get up on their feet after an emergency, such as the recent floods in Pakistan. There is a gap. Is that something the Government would want to take a lead on within the UN, and specifically the UNDP, just as the previous Government took a lead with the emergency fund?

  Mr Duncan: I saw Helen Clark yesterday, and we discussed this, mostly in the context of the humanitarian review. We have the BAR, the MAR and the HERR—it's all happening. The ability of an agency such as the UNDP to respond more flexibly and more rapidly is an essential part of that assessment. As with the other reviews, that will come out in the new year. I do not want to pre-empt that, if you'll forgive me. My focus, as a Minister, has been on the MAR and the BAR, which is very much ministerial. The HERR is an independent review, chaired by Paddy Ashdown. That is what he will be looking at. I am reluctant to cut across his bows, at this stage, by saying anything specific on that.

  Q63 Jeremy Lefroy: I fully understand that, but it falls between the two. That is the whole point. It is not at the emergency humanitarian stage—it is at initial stage development where there seems to be a big gap. It is often the most crucial gap, because in the case of somewhere like Pakistan, it could relate to planting next year's crops, which averts a second disaster.

  Mr Duncan: If I may, I will ask Anthony to put words into my mouth.

  Anthony Smith: Part of the UNDP is an agency called the bureau for crisis prevention and response, which we provide earmarked funding to. That is in addition to our core funding to the UNDP, so it falls within Helen Clark's remit. Its aim within the UNDP is to look at these gaps, so that is definitely on her mind. Part of the debate in the development community for a while has been how to bridge from the crisis through to mainstream development.

  The issues that arise here are the same in many ways for the multilateral system as for the bilateral system. So, in DFID, we have many of the same debates. We have a very quick emergency response. How do you move from that to dealing with the underlying issues as part of your regular development programme? That is happening in Pakistan. In southern Africa, when there was a series of food crises, they were really related to low income, poor agricultural productivity and bad markets, so you had to address the emergency response, but also look at the underlying issues.

  For certain multilateral institutions—particularly the UNDP—that is also an issue we have considered in the review. I do not want to push everything into the review, but it is quite right that we are looking in the review at the effectiveness of organisations at moving from crisis to long-term development, if that's their mandate.

  Q64 Pauline Latham: Despite the Chairman's fears that I want to talk about UN Women because I am a woman, that is not the reason. When we were in New York, we met Michelle Bachelet, and I was enormously impressed by her. She's a very powerful woman, but with a very diplomatic way of going about things, so I think she's going to be very good news.

  I have three questions for you, and I'll ask them all in one go so that you can mix and match. After years of negotiations, are you satisfied that the imminent launch of UN Women will ensure a co-ordinated and coherent UN approach to address gender issues? Secondly, how can it be ensured that UN Women does not duplicate current work or displace the important work that is led by other agencies? Thirdly, without pre-empting the outcome of your multilateral aid review, can you give an indication of whether the UK is likely to be a major funding contributor to UN Women?

  Mr Duncan: Naughty little question at the end. We strongly welcome the new organisation. It brings together under one heading a disparate series of activities that used to be under four headings; that has to be a good thing—it is, if you like, the structural expression of the "Delivering as One" agenda. UN Women has just been created, so we obviously cannot cover it in the multilateral aid review, although we are looking back historically at what the component elements, particularly UNIFEM, did. It is unthinkable that we will not be a funder of sorts.

  In terms of duplication, everything we do contains within it the serious objective of gender equality, so that is in the DNA of DFID's developmental menu. I don't think that having the structure and organisation of UN Women should be criticised as duplication; it's a necessary leadership role, which we welcome.

  Pauline Latham: That is good. If you get the chance to meet Michelle Bachelet when you are over there, she is very powerful.

  Q65 Chair: The point is also that she is at the beginning of her remit. She said herself that she does not know how that will work, because lots will depend on her personality and on her crunching things together. If DFID and the UN are both saying that gender is at the heart of development, her ability to do that will be important.

  Mr Duncan: Put it this way, we're very pleased with the appointment.

  Q66 Chair: Thank you for that. Just to come back briefly to the EU agenda, the Secretary of State has written to us as well, and the letter has been circulated. I do not want to go over ground we have gone over before, but to anticipate, the Government clearly do not feel that they are as sharply focused on poverty reduction as we would like. Do they have a strategic objective as to how they can refocus? Do they have a target or an outcome that they will pursue in the Council of Ministers?

  Mr Duncan: This in part goes back to Mr Harrington's earlier questions about Turkey in a previous session. I have read and seen the letter that my Secretary of State has sent to you following his appearance before the Select Committee. I think we have to accept that EU money is spent under treaty obligations, and so it is, in some respects, not as clear-cut in its focus on what we would regard as real poverty ODA as we might wish. Some of the stuff that is ODA, we might otherwise not spend as a Department, but we have to accept that if it's ODA, it counts.

  Q67 Chair: I think we take that as a given. The question really is: to what extent are we advocating and using our influence within the Council of Ministers to push it? We have had targets in the past, which haven't been met. Do the Government have a position?

  Mr Duncan: I was at a meeting three weeks ago of European Development Ministers at a dinner of Ministers only with Cathy Ashton. Within the EEAS, the architecture of her organisation is not yet complete. I was ardent, as were some ministerial counterparts from other countries, that she, in that position, needs to keep development at the heart of what she is doing in her external action. To that end, we are adamant that the EDF budget must remain as a separate stream, and we are wholly against putting the EDF into the general EU pot. We are also arguing that within the broader EU pot, there needs a clearer poverty focus. Our advocacy was pretty darned robust, if I can be honest.

  Q68 Chair: The Secretary of State said that the European neighbourhood and pre-accession country programme is about poverty eradication, but it also supports neighbourhood countries in aligning themselves with the EU. I think it would be fair to say that the Committee's view is that it is doing more of the latter and less of the former.

  Mr Duncan: Okay.

  Chair: I think we've probably taken that as far as we could.

  Mr Duncan: I understand the point.

  Q69 Mr McCann: The Commission intends to lay down new policy guidelines on development based on input from the Green Paper on EU development policies in support of inclusive and sustainable growth. It will be launched at the end of the 2011, and the Green Paper emerges from discussions about the millennium goals. There have been four key questions. One of them was about how to make sure that every euro spent—this goes back to the original discussion—provides the best value added and best value for money, and the best leverage and the best legacy of opportunities for generations to come in the developing world. To what extent do you feel that the Commission's focus in the Green Paper represents a strategic new direction for EU policy, or is there a danger that it is a sop for those who would make major criticisms, for example, of the amount of money they spend in places such as Turkey?

  Mr Duncan: It is a bit too early to hold a clear view on the Green Paper, but perhaps I can give you some of my initial thoughts.

  For starters, we welcome its focus on growth in the private sector and the role that that can play in poverty reduction; we like that. We think that within the Green Paper there is a good recognition of the importance of actual impact, which is taking us to the sort of results-based focus that we want to see in everything we do. But we still think that there is a need for the EU to be more results-focused. It looks, for starters, to be a good step in the right direction, but we want to drag it closer to our way of doing things.

  Q70 Mr Clappison: On a specific point about European aid, I recently asked about European aid to Haiti. This is on the effect of EU aid going to poor people, because people in Haiti are poor and stricken by natural disaster and illness. Out of the money that was promised by the EU to Haiti this year, which I believe was supposed to be several hundred billion euros-worth of aid, only €30 billion of aid have actually got through to Haiti. This is from a written answer.

  Mr Duncan: You mean million, not billion.

  Mr Clappison: I am sorry—it is millions. Thirty million, either euros or dollars, got through to Haiti out of the 200 million or so that has been promised. We are getting near to the end of the year. Is it possible to look into this and see what's going wrong with EU aid, and why it hasn't got through to Haiti earlier? Why are we seeing the scenes that we are seeing from Haiti and why has the EU aid apparently not got there?

  Mr Duncan: I undertake to write to the Committee. Your Haiti question is very important. We have not lost sight of Haiti and the growing number of cholera deaths is a matter of great concern. We have dispatched an extra person there to try and assess the situation and work out exactly what can be done on the ground, but it is mostly a multilateral, American-dominated activity. It does not mean that because time has passed, DFID is averting its gaze. It is not.

  Q71 Mr Clappison: I am not criticising DFID. I know that quite a lot has actually been done and that is good, but it is about the money that is going through Europe.

  Mr Duncan: Understood. We will write to the Committee with as much information as we know.

  Q72 Chair: Just a final couple of questions on the off-track MDGs. In the 22 priority countries they are very off track. The objective was to achieve 50% of seven of the key MDG targets. If that was the objective and we are way off track, what has gone wrong?

  Mr Duncan: This can never be a perfect exercise. We are facing some of the greatest challenges in the world and dealing with millions of people. I think that the politicians and NGOs who came together to design the MDGs 10 years ago have made an enormous difference to the world, as have the likes of individuals such as Bill Gates. The MDG summit in September in New York renewed people's resolve to do as much as they can. Sitting in the ministerial chair in which I sit, I think that DFID is certainly doing more than its share of things to try and address the MDGs. The one that is most off track and concerns us most is No. 5—maternal mortality. We have a significant focus on that in our country assessments at the moment. We are at full tilt, and the UK is doing its bit. We will continue to press other countries to step up to the plate, and I hope to do things as effectively as we can.

  Q73 Chair: I don't think we would doubt the commitment—it is the outcome. At the moment, with the priority countries we are talking about, the objective was 50% by 2015, but we are talking about 25% by 2040 as the actual likely outcome. To what extent is the problem in-country? That point was made to us in the UN. Positively, at the MDG summit, there were quite a lot of developing countries that had bought into the MDGs and were making their own commitments. The problem with our priority countries is that in many cases, they are precisely the ones that aren't doing that. Your point about MDG 5—I appreciate that that has been reprioritised and pushed up the agenda, but why is it so bad?

  Mr Duncan: I don't think that there is an easy answer to that. In terms of priority countries, that is why—some people scoff at this, although I think they're wrong—good governance and campaigns against corruption are an essential part of the development agenda. If you can't have good governance, you'll never cut through all the MDGs and countries that are most at risk. The whole package of what we do needs to be understood by people. You cannot just inoculate people and solve the world's problems. It is the whole context of the country in which you are doing it that matters as much.

  Q74 Chair: Just in conclusion, the Committee would take a view that DFID is probably one of the best—if not the best—development Ministries and agencies in the world. Its focus is extremely sharp, and the commitment is there. Because of that, you're undertaking some of the most difficult tasks at the same time as insisting that everything should be measured and delivered, and every penny of aid should be spent. That will be a hugely difficult reconciliation won't it?

  Mr Duncan: I don't for a second shy away from the challenge of trying to measure what we do in terms of value of money and the outputs that result. That is the right way to proceed, and it is an example to the world that others should follow. If there is any doubt about that, let the independent watchdog that is being set up tell us so. We resolved to be the most effective and transparent aid Department, I hope, in the world.

  Chair: As you know, Minister, the objective of the Committee is to hold DFID to account. That is fundamentally from a position of saying, "We want you to succeed; we don't want you to fail." That is the basis on which we engage with you.

  Mr Duncan: Of course.

  Chair: Thank you for your attendance at the Committee. It was your first appearance and I hope you feel that you have survived. Thank you to your team as well.

  Mr Duncan: Thank you all very much.

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1   Rachel Turner: The G20 Communiqué calls for all outstanding governance reforms at the World Bank and IMF to be pursued. Back

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Prepared 1 March 2011