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Baroness Falkner of Margravine: My Lords, as the Butler report points out, this was a war of choice. The intelligence community saw regime change as an option to achieve Iraqi disarmament. It was for the Government to make the choice for war: there was no necessity to do so in the form of an imminent threat to Britain.

We also know from section 5.4 of the review that the continuation of sanctions was a credible option but was disregarded. The Government sought to align themselves with the United States in the mistaken view that Iraq was part of the more general "war against terrorism".

Looking forward, one of the clearest lessons from Iraq is that sanctions—an option open to the Government at the time—and the related policy of containment were working. The adoption of smart sanctions in 2002 as the method of preventing trade in arms while allowing for civilian trade was the right course in humanitarian terms. It was also the right choice in terms of effectiveness. The policy succeeded, as we know now from our knowledge of Iraqi armaments from the 1990s onwards.

There is a view voiced by the Government that the use of force in Iraq has resulted in compliance with disarmament by Libya and the exposure of and subsequent apology by Dr AQ Khan in Pakistan. That argument obscures the fact that those countries have their own motivations for changing course. In Libya, we know that the Gaddafi regime, under weight of sanctions for some two decades, eventually moved to accept international norms and gave up its support for terrorism in the late 1990s, not after the invasion of Iraq.

In Pakistan, the country of my origin, the tide was turning against supporting the Taliban and change came about through a military takeover and internal regime change rather than in anticipation of a war in Iraq. Those lessons will become increasingly relevant in the coming period when we seek to resolve the North Korean and Iranian proliferation of nuclear weapons.

The other unfinished business that the war in Iraq has obscured is the instability of Afghanistan and its link to terrorism. Those of us who supported the war in Afghanistan expected to see a long-term commitment to the future stability of that country, including a restoration of law and order and the establishment of governance such that it could take its place in the international community. That was the widely held hope of almost all Muslim states and was accepted by the international community as such.

While the forthcoming elections are to be welcomed, it is fair to say that we have not delivered on our promises to Afghanistan. The country is still ungovernable in large
 
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parts and is actually deteriorating in others; terrorism and violence are still rampant, poverty is endemic, and drug production on the up. As we know from the events leading up to 11 September 2001, failed states represent a failure for the whole of the international community. We need to concentrate our resources on those states if we are to forestall future threats to international peace and security in terms of chapter 7.

What of stability in Iraq and the wider Middle East? In Iraq, while we can reserve our judgment on the legitimacy or effectiveness of the interim government, what seems clear is that our stated objectives as set out in paragraph 213 of the report are far from met. Whether the territorial integrity of Iraq is guaranteed, is an open question; that was one of the objectives. Whether we succeed in re-establishing Iraq as a stable, functioning democracy, taking its rightful place in the international community in time to avert a wider crisis in the Middle East, is also debatable.

I seek to widen the discussion because I believe that the impact of the war, combined with our wider war on terrorism, has enormous ramifications for the Muslim world, from which I come. We have a situation in Islamic countries in which the perceived injustices against Islamic nations, from Chechnya to Palestine to Kashmir, resonates in the Muslim public mind as never before. While we expect Muslim countries to be our paid-up partners in this supposed war on terrorism, we also have to accept our share of responsibility in righting the wrongs of history.

Many on all sides of the Iraq argument accepted the reassurances given by the US and British Governments that the Israeli-Palestinian road map would be delivered. What we have seen from the US, however—and one wonders what happened to our leverage with the US Government—is a retreat from, or at best a silence on, the assurances given on the lead-up to the war that the wider issues of peace in the Middle East would be addressed as a matter of urgency. We were wrong: the road to Jerusalem never lay through Baghdad; the road map has now ended in the road block of the war.

When politicians declare an international dimension to the war on terrorism, they also have to accept an international role in finding solutions. While everyone in this House is united in offering our deepest sympathies to the people of Beslan, as candid friends we have to say to Mr Putin that he cannot declare that international terrorism is behind atrocities without seeking to allow external mediation of disputes. When there is no scope or political space for moderate political elements or external mediation, and when journalists get fired for their opinions from Moscow to Baghdad, where television stations are closed down, is it any wonder that the Islamic community sees double standards in operation? I say this in some trepidation—at the risk, as the noble Lord, Lord Owen, implied, of indulging in "moral relativism". But it is important for us to put these thoughts on the table, as they are deeply felt.

Another assumption underlying our engagement in Iraq is that we are exporting good governance and democracy to the Islamic world. Good governance cannot be imposed by force in today's world.
 
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Democracy and civil society need nurturing, political space and legitimacy. As the right reverend Prelate the Bishop of Oxford said, they need to be seen in an Islamic context—be that of Iraq, Afghanistan or other parts of the Middle East—now more than ever.

Our tool of choice should be soft diplomacy rather than hard force. Aid, trade, training, education and all the linkages that build understanding and trust are undoubtedly long-term options, but prove to be far less costly than hastily planned wars. In the battle for heart and minds both at home and abroad, the Government have squandered a fine reputation in those very areas. Our tradition of soft diplomacy, buttressed by our role as a P5 member of the Security Council, has been cast in doubt at a time when these things matter most.

We have found ourselves in a discredited war, aspects of which we could not have foreseen. We must now fulfil our obligations to Iraqis by returning to them a country that is better than we found it. We can start that by accepting that we have some way to go in terms of our own democratic processes and mechanisms, as the failures of the past two years have shown.

The Earl of Sandwich: My Lords, I, too, have expressed concerns about our decision to go to war in Iraq, and the Government's determination to see areas of the Middle East in the context of an axis of evil. Events have shown that liberation is not the simple concept that it appears and that occupying armies are rarely good at delivering peace.

Our association with this latest version of the American dream has done nothing for our relations with the Arab states as a whole. It will take years, as the noble Baroness, Lady Falkner, implied, to rebuild the trust that I believe the Iraqis, Palestinians, Syrians, Jordanians, Egyptians, the Gulf states and many others once placed in our Foreign Office, based on many decades of experience. Our lack of understanding of the region today must be the subject of another debate.

Today I wish to concentrate on the humanitarian situation and on the oil funds which Iraqis require for reconstruction. No one appears to know what has happened to these funds. Under UNSCR 1483, the Development Fund for Iraq was supposed to receive the proceeds of oil export sales, balances from the Oil for Food programme and frozen Iraqi funds, to be disbursed under the direction of the Coalition Provisional Authority in consultation with the interim administration. These disbursements have now been taken over by the Interim Government of Iraq.

As the noble Baroness, Lady Williams, has said, serious questions have arisen not only about oil-for-food during the last years of Saddam Hussein, but about accounting procedures during the time of the coalition. KPMG has recently reported to the International Advisory and Monitoring Board that there have been inadequate controls over oil sales and other aspects of the DFI's operations. Metering
 
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contracts to ensure accountability of oil extraction have been delayed. Oil was bartered, smuggled or illegally exported especially in the months immediately after hostilities. Contracts were awarded on a non-competitive basis. There were inadequate records and accounting procedures.

At the CPA itself, there was a high turnover of staff, inadequate accounting systems and lack of control over spending allocations. My noble and gallant friend Lord Inge and my noble friend Lord Skidelsky have already spoken of a serious planning failure and a crisis of legitimacy. Now that the IGI has taken over these responsibilities it would be tempting for our Government to step back from their obligations or at least to point to the difficult environment in which the CPA was working. No doubt.

The oil-for-food operations are already the subject of an independent inquiry under Paul Volcker which will go on for some time. But we were one of the occupying powers in Iraq for 15 months and the KPMG audits were commissioned by the coalition in which we were a senior partner. The Iraqi people have a right to know what happened to those oil funds which disappeared under their noses, not only under Saddam Hussein, but under the new era of so-called democracy and good governance, presided over by the heralds of the new order in the Middle East.

We are speaking about very large sums of money. Some NGOs have already roughly estimated the sums involved during the time of the coalition. Iraqi Revenue Watch said in June that,

"$20.2 billion has been taken in by DFI, mostly through the Oil-for-Food program and proceeds from oil exports. $9 billion has been spent so far in DFI projects with an additional $4.6 billion in commitments not yet paid . . . By April 30, 2004, the CPA had disbursed a total of $7.9 billion from the Development Fund for Iraq".

That is taken from the IRW newsletter of June 2004.

I should declare an interest here as a trustee of Christian Aid which also published a report fuelling suspicions, pointing to the discrepancies in the CPA's reporting of the DFI's income and expenditure, suggesting that large sums were open to corruption during the CPA's administration. Huge contracts were awarded at that time, as we have heard, to US firms and a range of subcontractors. We can only assume that while the bulk of this money went into reconstruction, large sums also went astray and/or were not properly accounted for. It is also clear that these contracts benefited the US at least as much as the Iraqi people. I share very much the concern of the noble Lord, Lord King, about balanced reporting.

It is therefore legitimate for interested NGOs and parliamentarians to ask what the UK Government, as the junior coalition partner, propose to do now to bring to account those who failed to explain what happened to up to 20 billion US dollars of Iraq's oil money given that the CPA is a body which no longer exists. What role did the UK Government have, as part of the coalition, in managing those elements of the
 
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finances that have been found lacking, such as the failure to meter oil extraction or keep sufficient records of oil sales?

I tabled a Question for Written Answer before the Recess and today I opened my reply from the Lord President, the noble Baroness, Lady Amos. I shall not read it except for one revealing sentence: that no UK personnel or secondees to the CPA served in the controller's office or were an authorised signatory over the DFI account. That says quite a lot about the influence of Her Majesty's Government in a war which was ostensibly shared with the United States.

In my experience of the Third World there is always an excuse for missing funds. During any conflict money disappears, bandits hijack aid vehicles, officials are corrupt and so on. This is true of the poorest countries, and to some extent of every country. But Iraq is not a third-world country: it has had highly trained people, modern technology, well equipped armed forces and an efficient administration in some areas of government for many years. I am afraid that that contrasts with the picture painted by the noble Lord, Lord Tomlinson, just over an hour ago.

I expect that the Iraqi end of the Oil for Food programme will come out quite well from the Volcker inquiry. But unfortunately the coalition chose from the start not to work with professional administrators from the previous Ba'athist regime as a matter of principle, and its successor has not yet found enough trusted Iraqi partners to replace them.

I know that our Government value the work of NGOs which are very active at the moment in a difficult situation and I hope that they are taking note of what the NGOs are saying about the need to move beyond infrastructure projects, to address immediate problems of health and job creation more directly, to work more closely with Iraqi civil society and to find new leadership in the ministries at central and local level. Obviously, there are many regional variations and positive stories, as we have heard from the noble Lord, Lord Clement-Jones, and others.

However, taking health as one example, experienced NGOs like PremieÁre Urgence, the International Medical Corps and CARE International are saying that in spite of the benefits of large health-related projects, the health sector itself is being ignored. They point to the general lack of security—as everyone does—but also to the shortage of equipment and low level of hygiene and healthcare in hospitals that would otherwise be quite capable of reaching international standards. Much of this can be put down to lack of management as well as to a shortage of police and security staff to prevent looting and the targeting of hospitals by criminals.

The noble Baroness says that the Iraqis are now in charge. I am not so sure. Iraqi people, while grateful for the fall of Saddam and much else, are not yet seeing the benefits of foreign occupation or even the basic standards of accountability required by foreign donors. Community-based non-governmental organisations that are trying to get development projects off the ground are also concerned about the continuing growth of
 
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unregulated entrepreneurial NGOs which have mushroomed on lucrative foreign contracts and much else besides.

So can the Minister perhaps give an undertaking that these concerns of NGOs are at least being noted and are receiving due attention?

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