International Development Committee

Oral evidence: DFID’s Allocation of Resources, HC 533
Tuesday 8 December 2015

Ordered by the House of Commons to be published on 8 December 2015.

Watch the meeting – Parliament TV: Tuesday 8 December 2015

Members present: Stephen Twigg (Chair); Fiona Bruce; Dr Lisa Cameron; Mr Nigel Evans; Mrs Helen Grant; Fabian Hamilton; Pauline Latham; Jeremy Lefroy; Wendy Morton

Questions 1-58

Witnesses: Mark Lowcock, Permanent Secretary, and Anna Wechsberg, Director of Strategy, Department for International Development, gave evidence. 

Q1   Chair: Good morning, everyone, and welcome. It was only last week that I noticed that I am meant to start these sessions by saying, “Order, order. Welcome to this morning’s session.”  I have done that and I will try to remember to do that in future. Can I welcome our witnesses this morning, Mark and Anna?  We are looking today at the allocation of resources by DFID. This is a big area, so we have a large number of questions and we have an hour and a half. We are certainly going to finish at 11.45. We have 11 questions so, in terms of pacing of answers, if that can be borne in mind, it would be really helpful for all of us. We are going to kick off with some questions relating to the new aid strategy and ODA. I will direct the questions to you both, but feel free to decide between you who answers which question.

The new aid strategy is of course a joint strategy published by DFID and the Treasury. Can you tell us a bit more about what the respective responsibilities were between DFID and the Treasury in the challenge panel that is referred to in the Comprehensive Spending Review, Mark?

Mark Lowcock: Thank you very much, Chair. Good morning, everybody. Thank you for the opportunity to have this discussion. The strategy is a cross‑government strategy, and officials and Ministers from the Treasury and DFID took main responsibility for it, but clearly other parts of government, especially the Prime Minister’s office, were engaged as well. On the challenge panel, the main responsibilities were with the Treasury, which wanted to run some scrutiny of the bids that had come in across Government for the use of ODA resources. The main thing they wanted from DFID was professional technical advice on the ODA‑ability of things. I hope you will appreciate that my colleagues who went to help out with that panel had to be a little bit careful, because they were conscious that we were bidding for the same resources that other colleagues from Government were bidding across. We wanted to play a straight bat on that, so that was why the DFID responsibilities on the panel were restricted basically to the ODA‑ability question.

Q2   Chair: My understanding is that the effect of the strategy over the five years is that DFID’s share of ODA will fall from around 85% today to around 72%. Is there not a risk here that the focus on poverty reduction, particularly in the Global Goals, could be lost?

Mark Lowcock: That is exactly right, Chair. That is what we are projecting. It is a projection, I would say. Not all of the total ODA pot for the period has been fully allocated. What we found in the last Parliament is that the numbers ebb and flow a little bit, but what you have said is exactly the projection. It goes back, actually, to some questions Mr Hamilton was asking me when I was last here in February, on the “Beyond Aid” report that the previous Committee did and essentially the role of other parts of Government in contributing to development goals, including poverty reduction goals.

It is not our view that the effect of this is to change the very strong focus we have on poverty. It is to draw a wider variety of Government Departments, like the research network, for example. A lot of poverty problems are going to be solved in the period ahead, I predict, by the development of better technologies, knowledge, vaccines, products and so on. As Mr Hamilton was encouraging us to judge at the beginning of the year, doing that well is helped by involving the Research Councils, supervised by BIS, and the medical research community, supervised by the Department of Health.

Some people think, Chair, and maybe this is one of your underlying points, that there is somehow a tension between the national interest and development or poverty. Ministers and the Secretary of State are absolutely clear that that is a false distinction. Problems that would otherwise bump up on our shores or borders or inside our own country often have their origin—pandemics, terrorism, conflicts, things in the international economy and climate change—in other places. The Government believe that it is in the national interest to tackle those problems at source, which also contributes to the reduction of poverty. What the Government are trying to do in here is make the point to the country that the national interest on these things is essentially the same as development interests and reducing poverty.

Q3   Chair: I understand that argument but, if there is a shift geographically, which I think is suggested in the strategy, with a greater emphasis on the Middle East and North Africa, surely that must be at the expense of other priorities.

Mark Lowcock: A lot depends on the full set of decisions we take coming out of the BAR and the MAR. As you know, I am not in a position to tell you what that full set of decisions will be at this stage. No doubt we will have a chance to do that in the spring of next year, when Ministers have decided. All I would say is that I do not think it follows that this new set of objectives involves a reduction in the resources available in the Department for the poverty focus and poorer countries, including for the following reason.

A big chunk of the budget—and again this is an area on which Mr Lefroy has actually asked me questions before—has been going on the core multilateral share. The predecessor Committee was a bit critical of that, I think. One of the choices available is that, because a lot of the big multilaterals are less focused on the very poorest countries than we have been in the DFID bilateral programme, one of the choices available is to have a different balance for doing core multilateral from the bilateral and thereby free up some resources, for example for this essential crisis we have to deal with in the Middle East and Syria. Let us not forget that all those people who are displaced inside Syria, and in Lebanon and Jordan, face very acute suffering and poverty as well. That is also a poverty problem to be tackled.

Q4   Chair: You mentioned the BAR and the MAR. I understand that the Department is conducting a coherence exercise, looking at all of the different reviews. What will success look like?

Mark Lowcock: I will ask Anna to chip in on this, because she is supervising the BAR amongst other things. First, it will result in a set of allocations through which we can demonstrate, to you and everyone else that the Government have allocated resources to achieve all of their manifesto objectives, which are set out in the aid strategy. They are very detailed and quite quantitative, and have been built on by the Government since the manifesto, for example with the announcement the Prime Minister made on climate finance and the announcement he made, when he and the Secretary of State were in the Caribbean, on more support for those countries to improve their infrastructure, so they could become more self‑sustaining, and a variety of other announcements the Government have made. That is the first thing we have to do: to allocate resources to achieve all of the objectives the Government are committed to in the manifesto.

The second thing is to use this allocation process to drive value for money and to be focusing on the investments that have the highest return and which we can deliver effectively. As you have seen in the aid strategy, there is a new set of arrangements to ensure that, not just for the DFID budget but across Government, there is a much stronger collective focus on the value for money agenda even than we had when we boosted our efforts on this in the last Parliament.

My last point in what we need to do coming out of this process is that we will have a set of arrangements that sustain sufficient flexibility, so that we can respond to new things, as they arise during the course of the Parliament. We do not necessarily know what they will all be. In 2010, none of us predicted what would happen in the Middle East, but we do know that some new stuff will happen. We need to know how we will cope with that without doing damage to the achievement of the Government’s manifesto objectives. Those are some of the things that we will be looking at as Ministers take the final set of decisions.

Anna Wechsberg: What we are trying to do, particularly through the coherence phase, is to look at the various dimensions of this. We are trying to look at what we are trying to achieve sectorally, along the lines of the manifesto targets that Mark has just described. We are looking at what we are doing geographically and where we are working, and we are also looking at how we deliver, so whether we are delivering through multilaterals, through bilateral programming or through central programming. Trying to do three‑dimensional chess with all of that is essentially what the coherence phase has been about. We will not come out, as much as we would like to, with a perfectly optimised outcome. I think that is impossible, but hopefully we will have a more coherent set of decisions around how we deliver to achieve particular objectives.

Chair: Thank you, both. We have follow‑up questions on a number of the issues you have raised during the session.

Q5   Fiona Bruce: Good morning. Under the new aid strategy, what will be the distribution of ODA across Government Departments?  How much will be DFID money spent by DFID?  How much will be DFID money spent through other Government Departments?  How much will be the budgets of other Departments?

Mark Lowcock: Broadly speaking, for the first four years of the Spending Review period, there is about $52 billion or $53 billion in official development assistance available across the whole of Government. That is what 0.7% in each of those four years adds up to. Roughly $42 billion or $43 billion is in the DFID budget. The remainder is in a series of cross‑government funds, the two biggest of which are the Conflict, Security and Stability Fund, which has a bit more than $4 billion over the four years—

Anna Wechsberg: It is about $2 billion ODA, because it is ODA and non‑ODA.

Mark Lowcock: There is $2 billion of the ODA in there. There is a Prosperity Fund.

Anna Wechsberg: That is £1.3 billion over the five years.

Mark Lowcock: There is the Ross Fund, which we manage in collaboration with the Department of Health.

Anna Wechsberg: It is £1 billion for the Ross Fund and then £1.5 billion for the Global Challenges.

Mark Lowcock: The other big pot is the Strategic Climate Fund, which is £5.8 billion over five years. For some decisions, the Government have made five‑year allocations and, for some, just for four years. That is largely spent by the Department of Energy and Climate Change and DFID, with a little bit by Defra. There is a series of smaller allocations to other Departments. The Treasury, for example, which owns the relationship with the International Monetary Fund, will be financing the Poverty Reduction and Growth Trust, as has happened over a considerable period. The Home Office is engaged, for example through the National Crime Agency, with a set of ODA‑able activities, as well as taking the lead on the costs of resettling the 20,000 Syrians who the Government have said we will take into the UK. Other domestic Departments have part of that activity as well. There are a lot of Government Departments that have part of the resources, but the overall share to DFID, by the last year in the period, will be 70% to 72%, and the remainder will be for other Government Departments.

Q6   Fiona Bruce: What is your assessment of DFID’s and other Government Departments’ capacity to run the programmes?  I am particularly interested in BIS, bearing in mind that DFID itself still has challenges with regard to its private sector work. Will DFID be sharing its expertise across Government and, if so, how?

Mark Lowcock: The first thing to say is that the Treasury has been extremely clear, both in the document but also in what they have said internally to every Government Department, about the central imperative to be given to value for money, financial management, good quality management information and a strong focus on results. The Treasury has told everybody that what they are looking for is international best practice on project and programme management, clarity on accountability, the use of rigorous evidence and a disciplined approach to closing projects when they are not performing. For everybody, there is a strong focus on making sure that this money is spent well.

Now, a number of Departments will want particular help from DFID of the sort that we have been providing. There are two sorts of that really. The first is advice and guidance on what is and is not within the rules. The second is skills, processes and systems. We have seconded staff into the Conflict, Stability and Security Fund, for example, the secretariat over recent years. We have seconded staff to the Foreign Office for the Prosperity Fund. We have been working with BIS under the Newton Fund for the last couple of years. The biggest allocation to BIS is for research on the grand challenges, which will be channelled through the Research Councils. We also have a relationship with the Research Councils, so we collaborate there.

There are some details to be worked out on the precise governance of some of the programmes. What we are observing is quite a high appetite from other Government Departments for staff, capability and advice from DFID. As you know also, under the 2015 Act that put 0.7% on to the statute book, there is also a responsibility for the Secretary of State to ensure independent evaluation of the total ODA budget, so not just the budget managed by DFID or the Development Secretary but the total budget. That was explicitly flagged as something that we and the Treasury need to have particular regard to in the strategy, so we are also advising other Government Departments on how to handle that.

Fiona Bruce: I am particularly interested in ultimate accountability, but perhaps Wendy will come on to that with the next question, Chair.

Q7   Wendy Morton: Thank you for that lead‑in, Fiona. Good morning. Yes, I want to follow on with this theme of cross‑government funds. I would be interested to know what support DFID can provide to ensure effective design and delivery of these larger cross‑government funds that are now in place. I am thinking of the new Prosperity Fund, the International Climate Fund and the Conflict, Stability and Security Fund.

Mark Lowcock: Just picking up the accountability point as well, obviously Parliament votes for Department budgets. That Secretary of State, with the support of their accounting officer, their Permanent Secretary, has accountability for it. The only additional arrangements in respect of the shared funds arise for the Conflict, Security and Stability Fund and the Prosperity Fund. For those two, which are co‑ordinated out of the Cabinet Office, the National Security Adviser is the senior responsible owner, and he has a team in the Cabinet Office reporting to him and also a team for each in the Foreign Office, who run the secretariat arrangements. For the Prosperity Fund, there is a ministerial board, which is co‑chaired by the Minister of State Mr Swayne and by Lord Maude, Minister for UKTI and so on, and then they report into the National Security Council. Those are the accountability arrangements for the shared funds.

Just to build a little bit more on your question of how DFID is helping other Departments prepare to discharge these responsibilities, for the last two or three months we have had a team of three or four people working in the Foreign Office, helping them work out how the Prosperity Fund is going to work. The Prosperity Fund is a shared pot, so it is not just for the Foreign Office. BIS has a strong interest, as you implied earlier, and it is quite possible that DFID will have proposals to make to the Prosperity Fund as well, because we have a strong focus on economic development, but it is quite a lot of money for the Foreign Office to take on the new management of from a standing start. They wanted help from us with people to help work out how to do it, on processes, on how they are going to run a procurement system, on how they are going to run a monitoring and evaluation system, and on basically how they are going to subscribe to all of the rules of the games that the Treasury has set out, beyond what is in the strategy on doing everything we can to maximise value for money.

Q8   Wendy Morton: I know we have a lot to get through, but some of this is quite detailed. I would be interested to know what your assessment is of the effectiveness of the CSSF model of working under the authority of the National Security Council, but being hosted by the FCO. To what extent have you been able to judge its effectiveness in the short period that we have had so far?

Mark Lowcock: It was preceded by the Conflict Pool, which was a shared pool of resources, run or accessed mostly jointly by the Foreign Office, the MOD and DFID. We are just coming to the end now of the first year of the expanded CSSF, but we have had seven or eight years of Conflict Pool activity. Actually, the predecessor to the current ICAI team did a review of some aspects of that cross‑Government ODA. The first thing to say is that the projects and programmes that we are trying to do, including the ones that DFID is getting finance for from the CSSF, are all in conflict situations. They are difficult environments to operate in and we are trying to do difficult things, so there is not a 100% perfect hit rate. There is quite a good experience of learning. There is quite a good and improving project cycle management, to use our jargon, so increasingly we are observing that projects are well designed, and there is proper scrutiny and governance of them; the allocations every year are scrutinised, first by the National Security Council officials group, which is chaired by the National Security Adviser and comprises of me and my counterparts, who are the Permanent Secretaries. It then goes to the full National Security Council, so the governance and oversight are good. Monitoring and evaluation have definitely improved over the last two years or so, and financial management has improved as well. I would say, with the CSSF, the experience so far, recognising that it is trying to do difficult things, is actually pretty positive.

Particularly because Prosperity Fund resourcing is going to be built up gradually over time, during the course of the Parliament, it is manageable. We had experience in the last Parliament in DFID of basically having two or three years to plan for growth in the budget from about £8 billion to £10 billion. If you use that preparatory time wisely, you can do a good job spending the money. We are not worried about the ability of the system to spend the money well.

Q9   Wendy Morton: Finally, quite understandably with all that is going on in the Middle East and Syria, there is a big emphasis on peace and the Conflict, Stability and Security Fund, but there is obviously this other fund, which is the new Ross Fund for malaria. If I do not mention this, I am sure Mr Lefroy will follow up on this one. I would like to know how DFID seeks to ensure that the work funded by the new Ross Fund for malaria is additional to the support already provided to global health, via multilateral engagement with the Global Fund, which DFID supports and which also tackles malaria, as well as TB and AIDS.

Mark Lowcock: First, a lot of what we are doing through the Global Fund is around the provision of commodities, diagnostics and drugs to deal with malaria, so bed nets, antimalarial treatments and the rapid diagnostic test. Those are existing technologies, if you like. What we are trying to do with the Ross Fund, working with the Gates Foundation and the higher education and research community in the UK, especially through the Medical Research Council, together with the Department of Health, is largely around developing new technologies. As you will be aware, there is growing resistance to artemisinin, especially in East Asia. The world is going to need new technologies on the treatment side, and obviously we would all like there to be faster progress on vaccine development for malaria as well.

Malaria is an example of a wider range of problems that we strongly believe we can find better solutions to by investing in and developing better technology. The UK has more capability than anywhere in the world, except perhaps Massachusetts and the San Francisco Bay Area in the US. It makes a lot of sense for us to be investing in trying to provide those new solutions. Did you want to come in on that?

Anna Wechsberg: I just want to add one thing, just to clarify on the Ross Fund. It does, as you say, have a very important malaria component. Mr Ross was the scientist who won the Nobel Prize for first working out that mosquitoes spread malaria, but the fund itself will also cover research on a wider range of infectious diseases, including neglected tropical diseases and highly dangerous diseases such as Ebola too, so it is a wider set of research issues.

Q10   Chair: Can I just take you back to the Prosperity Fund?  As I understand it, the Prosperity Fund is going to focus on economic development. What is the rationale then for it to be under the leadership of the NSC?

Mark Lowcock: It is a very good question, Chair. We had a discussion about that. As we said in the Strategic Defence and Security Review, global prosperity is part of what makes us secure as a country. If other countries are becoming more prosperous, what you are going to observe is that security issues become less acute. The Government were very explicit in the Strategic Defence and Security Review, in saying that prosperity is a dimension of what makes us safer.

We still could have chosen different arrangements for managing the Prosperity Fund. There are pros and cons to lots of options. The basic reason why the Government decided to do it this way was that the Cabinet, the Prime Minister, the Chancellor and others wanted an overview of what was going on. That was easiest to achieve through the established machinery of the NSC. They wanted to have a decision‑making system that did not favour one Department over others, because they were worried that that would run the risk that, if there was a brilliant idea from Department A but the fund happened to be managed by Department B, maybe Department A’s brilliant idea would not get funded. That was part of the rationale. The experience of the Conflict, Stability and Security Fund has been pretty positive. You are right to say that there could have been alternative arrangements.

Q11   Chair: It does feel a bit odd, does it not?

Mark Lowcock: Personally, I think we have come to the best solution on it and I have tried to describe to you the thought process behind it.

Q12   Mr Evans: What is DFID’s role in ensuring that all ODA spend is compliant with the OECD Development Assistance Committee’s rules?

Mark Lowcock: The strategy has vested in DFID the responsibility to advise on that. The first thing we have to do is make sure, both proactively and reactively, that we are giving every other Government Department the full information on whether what they would like to do is going to comply with the rules or not. That is the first thing.

The second thing is that we have an annual responsibility for assembling the Government’s return to the OECD on UK official development assistance. There is a very full quality control and scrutiny process for that. The 0.7% number is a national statistic, so it is supervised, like all other national statistics, by the Office for National Statistics. The chief statistician in DFID is somebody we hired from the ONS. He has responsibility to ensure that, when we aggregate across Government all the ODA numbers, we do so in a way that is compliant with the ONS. He has to test out with the Development Assistance Committee in the OECD any cases that might be at the margin, get a ruling from them and then pass that on.

Mr Evans: He has to seek guidance from them to see that it is compliant.

Mark Lowcock: Yes, absolutely. Sometimes you are doing something new and you want reassurance that it scores within the rules, or sometimes the rules are a little unclear. There is a process going on—

Q13   Mr Evans: Is there any wiggle‑room onwhether it is compliant or not, particularly in new areas?

Mark Lowcock: Whenever there is wiggle‑room, what we do is we get a ruling. We never put ourselves in a position where there is residual doubt. The last bit of the framework is that the processes that are followed are also subject to the NAO’s audit processes, so there is quite a comprehensive structure around this.

Q14   Mr Evans: For the spending on the 20,000 migrants who are coming in, I understand that the first year is compliant. Anything above that is not compliant; there is no wiggle‑room there at all.

Mark Lowcock: The rule is absolutely explicit on that. Some people were surprised that we were doing that with the 20,000. In fact, we have been doing that for some years, but we may not have communicated it well enough. I do not know. The rules in that space are absolutely crystal‑clear and the Government have budgeted, under the Spending Review, to help local authorities with some of those costs in years two to five.

Now, the rules are set by consensus in the Development Assistance Committee of the OECD. There is a discussion going on about whether any amendment is needed to the rules in some areas to reflect how the world is changing. There will be a high‑level meeting that the Secretary of State or I will go to in February, which will look at some amendments that should be made to that. We have some ideas in the UK to offer up to that process.

Q15   Mr Evans: What sort of amendments are you seeking at the next meeting?

Mark Lowcock: We are seeking amendments particularly in two main areas. One is to do with private sector instruments. At the moment, to give you an example, if you issue a guarantee that might allow a lot of other private resources to flow to a project in a developing country, you get no ODA credit for the issuing of the guarantee. The ODA starts to score if the project fails and the guarantee is called. Now, that is clearly perverse. A better system would be to get some ODA credit essentially for the value of the guarantee. You could think of it as an insurance premium. That is one example, but I could give you more examples in that space. There are other examples in the area of security and development. Maybe Anna, who has just been doing this negotiation, could say a bit about those.

Anna Wechsberg: As Mark says, there are a number of areas around peace and security, where what we are trying to do collectively in the OECD’s Development Assistance Committee is bring the rules in line with particularly what Global Goal 16 says around peace, security and justice. It has been axiomatic for the OECD system not to work with developing country militaries for a long time, for reasons that are fairly clear, but there are now some very specific areas where we and a number of other donors think that those rules now need looking at again.

For example, we do a lot of work on preventing sexual violence. We would like to be able to do more work training armies on human rights, how they can deal with those situations and how they can deal with rape victims in conflict situations. At the moment, we cannot score that as ODA. It is issues like that where, without wanting to open the floodgates, which is important, particularly for some other donors—the Swedes are very sensitive about this in particular—we can start to bring the rules more in line with how development is working in the real world and the challenge that we have around conflict and security.

Q16   Mr Evans: You are getting some support from other countries on that.

Anna Wechsberg: Yes, we are getting a lot of support actually. I would say that we are pretty close to consensus. Sweden has a problem in principle with anything that they consider to be a move into militarisation, as they see it, or securitisation of aid, but most people see the logic. We need to make sure it is properly safeguarded.

Q17   Mr Evans: That is fair enough. Most people get incredibly confused when you talk about the 0.7% and then they work out that other Government Departments are spending some of that money. They are all a bit surprised that it is not all being spent by one Government Department. Are you happy that the monitoring in other Government Departments is good enough?  I make one reference to lots of stories in the Daily Mail not so long ago and a bit of embarrassment about certain projects, where international development money was being spent, and whether it was good enough. All of a sudden, they realised that the Foreign Office was spending that money. There seemed to be a bit of a spat between the two Departments.

Mark Lowcock: I am perhaps not as eager a student of the Daily Mail, Mr Evans, as I ought to be.

Mr Evans: I can hardly recommend it, particularly with international development spending.

Mark Lowcock: You are way above my pay grade. Most Government Departments that work in this area have been doing some work for some years. That is the truth of it. A lot of them are doing more now. Going back to what I said earlier on, we have observed that developing countries, a lot of which have come a long way in their development over the last 10 or 15 years, are less reliant on the financial resources than they used to be reliant on with us and are much keener to have wider relationships with the UK on institutional partnerships. They want help from the revenue authority or they want collaboration from the National Crime Agency.

Given that that is what developing countries want, and given that Britain has some of the world’s best institutions in the relevant areas, it makes a lot of sense, as we said in the discussion we were having at the beginning of the year, to use that capability and expertise. What we are seeing is a continuing direction of travel really. It is absolutely the case that, in order to get the best value from all of that money—and it is growing—we need to work really hard, have good capability, good systems and processes, and good scrutiny. The 2015 Act requires the Secretary of State to put in place arrangements for the whole of the ODA budget, which provides that review and evaluation independently. As the strategy says that DFID has been vested with that, we have to take an interest in that.

Q18   Mr Evans: We just joked about the Daily Mail, but you must read the newspapers or get press cuttings. Do you not, from time to time, look at some of these projects or some of the related news headlines, and think, “Oh goodness me, how has this one passed?” 

Mark Lowcock: All of us sometimes have projects that we start with the best of intentions and sometimes, for reasons outside of our control or because we do not manage them well enough, do not do well. I had a not very comfortable hearing in front of the Committee at the beginning of 2013 on a project where we made a bad job of the management. When we are in that position, what we have to do is fix the problem, learn the lessons and move on. That is basically the culture we are trying to develop in the Department.

The Secretary of State wrote yesterday to you, Chair, on the volume of programmes that we have redesigned or reorganised in the first 11 months of this year. It was £141 million of business we had to reorganise, which freed up £91 million. That is a bit less than 1% of the Department’s budget. It is intrinsic that some of the cases we had last year were things we were going to do in Sierra Leone but could not do because of the way the Ebola crisis played out. In South Sudan, we were going to do some things on education, but the civil war stopped us from doing them. Sometimes there are things beyond our control that mean we have to change course and, other times unfortunately, we do not manage things as well as we need to and then we have to fix the problem.

Q19   Mr Evans: I will just ask the last question, because I know we are pressed for time. Is the crisis reserve fund, announced as part of the aid strategy, new money or consolidation of existing contingency funds?

Mark Lowcock: It is sort of both. There is a chunk that absorbs what we have always had in DFID as a contingency fund. There is £200 million of the first sort, the existing contingency that we have always had in the Department. The £300 million is best understood as a commitment in DFID. Although we have uses for that £300 million, which are good and sensible and wise, in any year, we will be able to free it up if we need to, if there is a new crisis. We do not want to be in the position of having that £300 million sitting there in a pot all year, without good things to do with it, if it is not needed for a new crisis.

Q20   Mr Evans: So it is part of the 0.7%.

Mark Lowcock: It is absolutely part of the 0.7%.

Q21   Mr Evans: Can it roll over?

Mark Lowcock: It will tend not to roll over, because the £300 million will be for things we have uses for if there is not a new crisis. We will allocate it to those uses and may be able to achieve some other results earlier than we would otherwise be able to do. That is basically how we plan to manage it.

Q22   Pauline Latham: Could I go back slightly to when you were saying that some things go according to plan and some do not?  If you remember, we went to India and looked at reducing the funding to India. You wrote recently to the Chair, because I had asked a question about what was happening. I thought by this financial year we were going to be phasing out the money to India, but we are still spending £427 million. That was last year and this year. That does not seem like any phasing‑out to me. Why are we not phasing out, as we said we would?

Mark Lowcock: This has been in the newspapers recently. The commitment the Secretary of State made is that we would end traditional financial aid to India in the current financial year, and that is what we have done. The thing that was in the newspaper last week was about the 2014 year. In fact, what we have done is accelerate the exit process. We finished some of the results we were planning to finish this year last year, which meant we paid the bills last year. We are on track to end financial aid from DFID to India this year.

When the Secretary of State made that announcement, she also said that we would continue with two things—first, a technical assistance programme and, secondly, an investment programme of returnable capital, where we would invest in things with a return to try to get the economy moving, especially in the poorer states. Of course, if we are a member of a multilateral organisation or things like the Global Alliance for Vaccines and Immunisation, they will have their own governance and decision-making on where they spent what.

Q23   Pauline Latham: These figures do not include that.

Mark Lowcock: They do include that. The last column includes the multilaterals, and the centrally managed programmes includes some things for which we are not the only decision-maker.

Pauline Latham: That is only £85 million though.

Mark Lowcock: The figures also include other Government Departments and CDC. I am happy to give you a fuller breakdown, if you like, but what I can tell you is that we are in fact slightly ahead of the commitment we made on the DFID financial aid programme on India at the end of 2012.

Q24   Chair: Mark, could you write to me setting that out in detail and I will share that with the rest of the Committee?  Thank you.

Mark Lowcock: I would be very happy to do that.

Pauline Latham: That would be very helpful, thank you.

Chair: We are going to move on now to look at the balance between the multilateral, bilateral and humanitarian spending.

Q25   Mrs Grant: Why has multilateral ODA grown at a much faster rate than bilateral ODA over the last five years?  Does this perhaps reflect the fact that DFID lacks capacity, maybe, in managing some of the larger bilateral programmes?

Mark Lowcock: Clearly it does reflect the set of decisions that we made in 2010, coming out of the Multilateral Aid Review, when we put significantly more money into the well performing multilateral institutions—the World Bank, the Global Alliance for Vaccines and Immunisation, and the Global Fund to Fight AIDS, TB and Malaria, in particular. I know that, in some of the other documents that you have, there is a number that implies quite a big increase in the multilateral share between 2009 and 2014. I would just observe that 2009 was an unusually low year. If you take the longer period as a whole, the changes are actually two or three percentage points, not the larger number that is in one of the documents that you have.

Q26   Mrs Grant: Why was it a lower year?

Mark Lowcock: It was just to do with the way that the multilateral funding replenishments worked. Sometimes for the World Bank, it is higher in one year than another and likewise, for example, on the EU side. It was just the way the numbers came out in that year.

In terms of direction of travel, I think what we will see when we do the numbers for 2015‑16 is that the multilateral share will come down somewhat in the DFID budget. I might be wrong about the precise number, but I think it will be nearer 38 or 39 than 42 or 43. That reflects some decisions that Ministers have made since the 2010 decisions. Indeed, it reflects some of the earlier discussions you have had with me and Ministers here.

One of the most important policy evolutions we have had is over recent decisions for how much more money to give particular multilateral institutions. The Government decided to cap the British share of the bill. When there was a big replenishment of the Global Fund to Fight AIDS, TB and Malaria two or three years ago, the Government decided that it would not provide more than 10% of the total pot. Last year when there was a replenishment of the Global Alliance for Vaccines and Immunisation, for which Britain has been an overwhelmingly powerful supporter—we previously provided more than 30%—the Government capped our share at 26%. When last year we did a replenishment of the Global Partnership for Education, where we have been a very generous supporter in the past of up to 26%, the Government capped our share this time at 15%.

If we take a series of similar decisions, which is one of the things that Ministers will determine through the MAR for the other multilateral choices within our control—and I should say that they are not all completely within our control, as there are a few that we have less direct control over, but a lot we do—then that share would change. This goes back to my first answer. One of the things about the four objectives that we have set out in the ODA strategy is that the UK’s bilateral programme scores better on those four objectives than a lot of multilateral contributions do. It follows through the logic of the four objectives that it would be reasonable to take decisions in the next five years to prioritise the bilateral programme a bit more.

Q27   Mrs Grant: Is DFID’s capacity to spend money an irrelevant factor?

Mark Lowcock: In the 2011 and 2012 years, we spent a lot of time and effort on building the capacity of DFID to spend the money that we knew was going to arrive in 2013‑14. We hired 500 extra staff, mostly professional staff. We boosted our frontline capability in all the countries. We put in place new processes, our smart rules. We trained hundreds and hundreds of staff in project and programme management. We introduced a new senior responsible officer system. We did a lot to build our capacity. Dr Evans, in some things she has said publicly has made this point: we had the time to prepare.

Over the next five years, on the basis of currently published numbers, the DFID budget will grow by about 10% in cash terms. We have not yet finalised the operating cost budget for the department, so we have still to agree with the Treasury how many staff we will need to run that, bearing in mind that we are being asked to do lots of things for other Government Departments in the period ahead, which I have been talking about. I am expecting us to be able to afford to give Ministers choices on how much bilateral and how much multilateral. We are trying to be in the positon where our own capacity is not a binding constraint on the choices Ministers want to make.

Q28   Mrs Grant: Just very quickly and lastly, how do you expect the balance of your spending to change over the next few years?

Mark Lowcock: It is really hard to answer that definitively. That is the question we are answering through the Bilateral Aid Review, the Multilateral Aid Review, the Civil Society Partnership Review and the Science and Technology Review, over the next four months or so. We will have a stronger focus on crises, which we have had for the last couple of years, but we did not have in 2011‑12. That is the second objective in here. We will have a strong focus bilaterally on governance, peace and security. That is the first objective. We will be doing more across Government, clearly through the Prosperity Fund but also as a Department and with CDC on prosperity.

The Secretary of State restructured the Department to do more on economic development at the beginning of 2013. We have a really good portfolio in that area actually, which we would like to be able to pursue, but we will continue, because the Government have made very big commitments on education, health, water and sanitation, and nutrition, and those things that are to do with ensuring that no one is left behind under the new Global Goals. The 10% of the world’s population who are still in extreme poverty will remain a very big focus of the Department’s work.

Q29   Fabian Hamilton: Hello, Mark, and thanks for remembering our evidence session from February. I am sure you had some help with that. Over 60% of DFID spending, as you know, goes to multilateral organisations. We have that figure from the NAO briefing, paragraph 2.5, figure 5. Are you happy to rely so much on one group of organisations?

Mark Lowcock: What we have been trying to do is increase the competition essentially for the 20 percentage points of those 60 percentage points where we have discretion after the core multilateral. Basically, what we have been trying to do is we start, say, from Nigeria. You are going to Nigeria shortly and you will see the things we are doing on education, health, economic development and so on. In Nigeria, one of the big things we have been trying to do is to get more girls especially into school in the north of the country. We start from the problem. How do we tackle that problem?  We do not feel that we can put resources through the Government of Nigeria’s own budget, essentially because of fiduciary concerns.

That leaves us with three options. We can hire a multilateral organisation to deliver programmes for us. We can conduct a competition for some private sector consortium to deliver projects for us or we can give grants to NGOs. In fact in that case, we have done all three. In the past, we have too easily leapt over the decision‑making process. How do we get competition among suppliers to solve that problem?  What we have been trying to do is get a lot more competition into that choice between multilateral, private sector and civil sector. What has in fact happened is the private sector element has grown, the civil society element has grown and what we call, in our jargon, bilateral through a multilateral has been contained a bit. From my point of view that is good, because it means there is more competition in how best to solve the problem. It remains the case that sometimes the best way of solving the problem or tackling the issue is to give a grant to UNICEF, the UN family planning agency or one of the other UN organisations. We are trying to make that driven more by value for money and more competitive.

Q30   Fabian Hamilton: You are currently reviewing the total support you give multilateral organisations through core funding and specific funding. I was wondering how those reviews are going.

Mark Lowcock: Maybe we can tell you a little bit about the review process. We are trying to do one or two things slightly differently, this time. I know you have a terrific note from ICAI, which sets out some of this, but I will reprise for you some of the things we are trying to do this time.

Q31   Fabian Hamilton: Mark, before you do that, you may like to consider my final question, which is relevant. This Committee, ICAI and the NAO have all argued that DFID needs to do more to compare the value for money of different deliver routes or organisations. Again, I wonder what comparisons you have undertaken as part of your current aid reviews and how these are affecting your allocative decision.

Mark Lowcock: That in fact is one of the things we have been trying to do better this time. Let me just start with that. Firstly, the UK has always been a big believer in the multilateral system. We think that the UN, World Bank and IMF are important institutions that the world should support in all our collective interest. Equally, we think the UK as a country has a lot to offer on development, so we have always wanted a bilateral programme as well. The issue is the balance between the two.

I should say that there is no magic formula to decide what the right proportion is. In a way, the parallel I would draw is when the Government decide how much money to put into the education system in this country versus the health system in this country. It is a judgment, ultimately. It is a political judgment and it is not susceptible to a formula. In a way, what we are doing with the core multilateral versus the bilateral is similar. They both contribute to development, but there are judgments to be made about the balance. I have given some hints on the direction of travel and things we are thinking about for the future, during the course of the hearing.

Some of the things we are trying to do differently this time on the Multilateral Aid Review is look much more explicitly at the role each agency plays on improving lives and opportunities for girls and women, which is a big priority for us. We are giving priority to those agencies that make a contribution to humanitarian crises, which is the second objective in the new strategy. We want to have a focus on economic development and infrastructure as well, and then we have a stronger focus on whether they are managing risk and value for money well.

Finally, something we did not do last time, and people observed this and suggested we should do it this time, is that we are trying to look a bit more at the whole system. Particularly in the humanitarian sphere, what the world needs is for the UN High Commissioner for Refugees to work very well with the World Food Programme and UNICEF. Take Lebanon: refugees get registered; they get food or vouchers; they get access to an education system, so they get a package. One of the consequences of the way fundraising works in the UN is that each agency will essentially appeal for its own resources. There are forces that divide the agencies. What we are trying to do is create incentives to join them up better. There are things we might be able to do through our funding decisions after the Multilateral Aid Review, which create incentives for more collaboration, which would end as better support for refugees or other people in crisis.

Q32   Fabian Hamilton: We saw some of that collaboration last year, for example in Zaatari in northern Jordan. Is that the kind of collaboration you would be happy with, or do you think it should be better than that?

Mark Lowcock: I have been to Zaatari too. Relative to lots of places I have been with these problems, it is a very well run set‑up. The Government of Jordan have displayed enormous generosity in the way that they have taken in very large numbers of refugees, and they and the wider world looks after them better than refugees in some places get looked after. I would say, like you, that that is a relatively good example.

The problems tend to be a bit more micro. What we are trying to do is create incentives, say for UNICEF and UNHCR on education in Lebanon, to do things that are mutually reinforcing and supportive. This happens in every bureaucracy, so I am not criticising them. I am just observing that they are responding to the incentives in their system, rather than doing things that may be good immediately for UNICEF’s fundraising or for UNHCR’s fundraising, but may not be the best way to provide Syrians with a better education. That is what we are trying to get at.

Q33   Dr Cameron: I am wondering what the potential implications are of the new agenda’s priorities for DFID’s existing work, particularly project sustainability.

Mark Lowcock: This is a really key area that we are spending quite a bit of time on, because we have more good uses for the budget available to us in 2016‑17 than we would be able to finance. We are going to be trying to do two things at the same time. We will be sustaining our investment in projects and programmes. We have an ongoing commitment to finance 11 million girls and boys to go to school, provide water and sanitation services for 60 million people and family planning services for 24 million people. We have a lot of programming on the way, and we want to sustain all of those things.

We also need to free up some resources, especially for the Middle East crisis next year. As you know, the appeals have been underfunded this year and there is a whole host of reasons why large numbers of Syrians have moved. One of them is because the international relief system was not working well enough. At the beginning of this year, people did not think they were going to be looked after well enough in the places where they are, so we need a better solution to that problem for next year.

What we are basically trying to do is to sustain all of the high quality programming we have, at the same time as taking on these new priorities. As the budget is not growing very much, we have some tougher choices to make and that is what we are working through at the moment. It may be that we can re‑phase some of the things we were planning to do, particularly on the multilateral side. That is one of the things we are looking at. As we go further into the future, the budget is less heavily committed, so it is a little easier to win the three‑dimensional chess game that Anna was describing, but we are very focused on exactly your question. There is quite an acute challenge for the 2016‑17 year.

Q34   Dr Cameron: I am wondering how the emphasis on prosperity in fragile states fits with the substantial commitment to all of the Sustainable Development Goals, which we have had an inquiry into and have been hearing so much about.

Mark Lowcock: The focus on prosperity is the way to achieve a lot of the 17 goals, including the first one to lift the remaining 10% of people below $1.25 or $1.90 above the poverty line. In the current financial year, we are basically on track for the commitment that the Secretary of State made that we would spend £1.8 billion on economic development this year, so we have a substantial portfolio there. Prosperity is a continuing priority, as we have said in the strategy. There are departments other than DFID that can contribute to it, but we have a significant offer there.

Again, sometimes there is a false distinction drawn between prosperity and economic development on the one hand, and dealing with poverty on the other hand. The way to deal with poverty is ultimately to make more people better off. Particularly in the set of things we are doing, we think this is the means to the longer‑term goal for a lot of activity, including investing in infrastructure in countries and the business environment, so that they can raise more of their own tax revenue and finance more of their own public services, which is something we have been working on for a while and on which lots of countries are making good progress.

Q35   Dr Cameron: It sounds like you are saying that economic development is one of the underlying levers that is going to affect a number of goals. What about the remainder of the goals?  Are there any on which you do not think it is going to have a big impact?

Mark Lowcock: Maybe I can ask Anna to talk about our approach to the goals.

Anna Wechsberg: First, the Global Goals remain the framing for the UK aid strategy as a whole and very clearly for what DFID is trying to do. Actually, the five Ps of the Global Goals—planet, prosperity, peace, people and partnership—fit quite nicely under the four new objectives of the UK aid strategy. That is good, and I think it is because the two, both the Global Goals and the UK aid strategy, are about looking at the thing in the round, which is for exactly the reasons that Mark has just set out.

Again in the UK aid strategy, as Mark said earlier, we have set out quite a long list of commitments, which the Government signed up to. That includes a lot of human development targets with quantified numbers that we have to reach. That stuff is locked in and it has to be done. We also have the climate commitments. We have talked about prosperity as well, and we have a major commitment on peace, security and fragility. Added all together, it is quite hard to see a bit of the Global Goals framework on which we will not be very heavily engaged. There will perhaps be some that we do more of than others, and they probably reflect, in the way we talk about what we do, the things that we have championed in the framework itself. The standalone goal on girls and women and Goal 16 on peace, security and justice you will hear the Government talking about a lot. They are the things that we have said consistently we want to take part in.

The other thing that we are still working through is operationalising the “leave no one behind” commitment, which remains extremely important. We will do that in a number of ways. Working in fragile and difficult places is part of that but, within those places, who you target, how you target and a continuing focus on inclusive growth, particularly for girls and women but also for other excluded minorities, will remain extremely important. We have done a lot of work around disability for example. That is one of the key issues that we need to work through now, as we complete the work on the Bilateral Aid Review.

Q36   Dr Cameron: That is very helpful. What about the countries where there remains extreme poverty and where people are being left behind, people with disability and girls and women, but where there are no security issues in those countries?  How are you going to marry that in terms of funding?

Mark Lowcock: One of the big decisions for us to take on the Bilateral Aid Review is confirmation of which set of countries we are going to run bilateral aid programmes in. Now, in all of the places—the 28 countries that we have focused on from 2011—we are delivering some combination of health, education, water and sanitation and nutrition programmes. In virtually all of those countries, there are still people who are below that extreme poverty threshold. The logic for us, for the vast majority of those programmes, is to continue what we are doing, so that we can ensure we finish the job and do not leave anyone behind. The exact balance is one of the things that we are working out through the finalisation of the review process.

We will publish a set of decisions of what we are going to deliver where, over the course of the Parliament, and how the resources will be allocated. We will bring it all together, and I was talking to the Secretary of State about this last night. We will have a comparable set of documents to the ones we had in early 2011, which explain in detail the precise answer to that and all the other questions we are dealing with through the review process.

Q37   Dr Cameron: It is a work in progress. I suppose my underlying issue is that perhaps a lot of the work that is being done there would reduce the likelihood of conflict in those countries and shifting to other countries.

Mark Lowcock: I completely agree with you. That is exactly right. That is the exemplification of why the Government have been saying that people who think there is a difference between the national interest, on the one hand, and promoting development and reducing poverty, on the other hand, have not understood the problem, really. We cannot, as the UK, be everywhere and tackling that set of problems everywhere. We have to make some choices. It is intrinsic that not everyone will agree with every choice we make, but we are very conscious of the importance of maintaining stability and progress in places that might not be today’s crisis but, if we are not careful, could be tomorrow’s crisis. We are acutely conscious of that.

Anna Wechsberg: Very quickly on that, the Strategic Defence and Security Review logic is exactly that, which is not just responding today to the things that are going on but using the resources that the Government have to work upstream, precisely for that reason.

Q38   Chair: Mark, you mentioned the 2011 process resulting in the 28 countries. The new aid strategy inevitably means a bigger emphasis on the Middle East and North Africa. Will we be looking at additions to the 28 and will we be looking at subtractions from the 28?

Mark Lowcock: We will be looking at additions because, when we did that list, we did not know what was going to happen in Syria, Jordan and Lebanon, and we have had to respond to that. I am not expecting there to be major subtractions. Ministers have not decided the full set, but it is not my expectation that there will be major changes on the list, other than the ones we have already announced, which includes the much more limited engagement we had bilaterally in India.

Q39   Jeremy Lefroy: You will remember that there was a disagreement between most of the previous Committee and the Government on the situation of Burundi, over bilateral aid. Given that Burundi is, by some statistics, the second‑poorest country in the world and is obviously very fragile at the moment, do you expect that the Government would consider the reinstatement of some kind of a programme in Burundi, perhaps subject to certain conditions being fulfilled, given that it is the only country in that region where DFID is not engaged bilaterally and it seems to be a hole? 

Mark Lowcock: There is no decision on that. Obviously there are a number of places where we are more engaged now than we have been in the past, which we have been drawn into. I was saying just now that Ministers will be faced with exactly that choice. We do believe that being reasonably concentrated is a way of maximising impact and value for money. As you know on the refugee issue created by Burundi, we have been very engaged in supporting Rwanda and Tanzania. It is also the case that the commitment we undertook in Burundi we have discharged, so we have continued to play a role in supporting their integration into the East African Community, on revenue issues and so on. I am not at liberty; I do not know what Ministers will decide on the thing you are driving at on Burundi. That is one of the issues where they will tell us what they want to do.

Q40   Chair: There is a possibility for Burundi.

Mark Lowcock: You are drawing me in a direction that I am not in a position to be drawn in. We could have the same discussion about the Central African Republic. I completely respect and admire the fact that Members of the Committee are very knowledgeable about Burundi. The Government took some decisions and my job then was to implement the decisions. It is a completely legitimate question, but I do not know what the answer would be this time.

Chair: I actually think there is a really strong argument for the Central African Republic, but I will not ask you about it.

Q41   Fiona Bruce: Just pursuing the point about the countries you are going to work in, DFID’s working definition of fragile and conflict‑affected states is currently “countries where the Government cannot or will not deliver core state functions to the majority of its people, including the poor”. That actually applies to 21 of your current 28 countries. Again, that accounts for 84% of DFID spend. Do you think that that now needs review in light of the 50% target?

Mark Lowcock: Yes, it does need reviewing, because the world has changed since 2010. What we have done is another piece of analytical work on this fragility issue. We identified three criteria. Those states and regions that suffer external and social stresses that are particularly likely to result in violence is the first thing we looked at. We looked secondly at whether the states have the capacity or lack the capacity to manage disagreement and conflict in a way that does not lead to violence. Thirdly, maybe the most important new thing we did was to look as well at neighbouring states that are especially susceptible to instability because of who their neighbours are. We went through that criteria process.

We used a lot of open source analytical material from the World Bank, the UN and academic sources. We have set a new definition. We have written a list of countries that are inside the definition. It is a defined list, so it is not susceptible to us deciding that one day someone is in and the next day they are out. It is a rigorous, tight and defined list. We will publish the definition and the list. Obviously we cannot rule out that the world will change again and we will find, as we did in 2011, that we are drawn into places that we did not think we would be drawn back into. For that 50% target, we have a tight, precise definition of what is in and what is not, and we will publish it.

Q42   Fiona Bruce: Will that 50% include bilateral and multilateral spend?

Mark Lowcock: I will need to write to you exactly how that works, if I may, Mrs Bruce, because I cannot remember.

Anna Wechsberg: It does; it is the whole DFID budget.

Mark Lowcock: That is the answer. I will not need to write to you.

Q43   Chair: Is the sense, then, that the increase in support for fragile states will be through a mixture of bilateral and multilateral, or will it predominantly be through multilaterals?

Mark Lowcock: As you said, something like 85% of the bilateral programme at the moment is for fragile and conflict‑affected states. It will remain at a very high level. It goes back to the point I was making at the beginning, Chair. If you compare British bilateral aid with what multilateral organisations do, you can see that, bilaterally, we have a much stronger focus on extreme poverty, fragility and conflict than multilateral aid does, on average. That points you in the direction of supporting institutions that are a little bit more closely aligned with the four objectives that the Government have set, recognising that we also want to continue to be strong supporters of the overall multilateral system.

One of the ways of solving this problem, which we are doing, is to pursue a dialogue with the multilateral institutions to try to focus their resources more on countries where there are real problems. To give a topical example, which is very live at the moment, for Jordan the only access to World Bank money is at 4% with short tenors. Their debt is 90% of GNI. The Government, from His Majesty down, have been very candid with us that it is not very attractive to keep borrowing at 4% to deal with the refugee problem.

Q44   Chair: How receptive are the multilaterals when you raise that?

Mark Lowcock: We are in an energetic dialogue with them and we will see where we get to with it. We think that the world needs different things from these institutions in the period ahead than we needed in the last period. In the same way that the Government have set different priorities and allocated resources differently for the British development programme, the same applies for the shared institutions as well. We are in dialogue on that.

Q45   Dr Cameron: How will the focus that you have on fragile states impact on your operating costs?

Mark Lowcock: We have not finalised the operating cost budget yet with the Treasury. As the NAO document that they did for you for this morning’s hearing says, the operating cost proportion has basically come down over the long term. It is 2.3% for the current year. Within that, we have been able to afford substantial increases in capacity, but my view is that we will need more capacity than we have at the moment to discharge the set of responsibilities the Department has been given for our own budget but also, crucially for the point Mr Evans was making earlier, for how we help other Government Departments discharge their responsibilities effectively. That is a live discussion with the Treasury.

That 2.3% compares, for example, to an allocation within the Conflict, Stability and Security Fund and the Prosperity Fund of 5% for the operating costs. By any standards, DFID is a pretty lean machine. When the NAO looks at this, year after year, they say we are lean by international comparisons. We think it is good to be lean, because every bit of money we spend on staffing is money that we do not have available to send another girl to school or inoculate another baby. We think that is the right approach, but we will need more capacity.

Q46   Dr Cameron: Are interventions in fragile states more costly, then?

Mark Lowcock: In some, they are a lot more costly. In others, because we are so heavily concentrated there, they are just average. In Lebanon and Jordan, because per capita incomes are high, everything is a lot more expensive in those countries. Running operations is a lot more expensive in those and in Turkey than, say, in Bangladesh.

Q47   Dr Cameron: Would you be under pressure to reduce staffing costs in other countries?

Mark Lowcock: It depends on where we get to for the overall operating cost budget. I have said here before that it is not really tenable for me to accept an operating budget in which I do not think we can discharge our core obligations. I have a responsibility to make sure we get to a sensible place on this. In fairness to them, the Treasury has been very sensible about that. They agree that you need enough capacity to spend the money wisely. That is the basic point.

Q48   Dr Cameron: I am wondering if there would be a likelihood, then, of more centrally run and managed programmes and, if so, what sorts of implications that would have on your in‑country presence, staffing and on‑the‑ground involvement with civic society.

Mark Lowcock: That will come out in the wash. I am not expecting a further shift in that direction. It is something that the Committee has been concerned about in the past and we are very alive to that. We will have to see where we get to. We have this fantastic Girls’ Education Challenge Fund, which is providing education opportunities for 1 million marginalised girls in fragile places, who we have not been able to reach in other ways. It works in 10 or 11 countries. The most efficient way to run it is through a central system. There is a lot of engagement in each of our country offices with what they are doing and how well they are doing it, so there are cases like that where having something that is organised from the centre is the most efficient system, but I am not expecting there to be a growth in that particularly, at the moment. Maybe I will be proved wrong and they make all the numbers add up, but that is not what I am currently expecting.

Q49   Dr Cameron: The strategy envisages more work in countries where DFID does not have a country office, such as the Middle East. How are you going to make that work?  Would it mean more spending via multilaterals?

Mark Lowcock: Essentially, what we are doing in Jordan and Lebanon is building our capacity as part of the embassy team. It may not formally be called a country office, but the capacity they have is very like what we have in some other countries. In those kinds of places, what we really need is an effective cross‑Government approach. We need to be able to collaborate effectively with the Foreign Office on the dialogue with the host Government and with some of our colleagues in the Ministry of Defence sometimes, on shared activities. We are already putting more capacity into Lebanon and Jordan, and we have a few more people in Turkey. We are already doing that. What we call the team there is not the biggest issue, as long as we have the capacity we need to discharge the functions.

Dr Cameron: It sounds like that will be cross‑governmental.

Mark Lowcock: A lot of it will be cross‑governmental, yes.

Q50   Jeremy Lefroy: There is a lot of emphasis on security and justice and economic development, areas in which the Independent Commission for Aid Impact for instance has, in the past, said that DFID has some weaknesses. I wondered how the Department is intending, given that these are such important areas, to strengthen its capabilities.

Mark Lowcock: Maybe Anna can start on security and justice, and I will come back on economic development.

Anna Wechsberg: It is a challenge on security and justice. The ICAI report looked at a particular security and justice programme, and recommended that we worked harder to set out strategies. Part of the BAR process is exactly what we are doing on that. We have asked all of our spending teams to come back to the centre with their proposition for what they think is the right thing to do in their country, based on the country poverty reduction diagnostic work that they have done. Some of that includes work in the security and justice area, but you will particularly see increasing work around accountability and transparency, which are very closely related, and also important for the “leave no one behind” agenda. Ministers are yet to decide exactly how we deal with that and what it is going to look like in the picture, but a focus on domestic revenue raising, on accountability and transparency, and driving all of that will be very important for us.

In terms of working in the security area, we will need to work very closely with the CSSF funding. We have some good examples of how CSSF and DFID bilateral funding are working alongside each other, and we need to keep working on those good examples and make that happen more effectively together. For example, in Somalia, we have CSSF funding the hard end of fighting Al Shabaab and we have DFID coming behind with a lot of work to build up Government capacity and make sure that there are systems in place to avoid looking backwards again. Similarly in Pakistan, we have DFID funding the police in a very generic way to build institutional capacity; we have CSSF coming in also alongside to do some more specific conflict‑management work with them. For me, getting that link right, particularly as the CSSF expands, is going to be really important.

Mark Lowcock: On economic development, the biggest skills deficit is in the skills we need to manage the investment budget, the non‑fiscal or financial transactions. Obviously, we have recapitalised CDC and we are also in a discussion with CDC about whether there is a broader range of things they could help us with in that space of investing. We have hired additional skills, particularly from the financial services sector, actually, and the private sector. We need to strengthen further the core finance complex in the Department because, as the balance sheet grows, we need more capability to manage those ongoing investments effectively, especially given the slightly complex budgeting, accounting, provisioning, revaluation system that Government has for managing assets on its own balance sheet. That is the biggest area of skills capability we need to build and we are on the case on that.

Q51   Jeremy Lefroy: Can you give us an example or perhaps a couple of examples of where real progress has been made in economic development in fragile states through DFID’s work or perhaps DFID in conjunction with other partners?

Mark Lowcock: CDC has made some really interesting investments over the last period. They have taken a very interesting stake in a very important bank in Pakistan, for example.

Q52   Jeremy Lefroy: Sorry, what does that bank do?

Mark Lowcock: It is a retail and investment bank, I think. It is basically trying to get credit into the entrepreneurial sector of the economy. I can give you a note if you like, with a bit more detail. CDC has a very interesting investment basically trying to rehabilitate a plantation in DRC with the previous owners, trying to recapitalise it.

Q53   Chair: They briefed us on this, did they not? 

Mark Lowcock: Okay, so you know about that. They have established a fund in Ethiopia and they are trying to make some investments in Ethiopia, trying to attract more private sector money. They are obviously looking at whether there are things they can do to help recovery in Sierra Leone. Maybe I could drop you a note, Mr Lefroy, on some other examples we are managing directly.

Q54   Jeremy Lefroy: It would be very helpful, because we are talking about very large sums of money here and it is one of the four planks of the Government’s policy in the future. It obviously has been significant over the past few years. That would be very helpful. Just returning to you, Anna, is there anything on the question of security and justice? You mentioned Somalia; you mentioned Pakistan. Are there any other places where we can see a really positive impact from DFID’s work or, conversely because you learn from both, where we have made mistakes that we need to learn from?

Anna Wechsberg: I am sure there are. I do not have all the details in my head, so we can set some of that out for you in writing, if that is easier. It is probably safer than me trying to guess. On economic development also, I was just going to mention Nigeria, where we have done a lot of work on the investment climate. You will have a chance to see that. That has been really valuable work actually, and it is a model of the kind of thing we want to do more of.

Mark Lowcock: Especially in the power sector. You will see a lot of that, both in Lagos and at the Abuja level. There is some really interesting work there, which is unlocking a lot of other private investment.

Q55   Jeremy Lefroy: One of the areas that is related to economic development, which the previous Government, the previous and indeed the current Secretary of State placed a great deal of emphasis on in the past, was revenue-raising. You have already mentioned that, Mark. We often hear of assistance with revenue-raising and revenue collection programmes in particular countries, one indeed of which was Burundi, through TradeMark East Africa. Would it be possible to get a summary of all those programmes that DFID has supported, because it seems to me a very significant part of the work for the future that is supporting Governments to raise their own revenues?

Mark Lowcock: Absolutely, I would be delighted to give you a note. We have stuff on the stocks we can send you. As you know, we made a commitment to double our activity on that.

Q56   Jeremy Lefroy: Would that show what the revenues raised were prior to DFID’s intervention and what they are now, both outright and as a percentage of GDP?

Mark Lowcock: There is an attribution issue. We have worked with lots of revenue authorities, often from their creation. Typically what you see, in the first few years, is that the tax GNI take does go up, because they have a bit more capability. Then countries will sometimes want to make adjustments to their tax policy, so the revenue authority may be getting more effective but, if the tax rates are cut, the tax take can come down. You also have to be really careful in claiming just from DFID’s activity too much of the result of what has happened on greater tax compliance, say in Pakistan, which is a country we have been working on a lot. I would not want to over‑claim the direct impact of what we do, but we can tell a qualitative story about whether programmes are effective or not and what our future intentions are.

Q57   Jeremy Lefroy: We would be particularly interested in Pakistan, given the comments we made in the previous Committee. Finally, if I may, Chair, there has been a lot of emphasis on so‑called non‑fiscal capital, which counts as ODA but appears on the government balance sheet. You have made mention of the investment of £735 million in CDC. One concern that has been raised, and I think we raised this in the previous Committee when we were talking about the possibility of a development bank or something additional within DFID of that kind, was the lack of financial instruments available to DFID to invest in non‑fiscal capital. I wondered if you could talk about that briefly and mention things that you are considering at the moment, in addition to those you are already doing.

Mark Lowcock: The single biggest use of the development capital and non‑fiscal budget in the last Parliament was to change the way we are financing some of the multilateral development banks. We made a loan to the World Bank’s soft arm, IDA, as part of the last replenishment. That is something that will be available to us as an option for the next couple of years.

Mr Evans was asking me earlier about changes to the international rules for ODA. A change was agreed last year on how lending is treated. Previously, if you made a loan, the face value of the loan was basically the ODA credit you had. That was essentially creating an abuse, under which a number of members of the Development Assistance Committee were borrowing at 0.5%, lending at 4% or 5%, making a profit and calling the whole thing aid. That was bringing the system into disrepute, frankly.

A new system is coming into place from January 2018, under which what you will get credit for is the grant equivalent of the loan. It will not be particularly attractive to the Government to have lending programmes in those circumstances, because that would increase the cost of hitting the 0.7% target, so one of the really big opportunities we have in what we are doing with CDC is that the way CDC gets scored under the new system is in terms of the capital you subscribe, rather than the ebbs and flows of their investments. We can subscribe capital; they can take on a broader range of responsibilities, if that is what we and they agree they want to do, including in some of the areas that you have been talking about.

Q58   Jeremy Lefroy: If I may follow up on that, under the new ODA rules, will that not have a fairly substantial effect on institutions such as the Agence Française de Développement, which has relied very substantially on that kind of funding in the past?

Mark Lowcock: It will. The numbers will be reported on the old system and the new system, but what you will see is that the ODA credit for a 4% loan to Mexico, depending on the grace period, the tenor and the interest rate, is not the same as the front‑up credit for a grant. There is an important design feature in this new arrangement, which is that you get more credit, because of the way the discount rate system works, for a loan to a poor country, in order to incentivise more ODA going to the low‑income, rather than the middle‑income. That was a design feature of the new arrangements.

One thing that might happen, and certainly my French counterparts have said to me that this is what they want, is that there will be a switch of French flows towards lower‑income countries that arguably need the resources more than the middle‑income or higher‑middle‑income countries. That is a positive feature of the new arrangements, as well as cleaning up the overall system and dealing with what some people privately, or actually in newspapers, are describing as a bit of an abuse.

Chair: Mark and Anna, thank you very much indeed. We are out of time, I am afraid. You have very kindly, in a number of your answers, said that you will write to us with further information. I think we will also be writing to you, because we may have some questions that there was not time to cover or that are follow‑up questions. Thank you very much indeed for your attendance today.

              Oral evidence: DFID’s Allocation of Resources, HC 533                            21