International Development Committee - Minutes of EvidenceHC 1680

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Oral Evidence

Taken before the International Development Committee

on Tuesday 6 March 2012

Members present:

Mr Malcolm Bruce (Chair)

Richard Burden

Mr Sam Gyimah

Richard Harrington

Pauline Latham

Jeremy Lefroy

Mr Michael McCann

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Examination of Witnesses

Witnesses: Stephen O’Brien MP, Parliamentary Under-Secretary of State, Department for International Development, and Anthony Smith, Director of International Relations, Department for International Development, gave evidence.

Q119 Chair: Minister, thank you very much for coming in, and perhaps just for the record you could introduce your colleague. I know we know who he is.

Mr O’Brien: Certainly. Thank you very much indeed, Chairman. It’s a pleasure to be here before you and your Committee. I am accompanied by Anthony Smith, who is head of International Relations at DFID, with the title of Director.

Q120 Chair: As you know, we are coming to the end of an inquiry into the role of the European Union as a development partner for the UK. We did have a visit to Brussels, three weeks ago I think it was, where we took evidence from Commissioner Piebalgs, and we also met a variety of different representatives from the External Action Service, from DG and from Humanitarian, and members of the European Parliament Development Committee as well, and a number of others and NGOs. One thing that emerges is that the UK is a very substantial contributor to the EU budget in a number of different ways. The estimate is that approximately £1.3 billion is given in development through the European Union. I suppose the simple straight question is: what are the advantages of putting the money through the European Union as opposed to the alternatives?

Mr O’Brien: Thank you very much indeed, Chairman. You are quite right, about £1.3 billion at the moment. In 2010 the Commission budget instruments had £820 million and the EDF £409 million, to be precise, which is about 16% of our budget channelled through the EU for the year 2010. The top line is, of course, UK aid, channelled through the EU, saves lives. In countries like Niger, where we do not have a bilateral programme, 700,000 lives were saved from famine through emergency food assistance. In Burma, one which is now in the news, where we do have a bilateral programme, UK aid channelled through the EU treated 1.1 million cases of lifethreatening malaria.

It therefore is operating in many countries that are priorities in terms of our national interests, but do not receive our bilateral aid. For example, the EU is operating in all 43 of the fragile states, whereas DFID is operating in 11. The EU is playing an important role on the ground that we as DFID cannot or, for the reasons that you will know from various decisions made, we choose not to. Of course, if there was no development budget through the EU to which we contributed, then there are question marks about some countries who are member states, and whether they would actually contribute to development at all. Some do not choose to have a series of bilateral programmes, they choose to do it all through the multilateral agencies. Some of it, of course, is part of our treaty obligations under the general budgetised amounts.

Q121 Chair: These are points that Andris Piebalgs made to us, namely that it reaches the parts that bilateral aid cannot reach.

Mr O’Brien: Yes.

Q122 Chair: You simply cannot be everywhere. It helps to deliver the 0.7%, although we will come to that a little later. He also made the point that because the EU budget runs over seven years, it gives greater predictability than bilateral budgets would do. That is an interesting point; we know under the UK system Governments cannot bind their successors, except that when they have signed up to an obligation, I suppose they pretty well do.

Mr O’Brien: Yes, that is a very interesting observation, because clearly under treaty obligations there is a potential to bind future domestic member state Governments. That said, I think there is a great improvement in our domestic affairs by being able to have a spending round that is effectively three years, or in our case has been a fouryear perspective. I would add the point, in addition to what Commissioner Piebalgs has obviously represented to you, that the EU is the world’s largest single development effort, and its size means that it is able to implement largescale regional projects, particularly infrastructure, roads, rail, energy networks, telecommunications, often more effectively than individual donors. It needs to be aligned, the projects need to be identified and done, but scale is also an argument.

It also does have an ability to get into countries, not just, as you have described them, the parts others cannot reach, of which this is part, but a country like Zimbabwe where the EU is a lot less politicised in its identity and perception than, say, a domestic member state might be. Therefore it is able to look at that. Another good example is the fact that the EU has an office in Hargeisa in Somaliland, and therefore, as we have increasingly been able to look at our humanitarian and development response in Somalia and putting, as you know, the majority of our effort there, we have been able to piggyback off the EU office being already established in Hargeisa, rather than establishing our own separate office.

Q123 Chair: That is fair enough, but obviously the disbursement of development assistance comes under a number of different heads. In your Multilateral Review, it was stated that there was a low poverty focus in the budget, and that it was weak, as 85% of the EU budget was spent on middleincome countries. I know there is a counterargument that says there are lots of poor people in middleincome countries, and indeed there are some people who criticise the UK for being too focused on lowincome countries as opposed to lowincome people. Nevertheless, the UK Government’s own assessment was that the budget distribution was weak. Does that not give you some cause for concern?

Mr O’Brien: I can assure you and the Committee that we at DFID are doing everything we can to help drive a much greater efficiency and indeed pace of disbursement. Part of the process of the Multilateral Aid Review was to identify those parts of the reform agenda, of which that was one. I am persuaded in all the conversations we have had, and the representations we have had going in both directions, with Andris Piebalgs and others, that there is a real commitment to putting through an agenda for reform within the EU as a body, particularly in development. This includes not just disbursement but of course the way it provides budget support; it is greater transparency; it is greater focus on value for money, above all, establishing a framework for results and driving for those results-all the discussions we have had in relation to our domestic effort on the DFID budget.

Chair: Obviously we would like to explore that a bit further.

Q124 Richard Harrington: I think this is such a difficult subject, Minister, because for those of us who are very pro most of the things that DFID does, and also impressed with what we have seen in the field about what the EU does, we are dealing in the world where one makes any form of comment, and the press interpret that as a major criticism of the whole foreign aid experiment. I hope you know that nobody round this table believes that, despite some press reports.

However, it certainly struck me, on the two visits that I have had to Brussels, that the weakness in the argument was that that money-however it is described-is through foreign aid or foreign development budget, whatever the papers call it. It is definitely through that, and it became clear that some of the money is allocated for political purposes, as I can see, for preaccession countries. Turkey is the country that everyone picks on, but also Croatia and other countries as well. Do you think this is a reasonable way to allocate EU development funds, and do you think it is justifiable in the way that DFID normally does its calculations on suitable countries to operate in?

Mr O’Brien: You do raise a very important point, and as you know the Commission provides aid to Turkey through the instrument for preaccession, the IPA. Let’s be absolutely clear: the IPA does not have poverty as its main objective. Its stated ambition is to bring the Western Balkans, Iceland and Turkey closer towards EU standards, with the ultimate aim of their accession to the Union, but it sits within, as you rightly identify, the broad development instruments.

Q125 Richard Harrington: And comes from DFID’s budget.

Mr O’Brien: Indeed. There are two aspects. First of all, there is the fact that what is given under the IPA without doubt complies and is compatible with the DAC definition of ODA to developing countries. It is uppermiddleincome, but it is a developing country. It promotes Turkey’s economic and social development. The reason we think that is important is that we do regard support for Turkey, as you well know, both as a development issue and also as a foreign policy issue, as being in the wider strategic national interest. To increase the competitiveness and openness of the Turkish economy will clearly be of direct benefit to UK businesses. As you know, it also focuses on the rule of law, on democratic institutional capacity-building, public administration reform, and improving the regulatory environment. Those are clearly the purposes.

As to whether DFID is the appropriate budget holder, basically that is the decision across Her Majesty’s Government and Treasury that this is where it should sit. Because it is mostly ODA-qualifying, it is appropriate on that basis alone that it does. I do understand the point you are making-that the fact that it looks as if it were more a political rather than a development, propoor issue means that it is a decision that has been made in terms of broad economic accounting architecture, rather than necessarily sitting completely consistently with it.

Q126 Richard Harrington: Really, when we are talking about DFID and the 0.7%, or £7 billion-plus, rising to £13 billion over the next four years, or whatever the numbers are exactly, it is therefore a bit misleading, since some of this money is not being spent according to the policies that DFID would have for spending its own money. I really buy this idea that we cannot be everywhere, and it is very good-we have seen in Burundi itself, which is another controversy, what an excellent job the EU do. However, it still seems that the overall policy for DFID money, however it is distributed, through United Nations agencies, the EU, or bilaterally, should surely be for the same policies. If a project did not qualify under DFID’s own expenditure, why should it qualify under EU expenditure, if it is coming from DFID’s budget? If it is coming from a Foreign Office or political budget, I understand; it is another argument for another day, and it is beyond my pay grade and beyond this Committee.

We are here to make DFID accountable for the money that it spends. You, Minister, and your colleagues, are in the job because you passionately believe in what DFID stands for, as do we. Yet here we have something that would pass no DFID bilateral test at all. It is not just saying, "We cannot be everywhere, so the EU is a good conduit," which I think is a very good argument. I do not think that it fits comfortably. Having said that, let’s move the argument on a bit, because we will not win on this. Your view is quite clear and we have all made these points.

Mr O’Brien: I am happy to add that within Her Majesty’s Government, I hope I am not overclaiming to say that DFID is pretty well placed to be the ones that have the capacity to argue for the necessary reforms, the efficiency of spend, and so forth within Her Majesty’s Government. There is no question that this qualifies as "ODA-able" expenditure, and Turkey, like so many of the countries you have already identified, and indeed as the Chairman observed that 70% of the world’s poorest people live in middle-income countries, and therefore Turkey-

Q127 Richard Harrington: Not particularly in Turkey, actually.

Mr O’Brien: Although many in Turkey are still poor.

Q128 Richard Harrington: There is nothing in Turkey that is comparable to the poverty that there is in some of the countries in Africa and Asia that DFID is dealing with.

Mr O’Brien: I agree, but the purpose of this is also different, as you rightly observe.

Q129 Richard Harrington: I am not making light of people’s poverty, but this is a different level altogether. Moving the argument on, as things evolve, do you see in the future DFID and the British Government putting pressure on the EU to move expenditure towards, shall we say, more conventional DFID objectives: that is alleviating poverty and helping those who are really the poorest people in the world? Is it true that strong pressure is being put on the EU, again as quoted in the press? Can you give us any news on that, or any detail?

Mr O’Brien: Yes. You will be aware that the Commission itself is seeking to modernise its EU spend on aid, increasing its focus on poverty results and value for money. It has put out its Agenda for Change. The Danish President is redrafting a Council conclusion to the Commission communication, "Increasing the impact of EU Development Policy: an Agenda for Change". Whilst that is very welcome, you ask in a sense for specific examples. Ultimately this is to do with where we can bring to bear our greatest influence within the EU, in deciding how to proceed and how much more to align its development effort to the priorities and the processes that we at DFID are finding lead to greater efficiency of both delivery and indeed the administration burden that goes with it. It sits within the context of the coalition Government’s determination to engage energetically and positively-and I can certainly assure you, frequently-with our various Brussels interlocutors, at the Commission, at the European civil service, in effect, and in the Parliament. I have certainly attended many meetings. There are a number of likeminded groups between Ministers at various levels, which of course are very important in terms of getting the agenda understood and building consent. You can see how we have made our position known. The more we are positively engaged, the better it is for when we do have something that we really do want to stop as against simply influence, as you can see from the financial transaction tax, another controversy on which we have made our position as Her Majesty’s Government very clear. I think we have had greater credibility for being engaged positively.

As a direct result of DFID pressure over the last 18 months I can cite five very quick examples: the Commission has created a Quality and Impact Unit, responsible for developing a results framework. It has taken steps to introduce aggregated results frameworks into the new financial instruments, so they will be more flexible, simplified and streamlined. It has established an EU Working Group on Results, dedicated to the Busan commitments, and launched two communications: one I have mentioned, the Agenda for Change, the other is "The Future of Budget Support to third countries", which we may or may not come on to, with strong language on results, improving performance monitoring and improving transparency and accountability. It has also begun the work on building blocks of a strong, integrated monitoring system. Again, that is a subject we have referred to in previous hearings. You will also be aware that the EU has now signed up to the International Aid Transparency Initiative, the IATI. Of course that comes without us claiming it, but certainly we have influenced that. I am sure you heard from Commissioner Piebalgs that there is a real commitment to moving down the trajectory of greater results, greater transparency and greater accountability, and putting those into a much more monitored and clearly rigorous system.

Q130 Richard Harrington: I agree with all that, and that is very good. However, it comes down to a policy. Should politically-induced funds be mixed up with development aid? I still have seen no argument for it, but you have aired your views on that. Do you think there should be a redefining of what is DACable, if the only justification for it is, "Well, it is all DACable"? Because so much is DACable.

Mr O’Brien: The position on the OECD definition of what is ODAable and what is DACable is what has been set for a while. The Government are very clear. We have no intention to seek to change the current definition at the moment. It would come as no surprise to the Committee for us to have a judgment that we think it would take for ever, and it would be very difficult. Of course it currently encompasses some different prioritisations and preferences of member states. Of course it has bits we can argue about, and it is not perfect, but the essence of this is that the absolute commitment by the coalition Government to reach its 0.7% target by next year, two years before the other member states, of what will be spent on ODAable, qualifying expenditure under that definition is dependent on that definition.

If we were to seek to change that definition then there would be a grave risk that the clear promise could be then effectively renegotiated. What is much worse is not the commitment that we have, which is absolutely solid; it is the fact that it might let other member states across the EU off the hook, and I think that would be not a clever thing to do, given that at the moment the risk of that is greater than the difficulty of going along with some of the imperfections that might be perceived about the definition.

Chair: Very diplomatically put, Minister.

Q131 Pauline Latham: I find it disappointing that it is better to have the status quo than rock the boat because it might have implications. I don’t think the people of Britain are terribly pleased about the fact that Turkey is getting so much money, whatever the reason for it. I think that we should be questioning that, and not just leaving it. You read a list of organisations that you have set up or you have influenced to be set up in Europe. They all sounded as though they were doing the same sort of thing. Isn’t that a case of Europe listening to what you have to say, and then overreacting and producing too many organisations that will monitor this, do that, spot the outcomes, and it is just going to cost more money? Who is paying for that? Is that coming out of our aid money? How is it being funded?

Mr O’Brien: I was trying to, as it were, be quite crisp in my response, rather than going into some of the detail. There is a deliberate attempt to create an architecture, just as, I hope, the Committee recognises has been done within DFID. It is not just to say the word "results". To get to results, you first of all have to look at how you select where you are going to have the greatest impact for the poorest people. You then have to go through the process of deciding what the offers are that you can buy, and you then have to go through the evaluation process, and then the commissioning and the procurement processes. All those then need to be aggregated together in the results framework. So the fact that we have results frameworks applied to innovations with new financial instruments, that there is an EU Working Group to try to disseminate that right across the way the EU works, in the same way as I hope is recognised that we have made a particular effort as Ministers to introduce what is in shorthand called "private sector DNA" into the Department in order to get that dynamic moving, equally has been important within the EU. I think Commissioner Piebalgs has been very dynamic in this himself, in getting the DNA of accountability and transparency, and a much greater challenge for impact and results, into the workings of both DEVCO and the broader side of the EU Commission.

Then you have the future budget support, which is obviously a separate topic, and the monitoring system. Of course we know from our own experience-and indeed the Chairman has personally been a champion of this-that monitoring is absolutely vital. Unless you have baselines and you have decent monitoring, you will never be able to measure the impact of what you are doing, so you cannot have the full argument.

That sits in the context of the previous line of questioning, where even on this area of expenditure that is obviously somewhat more controversial, and that you have picked up on, it is the instrument by which the EU chooses to support those countries on a preaccession trajectory. Whether or not you think that will come about is a matter of personal political judgment, but that is the policy of this Government. It is also the policy of the EU to seek to put Turkey into a position where it can come up to EU standards on the various criteria, and that it therefore will be a candidate country that can come in. We have other countries such as Croatia and Iceland in the same boat. It is a question of judgment whether you think that is going to happen. My personal view is that I very much hope that Turkey will succeed in becoming a member of the EU at some point in the future.

Q132 Pauline Latham: But all these new functions that the EU are going to have, what will they stop to be able to do this? Or is this another layer of their bureaucracy? If they were not doing this before, they should have been. They are now going to do it. What were they doing before that they can stop in order to allow people to do all the monitoring and planning?

Mr O’Brien: It goes back to the point of influence, where having all these discussions and working groups means that where things were not happening they are introduced, and where they are but were not producing what was giving people the necessary level of confidence and transparency, there is of course the process of simplification and streamlining, both of which are very much an area on which DFID is able to bring quite a lot of experience to the table. That is another good reason why the IPA sits, if you like, under this, because of the particular strengths, skills and role we have across HMG, of being able to bring to bear that technical assistance of financial instruments that are focused on development and support of other countries’ efforts.

Q133 Richard Burden: I think it is probably important to clarify, and I am sure you have picked this up, Minister, that the argument here is not about whether or not it is good for the EU, or good globally, for the EU to take an interest in and to assist the transformation of Turkey. It is much more about the DACability of that. If I understood you correctly, what you were saying was that it is difficult to get involved on questioning those sorts of areas, because, as the Chair put it, it might let other countries off the hook. Not on the last visit the Committee took to Brussels, but on a previous one, it was put to us that the UK was not always as active as it could be in these matters. It was put to us that even if the UK would not particularly spend its money this way, because this is DACable money, it does count against the UK’s 0.7% target and therefore, even if the UK would have other priorities, it is in the UK’s interests not to start messing around with the DAC criteria. How would you respond to that?

Mr O’Brien: I certainly do emphasise, and indeed rest my case, on not wanting to let others off the hook. A percentage is, after all, a percentage measured against something, and the current something is the DAC definition of ODA, which the OECD has agreed. It is a matter for the OECD. It is not a matter for member states. It is a matter for the EU to discuss, but ultimately it is a definition set by the OECD. I think that it is important to recognise that it enables us to command some extra leverage in terms of what other states do.

There is of course, as we look at the next financial perspective-I suspect we might come on to that in a bit more detail-the question of where these expenditures will sit going forward, within other amounts and, in the context of the countries that we use the other instruments for, we have the whole question about having the trajectory of how countries graduate from aid. The fact that these expenditures and these instruments, even if you have one that is, as it were, not strictly development because its central purpose is not defined by the relief of poverty, none the less under the definition they are ODA under the OECD DAC definition, and that is why it is brought to be included in this broader heading. As I would repeat, DFID does have experience and skills that enable us to carry some responsibility. It has not been suggested to us that we are shrinking violets, or shy, or holding back in any way. I think that our current engagement across the EU and at all levels is being noted, and we are doing our best to seek to influence in terms of alignment, but also the techniques by which we can have transparency, accountability and monitoring.

Q134 Mr Gyimah: Going back to the aid to the accession countries, which you mentioned, my understanding is that UK aid is to poor countries, often in postconflict and fragile states, which in the case of the accession countries, as we have established, they are not. Now are you concerned at all, Minister, that, for example, even though the funds may be DACable some of these countries may have no desire, or may actually choose not to join the EU? They would have received funds to upgrade their sewage systems, or whatever it is, and could then say, "Thank you very much, we are not joining." Are you concerned at all that there would be no recourse to those funds, and that they would have basically received UK taxpayers’ money to upgrade their infrastructure and systems?

Mr O’Brien: Thank you for the question. As part of the introduction, perhaps I should just, for the record, say that of course the Balkans are certainly what are called postconflict countries, so we are at that point in those terms. The second point to be said is that if there is a policy, which is Her Majesty’s Government’s policy and also the EU policy, to seek to encourage countries that wish to be candidates, and we look to the enlargement of the EU, then of course it has been the technique that has been used to seek to support those countries on our borders, looking across Europe as a whole, in order to come up to European standards and therefore to make them eligible. You could argue that they have to do that on their own, and until they have done that they cannot be candidate countries. On the other hand, you could say that if there is a policy of welcoming and enlargement by the EU then it is an appropriate policy choice to put funding towards helping that capacity building and those EU standardraising projects. That is precisely what does happen, which is why we have the preaccession instrument. It is for that reason, I personally-and I am sure that is shared by many; it is certainly the Government’s policy-would wish to see these countries join the EU, and Turkey is a good ally of Britain.

Q135 Chair: You did also say earlier, Minister, that you thought it was in Britain’s national interest to have a positive engagement with Turkey. Slightly pressing you on that, would you justify the expenditure, whether or not Turkey joins, as still being in the British national interest?

Mr O’Brien: I don’t actually separate the two. Turkey is a good ally of Great Britain. To some degree, there is a cart-and-horse argument here. The expenditure, to which we have an attribution, is an EU policy supported by Her Majesty’s Government. It would be in our national interests to see Turkey join the EU in due course. Now, as I say, it is a matter of judgment whether you think that will happen, or is likely or not likely. It is what we wish to see happen, and therefore we wish to make it as likely as possible, and using this instrument is one of the ways of doing so.

Q136 Mr Gyimah: Just finally, Mr Chairman, there are two arguments. One is that our aid is, as I said, for propoor, postconflict and fragile states. It is untied. There is another argument, which is about promoting British national interests. The question, Minister, is: are we at risk in this specific instance of deploying one argument when we cannot justify it by the propoor argument, and then another argument when we cannot justify the national interest argument?

Mr O’Brien: I don’t believe so. As I sought to explain at the outset, I appreciate this is not perfect in its design, but it is where the EU has chosen to put its instrument that is the preaccession neighbour capacity-building funding support. The fact that it is ODAable under the OECD DAC definition means that it carries the logic of being within the definition, and without question it is. Turkey is a middleincome country. Those middleincome countries are listed within what is ODAable, and therefore this is how it sits. It is pragmatic, in a sense, to pursue it on that basis. If it was not there, it is not to say that the money would therefore be released back into alternative development opportunities, which is often the false equation made by some in the commentariat. That is the main thing that needs to be understood: this is not an either/or. It is within the architecture of what is under the OECD DAC definition. This is where the preaccession instrument sits and is designed to sit.

Q137 Jeremy Lefroy: I apologise for being late. I was speaking in a debate on manufacturing in the UK. Minister, just on the question of the DACable ODA to Turkey, given that, as I understand it, it is quite near the upper limit of middleincome countries, because it is obviously experiencing quite a high growth rate, were it to go above that limit, presumably it would no longer be DACable, and that would have some consequences for the percentage of GNI that the UK and indeed every other EU country is giving as ODA aid.

Mr O’Brien: Of course it would, but none of these things are like switching a light on and off. You are quite right that the present amounts negotiated for Turkey were negotiated seven or eight years ago, and there are clearly very good arguments for reducing that amount in the next multiannual financial framework. This is all a question of judgment and negotiation; we are in live time, and it may be that going forward it would be more appropriate to use loans, for instance, rather than the grant process that is currently in place. I think in a sense the question you raise highlights that this is not frozen in aspic. Of course, the advantage that the Commissioner, Andris Piebalgs, mentioned about having this sevenyear perspective, which gives a certain degree of predictability, where this sits under the broader architecture of these instruments, means that when you have had the seven or eight years, you then have an opportunity to reset the base. We will see where Turkey has got to. I observe, like you, that Turkey’s growth, its ability to deliver people out of poverty, is going extremely well and is very positive.

Q138 Mr McCann: Good morning, Minister. In the Multilateral Aid Review, DFID described EU administration costs as "moderate". I wonder how you can possibly justify that description when they are 100% more than DFID’s administration costs.

Mr O’Brien: I certainly understand the point and I would first of all say that I think that comparing the EU’s administration costs with DFID’s is to some degree flattering to DFID; the intense drive that we have had means that compared to many organisations DFID’s current administration costs have to be seen to be exceptionally low, rather than a norm. I hasten to add that we are continuing to drive down and to bring pressure upon the EU to drive down its administrative costs and the burden and the percentage. However, it would be more appropriate, probably, to compare the EU at this stage with, for instance, the World Bank. You can see that whilst the World Bank has moved down, and indeed has now moved down to slightly lower than the EU’s administrative costs, they are more in the same field. That, I think, is probably a fair comparison.

The reason I say that is that we did a very intense study, as indeed you well know, Mr McCann, on the Multilateral Aid Review, which focused on these. The administration costs for both the EC budgetised amounts and the EDF, because they are by the same people, they have the same administration costs. I saw something observing that in fact there were different administration costs between the EC and the EDF. I think that was represented possibly to this Committee by others, and we would say that that is simply wrong. The administration costs for both parts of the EU spend are the same, and as we observed under the MAR, the EDF portion had a greater efficiency, but it did not change the administrative cost basis.

The only other point I think I would make at this stage is that of course in urging the European Commission and other multilateral partners to cut their administrative costs, we want to see the best value for money for the British taxpayer. DFID is channelling about 20% of its ODA through the EU, and it is therefore right and fair that we should say that we are therefore transferring some of our administrative costs to the EU in that respect, to the recipient organisation. The EU is disbursing across 43 fragile states, whereas we are only disbursing across 11 of those 43, and therefore there is a degree to which there is a transfer of administrative burden.

Q139 Mr McCann: I take on board part of what you say, but is it not the case that in terms of where DFID operates, the EU budget operates in many of the same places? They do much of the same work, and therefore many of the types of overhead that we have in terms of our programmes at DFID are much the same as the EU. In relation to the wider point, there is a general recognition that EU budgets are administratively heavy in terms of their costs. Therefore, on the suggestion that these costs are moderate, when they are 100% more than DFID’s costs, is it not just the case that we have no direct control over those administrative budgets in the same way that we have over our own, and that you have to concede that to a certain extent we are exporting an overhead?

Mr O’Brien: As I hope I made clear in the final part of my previous answer, I think you are right to suggest to some degree we do export some of our overhead, because the EU is disbursing in 43 versus our 11 countries. Of course, that then tends to lead to the obvious conclusion, which does not just relate to that, that the presentation of administrative costs is not standardised across all institutions. Indeed, direct comparisons are very difficult. The MAR process itself went to a very rigorous degree to try to get this right. Of course we believe that the EU’s administration costs can come down. We are driving for that. However, I do not think it would be fair to say that they are in the outrageous category because they are double what DFID has managed to get down to, albeit over a very recent period of time, with a particular focus and a particular drive. It stood comparison with the current level of EU expenditure only two years ago.

Going back to a previous answer, let me say that part of what we are able to influence is bringing to bear the experience that we are putting through DFID, to say at a technical level, because we can show that we have achieved that result, we can now argue with credibility when we are in Europe with this positive engagement, and talking to people at all levels. The trajectory and the drive is to get these costs further down. I think to some degree we are arguing more about whether or not it is an appropriate use of the word "moderate". I think it was a fair judgment when that was written. Like all costs, they continue to have to be driven down. We will not settle for the status quo. However, there is a degree to which it is right to recognise and acknowledge that there is some transfer of overhead, and therefore we need to be careful not to assume that we have achieved the very low administrative cost level that DFID has without, of course, there being some transfer out. You could, in another form of accounting, have some form of recharge back. That would be pedantic and bureaucratic and therefore not justified, but I am sure you see the point.

Q140 Mr McCann: One final question, Chair. You would have confidence that in terms of the value for money that has been achieved through the EU programmes, set against the administrative costs, there is nothing that we are asking the EU to do that we could not do for more value for money by keeping it within DFID and operating to the lower overhead costs of 2.7%?

Mr O’Brien: I have not identified any of those. Indeed, I have not been advised either that those are readily available. We are always looking at where it is best to administer, but the EU element of the DFID expenditure goes through the EU. We have the budgetised amount, which goes into the EU budget, and the EDF, as you know, is administered, as I said, by the same people.

Q141 Mr McCann: I know it is difficult to do, but there must have been some assessment carried out. That is why we have bilateral and multilateral programmes, because we can identify what we do best, and what is best spent through multilaterals. Therefore, that investigation must have taken place within those two reports, to lead you to the conclusion that despite the fact that the EU has a higher administration cost-recognising that the measurements we use to measure our admin costs are different from those used by the EU-we have confidence that we are still getting best value for money that we are putting through the EU.

Mr O’Brien: Yes. These things are all moving pieces on the board. However, we do make that evaluation, because it is absolutely part of the project.

Q142 Mr McCann: I do not have anything up my sleeve that I want to pull out to challenge that. I just want to make sure you are confident of it.

Mr O’Brien: I fully understand the point you are making. As we all drive, looking in the forward perspective, which is what I think you were particularly anxious about, to become more climate smart, and for the programmes to be more environmentally and climate-change-aware, and therefore aligned, that will be quite a feature of the way our attribution into the EU expenditures will develop as those programmes develop to be much more climate-change-adaptation- and mitigationfocused. I can see that that will be likely, therefore, to be of greater value for money through the EU. Those types of programmes are absolutely crossborder. They are quite difficult for you to get the economy of scale on a climate change programme from a single member state.

You have to look at where we are putting the emphasis on each programme, and then it is just a normal, typical hard grind of cost accountability, which you have to put through as you evaluate each and every project. That is what will come up to Ministers in submissions as to where the administrative burden and therefore the people who administer the project will lie. There is no sense of ideology behind this. This is ultimately pragmatic: wherever the lowest cost is, we will chase for the lowest cost.

Q143 Mr Gyimah: My question is on procurement. Adam Smith International has reported to the Committee that it finds the EU procurement process to be pernickety, and I think a good example of that is that they say if an expert needs 15 years of experience, 14 years and 11 months will not do. They have also found the process to be bureaucratic, and just to give another example, one needs to provide copies of the academic degree certificates of each of the consultants that one is putting forward. It is timeconsuming and, they claim, generally devoid of common sense. How is the UK trying to change this?

Mr O’Brien: Procurement, as you rightly observe, is always a very tough issue. I am in no doubt that the EU’s current position on procurement can often be too restrictive, and we are certainly pressing the EU, and you have heard about the way we seek to influence the way these things are going, to open up its procurement policy, certainly as we in the UK have done, in order to ensure greater value for money. To be absolutely explicit, we are pressing for the Commission’s procurement policy to be fully untied. At the moment, the EC does have restrictions on its procurement policy to member states and partner countries. We know the evidence: to ensure best value for money, we want anyone in the world to be able to tender for a contract, just as we have done here in the UK. We hold firm to that evidence that leads you to untied aid.

Q144 Jeremy Lefroy: Minister, do you have any idea what percentage of the contracts that the EU lets go to British organisations, NGOs, businesses and so on?

Mr O’Brien: No, I do not. I am afraid I do not have that in my head. I can certainly seek to commission a response to you in writing.

Q145 Jeremy Lefroy: I am just wondering whether UK organisations, NGOs and so on are getting their fair share, or indeed hopefully more than their fair share.

Mr O’Brien: The way you put the question raises a difficulty, and that is: what is a fair share, when it is totally open tender, open competition, and every tender is therefore evaluated on what is seen to be best for that particular programme, both in terms of cost, delivery and the confidence that that will be delivered, and whether you feel that people have the necessary skills to see it through and have the usual issues about partnering and skill transfer and technical capacity-building in the countries and communities who are receiving these services and projects? I would hesitate to go down the "fair share" route. I think I would prefer just to see if I can get you the facts.

Q146 Mr Gyimah: Just a quick question, Minister, with reference to Mr Lefroy’s question. Do we have the stats for DFID procurement in UK companies?

Mr O’Brien: They are there, and indeed I have occasionally given written parliamentary answers to questions that have been put. Again, rather than carrying them in my head, I am very happy to seek to put together an information note for the Committee, if that would be helpful.

Q147 Mr Gyimah: That would be helpful.

Mr O’Brien: Let me just add, in answer to both questions, I have no doubt in my mind that there are many British companies in the private sector, many institutions, charities, NGOs and civil service organisations who stand comparison with the very best in the world, and indeed are regularly winning tenders and projects. I don’t think that there is any question that we do not have either adequate skills or adequate energy in being able to offer as the tenders come up for competition.

Q148 Chair: I think some of the smaller organisations will say the same about DFID-that it is sometimes quite difficult to meet the criteria. We had some anecdotal evidence that some of the smaller NGOs would say that the bureaucracy in dealing with the EU was such that it was not even worth applying to do the work; it was just disproportionately burdensome.

Mr O’Brien: I am prepared to say that is- We hear that a bit, as well, and in the GPAF, for instance, which has two windows, the impact and innovation windows, this is continually under review, because wherever you have a process that is an application to see public money spent, clearly we have to look after the UK taxpayers’ interests and guard the interests of appropriate spending of public money. At the same time, if we are finding that the process of doing that is becoming itself a barrier or deterrent, then it behoves us to continually keep those under review and do what we can to simplify the process. I accept that that is certainly being said, and we have it under review.

Q149 Chair: Last October, the Commissioner published his Agenda for Change, about which we had a discussion with him and with others. First of all, to what extent do you think the Agenda for Change, if it is followed through, brings the EU closer to DFID’s objectives? What concerns do you have about it? You might see it as either not meeting our objectives, or diverging further, or still diverging on things where we are not really at one.

Mr O’Brien: We welcome the Commission’s attempt, certainly, to modernise the EU development aid, its increased emphasis on poverty, results and value for money. The UK has pushed very hard to ensure that aid is targeted where it will have the most impact, very much based upon individual country needs, as properly assessed, and the priorities we have set. The fact that the EU is also looking under that Agenda for Change for a more co-ordinated approach to development is absolutely essential, and that it is seeking better to co-ordinate its aid, trade and foreign policy, and its emphasis on fragile states, are patently important. I am pleased to see that they are looking to support economic growth and the private sector, which is again aligned with the realignment of DFID policies for the UK, and that not least through regional infrastructure, energy and telecommunications issues.

I think that in that connection it is absolutely vital that the External Action Service, which now is responsible for drafting policy, and DEVCO, which has responsibility for implementation, continue to build an extremely good working relationship. Whilst that will often be robust, it needs to be well co-ordinated in order to make sure that that alignment takes place. We are doing our best to make sure that we are talking to both at the same time, and I am pleased to say that we have a number of UK officials-of which I am sure you in the Committee are aware, Chairman-who are working in key roles to influence the direction of the External Action Service, to make sure that those linkages and that coordination is working well. There is an increasing alignment.

Q150 Chair: Is the UK seeking changes to the agenda, given that obviously you have the usual issue of getting 27 states to approve it? To what extent is the UK seeking to change or amend it?

Mr O’Brien: The area that, perhaps, we have been most concerned about has been the discussion on joint programming. We are really clear, and I think we have had this discussion before, that however the EU co-ordinates its effort, which will include some joint programming approaches, the result they need to achieve on that is countryled processes, based upon country need, and that it must be based upon a partnership approach, very much the way we at DFID are determined to run our programmes. Ultimately we know that part of sustainability and development, rather than simply humanitarian plugging of gaps, is that there is a sense of ownership by the partner country, the recipient country. We would steer clear of any EUled mandatory process when it comes to some form of a joint programme.

That has been part of the discussion that has come out of the Agenda for Change and has cropped up at various Council meetings, certainly the ones I have attended in Brussels. We have made our position very clear. The joint programming thoughts do have divergence of views across member states, and we are very clear about where our red lines are on that, and we continue to push that case very strongly: it has to be countryled, it has to be owned locally, and it must be in a partnership arrangement. It must not be a mandatory, EUled process.

Q151 Chair: Although there is a sort of logic, is there not, that with the odd situation you get in countries, they see the EU member states with all their various development programmes, and then they see the European Commission looking like another member state.

Mr O’Brien: Yes.

Q152 Chair: There clearly is some logic in trying to coordinate that more effectively, is there not?

Mr O’Brien: I agree with the coordination point. I think the idea of the EU itself becoming the 28th state is a difficulty that we need to seek to avoid. Very often it is represented by as simple a thing as the fact that the blue flag with its yellow stars often stands out on a board where the help has taken place in a country, much more than all the other agglomeration of member states or development agency logos, which would seem to not compete with that rather plain blue representation. That can often spark some discussion-indeed, to the point where we are conscious that very often the DFID logo seems to get lost in the melee, and whether we should do something about that.

Q153 Mr Gyimah: Minister, on the European External Action Service, one of the points you made earlier in this evidence session is how the EU covers all 43 fragile states, for example. As far as DFID is concerned, DFID made a decision at the end of the Bilateral Aid Review that we cannot be everywhere. I think that is the right approach. The question I have for you is, why does the EU have so many fingers in so many pies? What can you do to get the EU to rationalise the number of countries they provide development funding to, to further than the proposed cut of 19 countries, which I think is from the DCI, and include countries from the ACP group and the Neighbourhood Instrument?

Mr O’Brien: I certainly understand the point that the EU is obviously quite widespread. It does already have, as your question indicated, a plan to come out of 19 countries. We think that is correct, and we welcome that. I think it would be fair to say that the UK is a pretty strong member state when it comes to its own programming and its bilateral, and there are many countries that come under the various forms of EU assistance. There are 11 instruments-12 if you were to split the DCI between its geographic and thematic instruments. All of these instruments have different definitions and purposes. Some of them are quite small, but that is why the spread is greater. It goes to some degree to why the administrative cost burden is greater, as we discussed earlier.

That is where the External Action Service, so long as it does not seek to extend its powers beyond what is envisaged under the Lisbon Treaty, has sufficient remit and mandate now to seek to co-ordinate, to develop policy, to articulate that policy, and then to charge others to deliver that. I am conscious that it should be focused as much as possible on the propoor projects, and that is why we have had the discussion already about the balance between middleincome and lowincome, and the Chairman himself has made the point of the difficulty then, if you are doing countrybycountry, which the EU also does, as we do, of what you do about some of the very poorest people. 70%, it is estimated, of the poorest people in the world live in middleincome countries. There is a real reason, given that the EU has the scale, its huge scale, which makes a big difference, and often the regional economic integration requires infrastructure spend, which can be very pertinent for the EU to be focused on, given its scale, rather than individual member states through bilaterals.

Q154 Richard Burden: Could I continue perhaps a little where you left off there, Minister? Earlier on in the session, we were talking about the situation in Turkey, and that goes down as a middleincome country. As you yourself indicated, however, the majority of the world’s poor do not necessarily live in the poorest countries, and we do need a much more sensitive way of targeting development assistance so that it targets poor people, whichever country they live in. In practical terms, as the EU is looking at how it co-ordinates its actions, how it develops its policy instruments and so on, do you have any ideas in practical terms about how it could do that without slipping into a situation where development assistance is targeted on things that hit the DAC definition and are politically expedient, rather than having a policy for middleincome countries that is sensitive to being, as you put it, propoor?

Mr O’Brien: Yes. There is always a lag between the design of a project and its implementation, and therefore for populations, particularly those in countries where growth is a feature, there is often a timing issue and a sequencing issue. It is quite difficult for the processes to keep up. That said, we should look at each instrument for appropriate spend, but I think-it may seem slightly as though I am jumping between subjects-part of the answer to your question is to look at where the future of the EU’s budget support goes, because if one is looking, as we are, to see a reducing proportion of the spend being allocated through budget support, and more through more targeted projects, then it is highly likely that even for the EU-we would not be, as a bilateral-but where the EU is, through an appropriate instrument, targeting money on the poverty in a middleincome country, then it is easier to do that through a project than through budget support.

Even if you have the most robust agreement between your country and the Ministry that would be responsible for allocating the money, because it has the intervention of a Ministry, however much you are seeking as part of the instrument, if it is the IPA, to strengthen the capacity and democratic accountability of that country as part of its preaccession readiness, none the less if your focus, which I think was the focus of your question, is how to get a more targeted approach that goes below the country definition and into the poor populations, then I think looking to-as the trajectory is going-the reducing element of budget support versus the amount of programme support is an indication of where some of that can happen in a way that is going to meet your challenge.

Q155 Richard Burden: If that is the case in relation to the EU, is it the case in relation to DFID as well?

Mr O’Brien: It is broadly the case that we are anticipating that there will be a reducing proportion of our overall spend that will go through budget support over time. These are balanced judgments, of course, to make, about what is the most effective way of getting the programme delivered on the ground, to achieve the greatest impact for poor people. You have to look at each case on its own merits, and to keep it under very strong and rigorous review, and as you know-whether or not it will be part of today’s session I do not know-there are all sorts of discussions about how one calibrates the conditionality of budget support without the danger that it will be overrigorous. The EU, equally, is in this debate, and there are very different views, of course, across all member states as to what would be appropriate conditionality, and how you would define that, particularly when you look at the broad waterfront on human rights. You are well aware of cases that have come up against that. How do you make sure that you do not then withdraw the budget support, which then would impact the very poor people that the whole purpose of your programme was intended to address? We are always looking very carefully at the way this works.

Q156 Richard Burden: I have a sneaking suspicion you may be asked about conditionality a bit more in a while.

Mr O’Brien: Okay. I am sorry to anticipate.

Q157 Mr McCann: Minister, we have already touched upon the joint programming issue. I get the sense from your previous responses and comments that you see it as a positive development, and I was wondering whether you had any particular views on the joint programming pilot in South Sudan. Then on the broader question of the 28th donor, or the 28th state comment that you made earlier, is the logical conclusion of joint programming, if it became a success, that we would throw out our bilateral programme and would rely exclusively on the joint programme being run by the EU?

Mr O’Brien: Let me be absolutely clear. We would never sanction the idea of joint programming going to the point where ultimately Ministers were not responsible for the decision that we make about the way that DFID’s budget is spent, and about the way that we can achieve greatest value for money through the impact we can have on the poorest people. I am not quite sure whether what I said earlier made it absolutely clear, but let me just restate that we welcome the approach through the broad determination of Commissioner Piebalgs and his colleagues in the Agenda for Change for a more co-ordinated approach to the way the EU is looking to spend its development money, but it absolutely has to be countryled. By that I mean that the basis for the programme must be led by the partnership with the recipient country. It has to be on a partnership basis rather than a donor/recipient basis. Whilst that may be factual, it is not the right mindset for the relationship, and for the underlying contracts that exist. Therefore it becomes owned, both legally, in terms of the contractual expectations and responsibility for enabling delivery, but also owned politically and psychologically by the country, not least because that helps democratic institution building with a certain degree of democratic accountability for the programmes.

The joinedup working within the EU, whilst it clearly must be beneficial to the partner country, and must be pragmatic, flexible and open to other donors-which is another great aspect to the joint programming approach: to do our best to increase the burden share or whatever the programmes are, and in the EU they are also looking to burden share along with other development partners, reduce transaction costs and particularly as we move more into climate change, looking at the realities on the ground and the challenges on the ground-but as I have said, we must absolutely steer clear of any EUled mandatory process, and resist the plans to regulate or impose the single, Brusselsled approach to joint programming. I have made that explicit in meetings I have attended in Brussels, as indeed have other Ministers. I think that that is seen to be something on which there is a series of views around the member states, and it is being debated, but at the moment there is an understanding that there is no proposal on the table that would look to an EU mandatory process.

Q158 Mr McCann: Specifically on South Sudan, as you know we were there in December last year, and there was a feeling with the private discussions we had there about the number of NGOs, the number of operations, and we got a very good sense that they were not all in harmony with each other. How do you feel that the joint programmes operate there in that particular pilot country?

Mr O’Brien: We did touch on this in the other inquiry, in the evidence session. The feedback on South Sudan is that the way the pilot is progressing in having a co-ordination between the significant, by scale, donors-ourselves, the EU and others-is going well, and it is very much a co-ordination, I like to think along the lines I have described. It is not a mandatory process; it is one that has come together in order to be pragmatic, to bring those together. I think it is fair to say that perhaps the nature of the circumstances, the particular needs of that country, which are massive, the fact it is starting ab initio means that perhaps a lot of very interested, skilled parties, some not of scale, have crowded in whilst there is an advantage to crowding in as much aid and development as you can get, be it humanitarian or resilience and development programming.

It is recognised that there needs to have been a greater co-ordination, particularly of those smaller NGOs and other players, and indeed some private sector players as well, and that that has taken up too much time of some of those who are in the fledgling Government of South Sudan Ministries in trying to see everybody. There is a role for a representative. We know from experience elsewhere that it is not always easy to get people to come together and allow one to be the lead, to be the representative of all the NGOs. Many of them have different experiences, skills and agendas. Some have a great deal of pride in being very independent. I will not mention any names. It is quite difficult; perhaps somewhat tangentially I can say that it is as difficult as getting a headteacher in one’s constituency to represent all the headteachers of all the schools. So far I have not succeeded, in Eddisbury anyway, and I seem to have to have a meeting with each headteacher, because they never quite feel that the other headteachers might represent well.

Q159 Mr McCann: I understand that part. I genuinely understand that part, and if you could start off with a blank piece of paper it would be often much better. Do you think that joint programmes are the way forward? Do you think it will happen more and more, based on the knowledge that you have from the pilots?

Mr O’Brien: I think pragmatically, joint programming will happen where it is appropriate. Maybe South Sudan is a good example at this stage. I am absolutely clear that by joint programming we do not mean this kind of formalised mandatory process. What we mean is one where people come together in order to share what they believe to be the best way forward, to be tailored to the country, to be countryled, to be negotiated partnership arrangements, and then to make sure that there is a real sense of ownership and that it is not the EU effectively in a mandatory position where member states will have to go along with the programming that it dictates. I think that would be wrong because ultimately we as Ministers have to be accountable, whether it is to you as the Select Committee or at the Dispatch Box, or through written parliamentary answers, to account for the way that we spend the UK taxpayers’ money through the DFID budget.

Q160 Chair: But country ownership could be the other way around. Countries have complained about too many donors and too many meetings, like Ghana and Tanzania on different occasions have complained; what if a country like any of these came along and said, "It is great that we have all of these EU programmes, but frankly, can we just deal with the EU, please, and you just agree amongst yourselves, and we will just deal with the EU? We do not want to deal with Britain, and Denmark, and the Netherlands, and Sweden"?

Mr O’Brien: That does confer a responsibility on us to be co-ordinated, but it would then be a part of the response, if that was a demand that was put in a discussion, that the whole point about having particular countries where you have both multilateral and bilateral relationships is that we are looking to make sure that we can emphasise and push areas that are complementary. I think that very often the EU programmes can be complementary to what we do bilaterally, or, if it is purely through that multilateral channel, it is because we cannot do something at a comparable advantage bilaterally. The obvious areas to be thinking about are these things of scale, when it comes to infrastructure spend, and increasing as we look now in subSaharan Africa at the advantages of regional economic integration; I am particularly focused on where the EU can bring a comparable advantage to that. That must mean a degree of high co-ordination, both in terms of the dealings with partnership Governments, but among Governments-

Q161 Chair: Sorry, but that is exactly the opposite. The EU is saying, "You must co-ordinate regionally and deal with us as a single entity, but you cannot deal with us as a single entity."

Mr O’Brien: Yes. So far that is not the way it seems to have arisen. We do have occasional comments, as I am sure was well recognised when it came to the whole discussion that led to the concept of budget support all those years back. It was helpful to have one point of connection. There is, however, a real strength in looking at the complementariness of having multilaterals and bilateral, and not putting it all into one bundle.

Chair: Your position is quite clear.

Q162 Richard Harrington: Minister, I think you are missing out on one point, as I see it, with joint programming, and that is the huge management overhead that is involved with so many different organisations being involved, in an unco-ordinated or indeed even in a co-ordinated way. We sat in rooms in South Sudan, for example, when there were 10 perfectly good organisations involved in perfectly good projects, trying to co-ordinate with each other. Sooner or later this will have to be considered. It will have to be considered with NGOs who duplicate each other, with countries who duplicate each other, and multilateral institutions, because we all know that everyone wants as much as possible of the money-the 0.7% that we hope will spread throughout countries-to reach the people for whom it is intended. I do not think that DFID, or indeed anyone else as far as I can see, has considered the joint programming as a costsaving idea from a management point of view. You can take that as a comment or you may like to comment on it.

Mr O’Brien: Only very briefly. I would say that we should recognise that at Busan there was a real focus on the effectiveness of aid delivery, and that there are now streams of work that will look at this, not least the merits of joint programming. What do we really mean by joint programming? Do we mean just a single point of contact, a single package of programming, or do we mean a co-ordinating mechanism that also then brings those benefits without attacking the true accountabilities and responsibilities that need to remain at the decisionmaking levels? That is where I think it is quite helpful that there is quite a lot of work that comes out of Busan, and so rather than Busan simply having been a meeting, I think part of the answer to your question is that there are streams of work from Busan that will help start to address that.

Q163 Mr Gyimah: Minister, moving on to conditionality, I am assuming that you support the Commissioner’s proposals for greater conditionality of aid, although I would like to hear your comments on that. More importantly, I would like to hear your comments on how you see that working in practice.

Mr O’Brien: Yes, we certainly do welcome the Commission’s communication and its commitment to tighten up its approach, not just to budget support but to ensure better value for money through more rigorous analysis and risk assessments. We, as we have discussed, welcome greater co-ordination on the ground, but as I have said, we are absolutely determined that member states must retain ministerial authority over our respective bilateral budget support operations. Therefore, when you look at conditionality, it has some of the same aspects as what we have just discussed. We are very clear within the UK that a commitment to human rights is a key condition of UK aid. It is one of the four partnership principles that we have brought in under this coalition Government over the last year, against which countries are assessed when DFID considers whether to give direct budget support to Governments.

Setting political preconditions for EU general budget support is problematic, because member states have got divergent views on what would demonstrate a partner country’s commitment to human rights and democratic values. Each country case is of course different, so it would be pretty difficult to set a generic platform or set of specific political preconditions for general budget support. Taking the tougher view on budget support, I am in no doubt, is the right thing to do. Setting very high political eligibility criteria, however, could exclude everybody but the very best-performing lowincome countries from receiving any form of onbudget support, and there would be some innocent people and very poor people in some of the countries who would suffer as a result.

We are, as I say, supportive of the discussion on conditionality. We are clear about our experience about the four principles. The right corollary to what I have just said is, "What happens when there is a breach?" If it is part of the four partnership principles, and partnership is withdrawn, we will look to work with other actors to ensure that aid reaches those people who are the poorest and in need of it. We need to see whether that can be replicated by the EU as it discusses its own proposals going forward on this. You will be aware that the Danish Presidency is currently drafting in line to the Agenda for Change, but it encompasses aspects of this, and we are waiting to see what is produced so that we can discuss it further.

Q164 Mr Gyimah: The point you have made just now touches on a concern I had at our meeting in Brussels: what does conditionality actually mean in this context? If it is not enforceable, it is an aspiration. I think the argument I heard was, "It is all about direction of travel." It is not really, from a personal perspective, good enough. If we are going to have conditions, we should be able to enforce them. My question, related to that, is: why would the EU tolerate human rights abuses, for example, in other countries and continue to offer budget support, when it would not tolerate it in countries within the EU, or within their own countries? Shouldn’t the conditionality therefore be a lot tougher and more enforceable?

Mr O’Brien: I am with you, certainly, as I am sure every member of Her Majesty’s Government, indeed every member of this House, is, that all human rights abuses are unacceptable and intolerable. The question is how you ensure that the very people that we are all pledged to seek to help, the very poorest in the world, do not suffer as part of the penalty in seeking to influence that those human rights abuses, often perpetrated by those who are not the poorest in those countries, are observed and punished.

Taking it away a little bit from the pure human rights focus, in which one needs to be careful in identifying any example and I am not making an equivalence, but we have seen with our approach, under our four partnership principles, that conditions of those principles were not being met in Malawi recently. I know the Committee has an interest in this and has some further investigations that it will be taking forward, but clearly when that was not met there was a withdrawal of the budget support, but we at DFID worked extremely hard to ensure that it did not penalise the very poor people-indeed, there are very poor people in Malawi-who need to be in receipt of the benefits of that expenditure, by looking for other actors.

That was in a sense what we are discussing with the EU, because I think that approach needs to be replicated. As I say, if you try to be very categoric, very absolute, and you have different views and judgments across 27 member states who would wish to see their views reflected by an EU representing them, then I could see that would be potentially very difficult and very fraught, and we could end up with too much discussion with the EU, rather than the effect being in terms of the relationship and the partnership approach that we are seeking to perpetuate.

Q165 Mr Gyimah: Given those difficulties I am slightly surprised that it has even been put on the table as something that the EU is trying to work towards.

Mr O’Brien: I speak for myself, but certainly in Government policy human rights are not negotiable. Human rights are human rights. The issue is how, within the waterfront of human rights, you single any out. That is the challenge.

Q166 Chair: The Committee did it by going for a double negative. We did not say aid should be conditional, but that it should not be unconditional.

Mr O’Brien: If you don’t mind me saying, Chairman, I would need further and better particulars before I understood what you had actually said.

Q167 Chair: Read my interviews.

Mr O’Brien: Be it far from me to suggest that the word "fudge" comes into that in any way.

Q168 Richard Harrington: Minister, to move along briefly to economic growth and the private sector, obviously we realise how developments in the private sector in international development can be part of DFID’s policy, but as far as the EU is concerned, do you share the Commission’s view for a new focus on economic growth and the role of the private sector, given that I think there is a view that economic growth does not always lead to the kind of development objectives that we all think are so important?

Mr O’Brien: As a matter of principle, I imagine it is common ground around this room that one only has to look to the recent example of China. The involvement of economic growth and the private sector has delivered hundreds of millions of people out of poverty. If ever one needed proof of the case that private sector development is the ultimate biggest deliverer of people out of poverty, there you have it.

The EU is putting a big emphasis on economic growth and private sector development, just as we have at DFID, and we are seeking to, as it were, "DNA ourselves" much more in private sector skills and total approach. Likewise, that is very much how we want to continue to work with the EU, so that they become more closely aligned with that dynamic as well. We are very clear that impressing the Commission to focus on building local institution and business capacity, to encourage the development of small and mediumsized enterprises and co-operatives, and indeed social enterprises, creating a business environment conducive to growth through regulatory and legislative framework reforms, is absolutely vital. Equally it behoves the EU, looking more broadly than just the development arms of it, to promote the reduction of trade barriers, so that developing countries do have a chance to compete on a level playing field. That is equally important.

Q169 Richard Harrington: I was hoping you would say that. Given that DFID are ahead of the game with using the private sector for development objectives, are we really influencing the EU? Are we really pushing them and sharing the experiences that we are having?

Mr O’Brien: Absolutely we are, and I think it goes beyond just the Agenda for Change, important as that is, because that clearly is offering an opportunity to increase the EU’s support for developing competitive local private sectors, and very much on the same analysis as we have made at DFID, which you are very familiar with. At the moment there is an enormous amount of work going on between us and our EU counterparts in looking at EU blending mechanisms and more effective use of the European Investment Bank in supporting the private sector, which will boost the resources available to business. Equally, however, I would say you cannot divorce this from trade, and whilst at DFID I am deeply conscious that I do not tie aid and trade, as the EU we would say that its development arm should move to a fully untied position when it comes to its development programmes.

The EU also exists-maybe even primarily exists-in order to be the ultimate single market trading body, and therefore looking at making sure that we as the UK, across Her Majesty’s Government, are working to ensure a strong focus on developing countries in all our EU trade negotiations, pressing for trade liberalisation, negotiating a new generalised system of preferences for developing countries, and the economic partnership agreements with the African, Caribbean and Pacific countries, the ACP countries. Then, as you know, I hope it does not sound like a hobbyhorse of mine, but I am completely focused on how to turn what is at the moment quite a lot of rhetoric into the reality of how we use the EU, the world’s largest economic single market grouping, to engage with other regional groupings, whether it is the East African Community, or the SADC, or ECOWAS, in order for them to talk to each other and through, for instance, Trademark East Africa-we have had discussions here about that-then using those arms to get the professional investability that will get behind those infrastructure projects. Then you will have that matching of body to body.

Q170 Richard Harrington: If it is a hobbyhorse, I think it is a good one, personally.

Mr O’Brien: Thank you; I will continue riding it.

Richard Harrington: I think it is really very, very, very important.

Q171 Jeremy Lefroy: We received some evidence from Bond about the Agenda for Change: "Its narrow focus on GDPled growth and a reliance on ‘trickledown’ effects of private sector development alone, without full consideration of environmental and social impacts and resource constraints, will only deliver unsustainable development, the challenges of which will far outweigh any shortterm gains." I do not really recognise that statement as a statement of the impact of the private sector, particularly if one considers the large element that smallholder agriculture plays in the private sector in developing countries. I wonder if you could perhaps comment on that, Minister.

Mr O’Brien: I could not have put it better myself, Mr Lefroy. I am completely with you. I do not recognise the concern that Bond expresses. On the contrary, I think the evidence points in all the other directions, and particularly if we look at the private sector being and including, very importantly, even emphasising the smallholder farmers and those involved in agriculture and the supply and value added mechanisms that flow from that, we are addressing probably the greater part of the populations of all the very poorest people in the world, be they in conflictaffected, fragile, or indeed peaceful states. I do not recognise that. I think that this is quite recent policy development, being so explicit about the benefits of an integrated approach to development, which includes private sector and growth strategies as part of what delivers the poorest people out of poverty. I would hope that many more would get alongside and aligned to that evidencebased approach to the relief of poverty, which will help best deliver the MDG targets and the ambitions we all have.

How shall I put this? I don’t think there is a wilful obstinacy here. I think there is a deeply ingrained suspicion on the part of some people that there is somehow a complete wall between the use of public money and private sector activity and that sometimes public money, whether it is derived from us or indeed elsewhere, should not somehow lead to the pump priming, the opportunity for leverage in the private sector, and that nobody should be able to make a profit out of it. Some of the most effective poverty alleviation, capacity building, sustainable resilience building, economic and humanitarian, have been the projects that you as a Committee have examined very closely out of the PIDG. If ever that was a transfer of money into the leveraged private sector with benign advantages, I cannot think of any. I think I have made my view pretty clear.

Q172 Mr McCann: Minister, the discussions on future budgets are ongoing, and I understand that they are expected to conclude next year. I was wondering what your expectation was in terms of a proportional increase in ODA, with the prospect of a reduced overall EU budget, and what the British Government are doing in relation to those negotiations in terms of making their input.

Mr O’Brien: Thank you. I am entirely with you that of course within an overall reducing envelope, not only will we, the UK Government, keep our promise of 0.7% on ODA, but we will strongly urge, and of course, with our own position and credibility, we hope that will have a significant influence on persuading other member states to get up to their promise of 0.7% across the EU by 2015. We are some way short of that at the moment. There is quite a stride to be made.

I think in terms of looking forward on the multiannual financial framework, and the way the broad position is being developed and negotiated in the runup to its inception in 2014, to run until 2020, the proposals for EU external actions in the next MFF are positive. However, the overall level of the next MFF must be carefully contained. That is our Government’s very clear position, which is recognised. We oppose increases beyond real growth in any budget headings, but we also think that maintaining or increasing the proportion of ODA within a smaller overall budget is a priority for the multiannual financial framework. We continue to push the Commission in that direction and for the effectiveness of development spending under the different instruments to be enhanced. There are many meetings that go on and we make those points, some would regard, ad nauseam. That will only mean that we recognise that we might possibly be getting our messages across.

Q173 Mr McCann: Would it be wrong to conclude that given that some member states have not met their targets and have reduced the money that they have given to aid even before the knowledge that we have now in relation to the wider problems within the eurozone, whilst we are putting forward the point that even through these difficult times we still have a commitment to the world’s poorest, that will be even tougher when we have independent states within Europe who are suffering even worse in terms of unemployment and various other measures than we are in the UK?

Mr O’Brien: I am in no doubt how tough maintaining this commitment is when you have austere times in any domestic budget, not least here in the UK. It is a political choice. It is a political judgment. It is a matter of policy. It is a matter of political accountability. Whether it is members of the Government or those who share their position, not least the Chairman and Members of this Committee, it is vital that we make the case, and we all know the case has to be made, that it is not just the right thing to do but it is also in our own interests. Equally the EU has to make that case for itself for its programmes, and the effect and impact that it can have.

There is great variability amongst member states as to where they are on the question of ODA-qualifying spend. As we have indicated at the very head of this discussion, there are some member states who would not really be getting there at all were there not the EU development programmes and budgets, because that is where, at the moment, what they contribute is going. It is going through that. I am very clear that we all need to redouble our efforts to seek to be very persuasive about making sure that we do not get ourselves out of our own economic problems on the backs of the very poorest in the world. That principle drives what we do, and I hope it is what will drive all the member states. I can certainly say that that is shared by Commissioner Piebalgs; I am sure you have picked that up yourself. It is very much part of the policy background to what External Action Service is producing, both through Baroness Ashton and her colleagues and the various officials who are working to draft the policy.

Q174 Mr McCann: I will not press you any further on it, but best of luck in those negotiations.

Mr O’Brien: We are certainly determined.

Q175 Chair: Can I just clarify that the UK Government’s position has changed? We have traditionally been opposed to bringing EDF into the budget. We apparently are now supporting the idea of bringing EDF into the budget, provided we get certain conditions, which I think predominantly is to protect the ODA component and the priority towards the poorest countries. How realistic do you think are the prospects of getting such a commitment?

Mr O’Brien: As a matter of detail, the primary concern is to ensure that we retain what, under the Multilateral Aid Review, are the benefits that are identified of the EDF.

Q176 Chair: Yes. So it would go into the budget but would be ringfenced within it?

Mr O’Brien: In many ways this is a subject for negotiation, but the EDF currently represents half of all offbudget expenditure. The future of the EDF will clearly be negotiated as part of the multiannual financial framework, and the UK has made it clear it is not going to accept changes to the EDF that might prejudice its current effectiveness, its focus, its allocation criteria and unique partnership model, all of which were identified on a comparable basis under the MAR. The fundamental principles of the Cotonou agreement must also be upheld, and you will be aware that that basically covers the human rights, rule of law and democracy issues. However, the UK Government is concerned by the lack of transparency shown by the Commission in its proposal for very substantially increased offbudget expenditure, and so we consider this to be unacceptable and want to see all the items included in the budget to ensure proper clarity and sound financial management. The best way I can describe the issue is that if the EDF is going into the budgetised element, it must retain the highest common factor of its efficiency, rather than being reduced or subsumed to a lowest common denominator. Indeed, others should be brought up to the level of what we regard as being the efficiency of the EDF.

Q177 Chair: I think we got the impression from the Commissioner that he was not quite up to speed with this switch in the British position. He was basically arguing, "Why rock the boat? Let us just wait until 2020 when Cotonou and the ACP are up for review." How realistic, in other words, is the UK’s position? Is it, in fact, given that the Commission is saying, "Do not budgetise it," likely to be the one that carries the day? Or alternatively is the UK, by switching its position, making the chances of it being budgetised subject to these conditions more achievable?

Mr O’Brien: I am probably going to have to rest my case, given that we are in a negotiating situation. The concern is that there is at the moment a lack of transparency shown by the Commission in its proposal for these very substantially increased offbudget expenditures. You have to look at this issue in that context, and -

Q178 Chair: Like Mr McCann, we need to watch this space.

Mr O’Brien: The position has been, I hope, made clear on the basis of that context.

Q179 Pauline Latham: I was going to ask a question, but I do not think you are going to answer it.

Mr O’Brien: As you know, I always try very hard, particularly for you, Mrs Latham, to answer your questions.

Q180 Pauline Latham: If it fails, what do we do?

Mr O’Brien: Like every negotiation, you do not enter by believing you will fail.

Q181 Pauline Latham: But this is Europe.

Mr O’Brien: I will have to come and report back to you in due course, depending on the circumstances.

Q182 Pauline Latham: I did not think you would answer it.

Mr O’Brien: I did answer, but not perhaps the way you wanted.

Q183 Pauline Latham: Europe has not, as a whole, met its target of 0.56% yet on the GNI as official development assistance in 2010. What is the UK doing to help them to get back on track, and to meet the 0.7%, as we are doing, by 2015? If you are helping them, how realistic is it that they will all comply?

Mr O’Brien: To some degree, it is quite a multifaceted question, because trying to ensure that within an overall envelope that is reducing, none the less we have a higher ODA spend under heading four, if that is where we get to with the multiannual financial framework, clearly will then give greater capacity for those member states, as well as the EU as a whole, to be able to reach the 0.7% target by 2015.

Another context is that the EU and the 27 member states were all a part of the September 2010 meeting in New York, when the UN came together to reaffirm the ambition to reach the MDGs by 2015. It is difficult to see how you get to those MDGs without those member states stepping up to the 0.7%, in order to have the resources sufficient to meet the scale of challenge yet to be run between 2010 and 2015. We are now not far short of halfway through that period. Challenge there is, without question. The specifics of what we are doing about it, apart from the fact-I restate, but this is pretty obvious to you as well as everybody else-that our own position, as the UK Government, as the coalition Government, to hold to our promise of 0.7%, and get there by next year, is itself the highest point of credibility that can help us have persuasive opportunities to bring others to recognise that this is absolutely the right highest priority, for their own citizens as much as, of course, for the relief of poverty across the countries of the world in which, both bilaterally and multilaterally, we operate.

The EU donors made the historic decision in 2005, so they had 10 years to reach the 0.7%. As you rightly say, we are well short. The EU missed its collective target of 0.56%, the interim target of ODA GNI by 2010; in fact, at 0.43%, it was appreciably short. Some countries within have done better, but apart from some honourable exceptions, most are below the run rate that you would need to get there. I believe we are in a strong position to hold others to account on their ODA commitments, and thanks, I think, in a large degree to very significant lobbying from the UK, not least us as Ministers, EU Development Ministers adopted the first annual report to the European Council on EU aid targets at the May 2011 Foreign Affairs Council. The report went to leaders at the June European Council, the JEC. This has created an aid accountability mechanism at the highest level, and we will insist that this accountability is maintained.

It is in the realms of political activity. It is not something that one can simply order, or design off a peg, as you more than readily appreciate. We are doing everything we can in the political sphere to seek to make it happen, and as much as being persuasive and having credibility, it comes back to why the results framework, assessing impact, having evaluation and monitoring are so vital. It is the evidence of what works and is therefore having the desired and intended effect, and that we can have the trust that we have good anticorruption measures in place, good ownership and co-ordination without going down the mandatory route, as we have discussed. All these things become the evidence that helps encourage others that this is both desirable and doable; that is ultimately what we want to get to, because that is the best persuader.

Q184 Pauline Latham: Good luck.

Mr O’Brien: Thank you very much for the good luck.

Q185 Jeremy Lefroy: The EU has shown great desire over this weekend, through the Compact, to insist on budget deficit targets, I think, of no more than 0.5% over a period of time, and indeed to enforce these, possibly, in the future with things like fines. Given that the EU has shown this kind of determination to deal with recalcitrant members in that regard, do you think they could take similar action in respect to members who are under the 0.56% or 0.7%?

Mr O’Brien: Until you asked the question, Mr Lefroy, I had not given that any thought whatever, so I will not attempt to give you an answer off the cuff, particularly on something so significant and potentially incendiary. I think we will observe, clearly, what is going on under the Compact. That is dealing with a whole raft of very different dimensions in terms of economic activity and the prospects for growth and recovery, and particularly as what we deal with in terms of development is to do with ultimately the transfer of our resources in order to create impact outside the electorates of the member states, I suspect that may have a somewhat different complexion, politically, than the disciplines that are required in order to do things where there is electoral accountability through member state Parliaments and indeed through Members of the European Parliament.

Q186 Jeremy Lefroy: The point I was trying to get to was that there seems to be political will on the one hand over the Compact, and a decided lack of political will among some of the major nation states involved on the other hand.

Mr O’Brien: In many ways, I understand the discussion and debate, and I respect the way you put it. I might even be tempted to suggest that political will is rather a benign way of expressing political necessity.

Q187 Jeremy Lefroy: Moving on to the thorny question of the Common Agricultural Policy, which a group of prominent Africans have suggested is a hindrance to development in many of their countries in subSaharan Africa and elsewhere; I would entirely agree with them. In fact, they said the abolition of it would do more good than any aid programme. I am not sure I would go quite as far as that, but certainly the point is well made. Bond have made a similar statement, that indeed these obstacles in the way of international trade in agricultural products are not helpful. I wondered what the Government’s position on that is at the moment.

Mr O’Brien: I hope you will forgive me if I do not stray too far into the broader issues about our position on the Common Agricultural Policy. That is clearly a matter for the Foreign Secretary and the Secretary of State at Defra. That said, I think the emphasis I would wish to place, for those of us concerned with development, is there should be completely open access to our markets here for products. There are very good examples already where trade is trumping aid, particularly where there has been the ability to use local production to take on the added-value processes, before effectively the final product is shipped into purchasing power markets that are represented by the West. There are some very well known examples.

For a long time the barriers have been the model by which the value chain has been set up, for reasons that we know are largely historic, and of course the purchasing power that we all represent as the UK, for instance, goes hand in hand with the quality assurance we insist upon whenever we make a selection of a product from a supermarket shelf or purchase a car, or whatever it may be. I think there is a need to ensure that as much value-added is done locally, and that there is no barrier to entry of those products being sold into the high-purchasing-power markets of the traditional West. However, that puts a huge premium on predictability, consistency and quality assurance in the countries of production, which has often been one of the impediments in the past. I am somewhat swerving your direct question, but that is because you are raising issues of much wider policy, which I think are beyond my remit.

Q188 Jeremy Lefroy: On a broader question, can you give us any examples of areas within the European Union’s competencies, since the Lisbon Treaty, where there has been greater policy coherence between broader issues and the development agenda?

Mr O’Brien: I touched on it slightly earlier, before you were able to join us, and that is that particularly as we look forward, I believe it is common ground amongst us all that as part of the development agenda there will be a much greater element and emphasis on the adaptation and mitigation of the effects of climate change, and particularly the environmental impacts on ecosystems services. Whilst all that is in grave danger of being lost into the mire of jargonese, in a sense we need to keep focused on the human consequences of climate change, because that is ultimately what we are dealing with in terms of poverty, survival and economic opportunity. I think in terms of policy coherence for development, we know development is not just about aid; it is what comes beyond aid. We can go through the quite simple theory of change and models that get us to the graduation from aid, whether that is within this Parliament here in the UK, or whether that will mean that Ghana itself graduates. We wait and see how that develops. However, patently it has to be a candidate country to graduate from aid in the shorter term.

That is, if you like, one area of policy coherence, but to improve the EU’s policies and their coherence as affects developing countries clearly requires further progress on implementation to link conflict, trade, climate change and development. I think it is a really important area, and we are pressing for significant improvements and internal coordination. It is something we are all working really hard on here in the UK as well. This is certainly not easy. It is not just a question of crashing down the silos across Government. It is getting these evaluations of where you put your emphasis, and climate change has forced us all to have to think very carefully about-if you have, as we do in this country, a big commitment, ₤2.9 billion of international climate facility-how best to deploy that to greatest impact. Of course, you can either do that across a range of things, or you can try to do it in a rapierlike approach. Policy coherence absolutely is critical to that set of criteria and analyses. In particular we are going to push for greater co-ordination and coherence between DG Clima and DG Europe Aid, so we get a much clearer EU position on climate finance in the next multiannual financial framework, and to generally make the EU much more climate-smart. There is a clear stream of work.

Q189 Jeremy Lefroy: Just finally, would you also accept that the greater emphasis in the Agenda for Change on private sector development is a great sign of policy coherence as well? The EU, if it is anything, certainly as far as I am concerned, is all about improving trade and improving markets within Europe, and in fact an emphasis on the private sector is about improving markets within the countries in which we are operating with the development programme.

Mr O’Brien: I am really pleased that you have made that supplementary, because that is entirely correct. I should in a sense have made that an equal emphasis in my first response to you. I chose to highlight the climate change aspects, but in many ways more immediate will be the coherence that comes in recognising the private sector and economic growth, and ensuring that you have access to finance. I think it was at this Committee; I certainly am in danger of overusing this example, but I keep in my mind the whole time this imaginary 26yearold guy on the outskirts of Kano in Nigeria, who has amazingly managed to save $1,000 under the mattress. He already has 14 dependants, and is charging around on the most amazing amount of activity, most of it unproductive, but he keeps himself and his dependants fed. He now really needs $10,000 to set up a motorcycle repair shop. Where does he go to get that? He is ultimately the person who will drive the emerging middleclass growth of Kano, which will be the deliverer out of poverty more than anything else.

For us, that is a challenge. It is not microfinance. It is not foreign direct investment. As we all know, I think this Committee not least, it is that great chunk in the middle. I keep that theoretical person in my mind the whole time, because if I were half the age I am now, that is precisely where I would be if I was living in Kano, and I would want to know who I would go and ask for the money, if I did not have a dad who was rich or was not connected to the Chief.

Q190 Chair: Minister, at the end of this report, of course, we have to make a judgment about how effective we think the EU is in terms of delivering aid that matches the UK’s objectives, how much control we have over it and how much we can vary it, and I suppose finally, the extent to which it does it better than the World Bank or the Asian Development Bank or the African Development Bank. From your position as a Minister for Europe when these negotiations are going on, do you envisage a situation where the UK is likely to want to put more money through the EU compared with other multilaterals over the next 510 years, or less?

Mr O’Brien: It is a perfectly fair and a very good question, Chairman. I am not even going to duck it. The answer is that I do not know. We are in a period at the moment where we have clearly gone through a major Multilateral Aid Review, which identified the strengths and weaknesses and the agenda for reform and change in the current setup. We are also in the process across HMG of looking at the multiannual financial framework and the negotiations, the positioning, and where that leads to, and what the envelope will look like. Relative to other expenditures, I hope that I have at least been able to give some indication where we think the EU has got strengths versus other bodies, not least in terms of scale; the fact that it is aligning with our priorities and that it is able to represent and draw on the support of 27 member states.

Whilst we know we need to chase them for their commitment on overall ODA spend, none the less, through the budgetised amount there is a formula that helps bind them in, so therefore they all have a shared ownership of that. Therefore, there are real opportunities of scale, particularly as we go down, as Mr Harrington observed, the regional-to-regional dimension of economic integration and activity, where there are real opportunities for achieving the economies of scale and the economic growth that comes from that. I think the EU therefore will always have that place. Where that fits in terms of increase, decrease, proportionality I would not be giving you a fair reflection of a view, because I do not think it is possible to determine, but I think it is certainly worth working on improving the processes, because the EU is a very important partner in development, and today stands as the largest development agency in the world. With that, we need to make sure that it therefore works at the very best level of world class.

Q191 Chair: Thank you very much for that. Thank you for the time you have given to us this morning. I am not sure when we are planning to produce this Report. It will be two or three months away, but I hope that you will find it informative and useful. I am sure it will be controversial here and there, but we look forward to delivering it and we hope you will engage with us. I am sure you will in future. Thank you very much, indeed.

Mr O’Brien: Thank you very much indeed, Chairman. I promise to write those letters that I promised.