Overseas Aid (UK-based Consultants)

Tuesday 20th November 2012 Westminster Hall

[Mr George Howarth in the Chair]

14:30

[Mr George Howarth (in the Chair)]

In the event of a Division, the sitting will be suspended for 15 minutes, but that 15 minutes will be added on to the time available for the debate.

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

I want to draw the House’s attention to the growing phenomenon of wealthy UK-based management consultancies creaming off millions of pounds from the aid budget. We are seeing—the process has accelerated in recent years—the emergence of lords of poverty. People are building fat businesses and paying themselves fat salaries creamed from the budget of the Department for International Development. Lords of poverty, hardship tycoons, pinstriped famine magnates: whatever we call them, the phenomenon is growing, and I think the British public would deprecate it.

Let me say from the beginning that I support Britain’s commitment to raise its aid budget to UN levels. I congratulate the Government on their willingness to ring-fence their aid budget. We are talking about some of the poorest people in the world. Those who would cut our aid budget are not just wrong; they are not considering how, in the 21st century, we are all our brothers’ keepers. For a fraction of Britain’s gross domestic product, why would we not take steps through aid and trade to promote stability in other parts of the world? It is not just about standards of living, happiness and health; it is also fundamentally about global stability, and I believe that an aid budget, correctly used, has a big role to play in that.

Aid is not just about a glow of virtue for western Governments and taxpayers; it is about building a world that is safe for all of us. This month’s insurrection in the horn of Africa is next month’s terrorist attack in western Europe.

[Sir Tony Cunningham (Workington) (Lab)]

To add to the point that my hon. Friend is making, I wonder how many more entrepreneurs, researchers, top doctors, scientists and so on there would be if we lived in a fairer world.

[Ms Abbott]

My hon. Friend makes a good point. The world as a whole would benefit if it were fairer and if the energies and talents of more people in third-world countries were directed into education, science and entrepreneurship. Tragically, in some cases, they are being directed into piracy and the drug trade.

This country has a proud record on aid, both in personal donations by the British public and in successive British Governments’ commitment to aid. It is a known fact that the British public are among the most generous in the world when it comes to donating as individuals to disaster emergency appeals. It is also a fact that under different Governments—I want to be fair—we in this country have been fortunate to have some extraordinarily committed and charismatic Ministers for international development and aid. I am probably one of the few people in the Chamber who remembers Lynda Chalker, but anyone concerned with the future of Africa gives her a huge amount of credit for being prepared in both good and bad days to fight the corner for the importance of aid and of work with Africa. She played a crucial role in international development when I first entered the House.

There was also my colleague, Clare Short, of whom even her enemies would say that her finest hours were spent as Secretary of State for International Development. She did a huge amount, with an increased budget, to drive the Department forward. Nobody can deny her commitment and her energy. Members from both parties have done a huge amount, often in adverse political situations within their parties, to drive forward the international development agenda. I believe that when it is presented to the British public in the right way, they feel a lot of support for a properly deployed aid budget that genuinely benefits the people. The British public have shown in their response to disaster appeals that they want to help.

We in this country have a proud record on aid and international development. I welcome the fact that this Government have been prepared to stick to the UN targets for aid and to ring-fence the budget, but in recent years—I am not suggesting that the process began in 2010—more and more aid has been diverted to management consultants at the expense of practical projects that might be of benefit to some of the poorest people in the world.

I draw the House’s attention to a small British charity called Operation WellFound. WellFound requested £250,000—not much, as aid budgets go—to build wells and latrines for 60,000 people in Burkina Faso, one of the most impoverished nations on earth. WellFound put in a bid for funding to DFID, which then referred it to an organisation called Triple Line Consulting, a London-based company that advises on overseas aid, which examined it in detail. I will return to Triple Line Consulting. The application for just £250,000 was rejected in August.

WellFound—a tiny charity, but it does tremendous work—got an e-mail giving three reasons why it would not get the money. First, the bid was not considered sufficiently innovative. Digging wells may not be new, but there are millions of people all over the world for whom access to clean water is vital. One would think that the consultancy would have appreciated that. Just because something is not new does not mean that it is not relevant and important.

[Sir Tony Cunningham]

Does my hon. Friend also agree that clean water is the basis for almost everything else? Kids do not go to school if they are ill because they do not have clean water. It affects their health, education, time at work and so on. It affects everything. If people do not have clean water, everything else falls by the wayside.

[Ms Abbott]

Clean water may not be new or exciting, but it is the basis for many things. I have been fortunate to travel a bit around Africa—to Nigeria, Ghana and Uganda. Access to clean water is still a vital issue in such countries, yet that small charity had its application rejected.

Apart from the fact that the bid was not innovative, Triple Line Consulting went on to say that it did not explain how poverty would be alleviated. As my hon. Friend just said, access to clean water means so much to communities’ ability to move forward economically. The final reason why Triple Line was not prepared to approve the application was that poor WellFound did not provide evidence of how the work could be replicated on a larger scale. It seems to me that if one builds 25 wells, the way to replicate that is to build 50 and 75. I suspect that Triple Line just cut and pasted standard responses to that aid bid.

The decision came as a huge blow not just to the small team who run WellFound but to the villagers in Burkina Faso, where construction of the wells has had to be delayed. That experience, which is a microcosm of what seems to be going on in the world of international development, is far from unique.

The Sunday Telegraph, which I am not in the habit of quoting, did an analysis of DFID spending that showed that £29 million—take a deep breath—was paid in the past 12 months to Triple Line. It seems that the only thing that Triple Line triples is its own bottom line. Triple Line’s main contract and the bulk of its work is to assess applications for grants from DFID’s global poverty action fund. To be fair, the company passed on £27.1 million of this money to the aid providers that it vetted. However, it kept £1.9 million as a fee for its services. Had it been willing to shave a little bit off its fee, it could have handed the money to the little well project and the people of Burkina Faso could have had the wells.

The public will be baffled by DFID’s outsourcing assessing a bid for aid to one mega-consultancy and then outsourcing it again to a different consultancy, a specialist branch of the accountants, KPMG. In the past 12 months, DFID has paid KPMG more than £35 million. Of course, KPMG says that a lot of that is passed on to aid providers, and perhaps it kept back £3.5 million as a fee. That will reassure the people of Burkina Faso.

Triple Line is typical of the sort of company that has emerged in recent years and is one of the lords of poverty that I am talking about. Triple Line is based in Putney in the UK and is owned by two directors who founded it in 1999: Lydia Richardson, a socio-economist—I do not know what that is—who lives with her husband in a £1 million house in Wimbledon, and David Smith, an economist, who lives just a few streets away. Triple Line’s website says:

“We operate on the principles of openness, transparency, accountability and trust.”

However, it registers as a small company, meaning that it is not required to publish its accounts. That is how open, accountable and transparent it is. The owners refuse to disclose what their income or profits were last year or how much they were paid in salary or dividends. Apart from working with DFID, Triple Line lists 37 other clients on its website and states that its annual turnover is £2 million. So the £1.9 million it creams off DFID represents the major part of its turnover, which apparently it gets from cutting and pasting standard replies to small charities that want relatively small sums to do practical work.

That is just one company. It is important to look at the bigger picture. We know that last year alone DFID spent £500 million on consultants. The data compiled by a national newspaper show that the vast majority of those contracts are going to UK-based companies. The share going to UK firms has risen in recent years. I will return to the point about how desirable it is to give an increasing proportion of our aid budget to UK-based firms.

Of the 117 major DFID contracts and procurement agreements worth nearly £750 million, as published on the Government’s contracts portal since January 2011, only nine went to non-UK firms. Several of the best-paid consultants are former DFID officials, who appear to have gained substantial increases in their personal wealth since leaving the Department, even though they are still doing essentially the same work.

I am not the first person to notice this phenomenon. Earlier this year, a parliamentary report warned that the UK Government’s drive to cut costs could make them over-reliant on contractors—like Triple Line—and could even put the effectiveness of their aid programmes at risk. Members of the Select Committee on International Development said that their concerns about DFID’s use of contractors and other external partners were compounded by the lack of publicly available information on UK aid-funded contracts.

The Government have good intentions in seeking to maintain levels of and ring-fencing aid spending, but a public constituency for continuing high levels of aid cannot be built unless there is a measure of openness and transparency, which we have not seen to date.

The rise in the amount of money given to UK-based consultants is alarming, but before I speak a little bit more about that in general, let me mention another lord of poverty, creaming millions off the aid budget. Adam Smith International is the offspring of the think-tank, the Adam Smith Institute, which is probably better known to Government Members than to me. Adam Smith International has gone from strength to strength. It was paid a total of £37 million by DFID last year to promote the free market in the third world. Its total turnover that year was £53.6 million, with profits of £5 million, up 10% in 2010. Let us pause and think. We in this country, as a consequence of austerity, are seeing cuts in Government and at local government level. All hon. Members know that some measure of austerity would have had to happen, whoever was in government, but ordinary people are seeing cuts in their local government services and at Government level. Yet one of the lords of poverty is able to drive its profits up by 10% to £5 million.

It gets better. The managing director of Adam Smith International, which gets most of its money from DFID and therefore from the taxpayers—the same taxpayers who are seeing cuts to their local government services and cuts in Government—pays himself a salary with dividends that in 2010 totalled almost £1.3 million. The managing director of Adam Smith International trousers £1.3 million. Anything further removed from the public’s idea of the kind of people who go abroad to help some of the poorest people in other countries could not be imagined. I repeat that if we are going to build a constituency for continuing high levels of aid—in my view, it should increase—we have to examine this sort of abusive business activity, with people running what are supposed to be aid organisations and paying themselves salaries in the millions.

William Morrison, another member of Adam Smith International, earned £200,000 from that firm and collected dividends worth £1.06 million from its parent company, Amphion Group, which is wholly owned by him and three of his fellow directors. Amphion Group’s accounts state that its purpose is to act as a holding company for Adam Smith International. Mr Morrison’s salary rose by a quarter last year, to £253,000. He and his three fellow directors shared dividends of £7.5 million—almost £1.9 million each—which they paid to the Amphion Group. The directors collected salaries averaging £125,000 each. A director of Adam Smith International and Amphion, Peter Young, justified the payments, saying,

“If you want to get a good job done, you have to get people who know what they’re doing.”

With the greatest respect to Adam Smith International, I must say, as someone who has travelled in Africa and travelled extensively in the Caribbean, where my family originate that the idea that one cannot get the skills to improve and strengthen the government and economic structures of third-world countries without paying UK-based directors £125,000 each is risible. There are so many people of Nigerian, Afghan, Caribbean or horn of Africa origin with the skills, ability and talent, but they are unable to break into this sort of work because companies such as Adam Smith International have a death grip on it. They use the size of their organisations to squeeze out smaller and aspirant organisations.

[Sir Tony Cunningham]

Does my hon. Friend agree that if we use, for example, African consultants in Africa, not only do they have a better idea of what is happening on the ground but the money that they receive is spent in their own country, so we achieve a double benefit for the people who live there?

[Ms Abbott]

I am grateful to my hon. Friend for that point, which I was coming to. I am concerned about aid as a British parliamentarian, on behalf of the British taxpayer, and as someone with an interest in global realities and the important role that aid can play in creating global stability, and as one who one wants to help the poorest people in the world. I am also concerned about aid because, having personal contacts in some of the countries where it is dished out, I know that it causes huge frustration to see UK-based consultants flying out for a week or a month, staying in four-star hotels, going around in 4x4 vehicles, sending a few e-mails, writing reports that simply regurgitate known facts and then flying back to the UK, when there are local people who have a better understanding of the conditions. Whether it is in Afghanistan, west Africa, the Caribbean or the horn of Africa, local people could do those jobs just as well.

Furthermore, as my hon. Friend pointed out, if we employ locally based consultants, first, we help to build the knowledge base and infrastructure of those countries and, secondly, we pump money into their economies. If the only hope that people in third-world countries have when faced with those bloated UK consultancies is to get a job as a driver, a cook or a nanny, and if in the 21st century we are not prepared to start to shift funding to the skills and talent that we know exist in some of those countries, it is no wonder that the question of aid has become a talking point not only in the UK—often among people who are opposed to the principle of aid in the first place—but in Africa. How much good has that aid really done? Part of the reason people query how much aid we give to Africa and the third world—we can all see the statistics—is that they see that the money is paid to UK-based consultants and has a minimum practical effect in the local economies.

To return to the lords of poverty, there are dozens of staff in UK-based development consultancies—substantially funded by DFID—who pay themselves six-figure salaries. At Hertfordshire-based HTSPE, which got a third of its turnover from DFID last year, the highest paid director is on £144,000. The company earned £12.1 million in 2010-11 and is currently involved in the Department’s numerous programmes. GRM International received large sums of money from DFID but managed to pay only £47,000 in tax in Britain last year—possibly a debate for another time. GRM International was bought out by managers in 2009 and has since merged with another aid giant, Futures Group, and secured massive contracts from the US and Australian Governments. The firm was paid £67.7 million in management consultancy fees for aid delivery to the poorest communities in Zimbabwe in August 2011. Last year, the highest-paid director in Oxford Policy Management, which runs the DFID oil sector transparency initiative—I wonder if they have heard about that in the Nigerian delta—and several other programmes, earned £125,000, up 25% in a year.

No one says that people working for such companies should not get a living wage, to coin a phrase, or competitive rates. If we look at the absolute poverty in the countries that they are working in and recognise the possible effect on local economies if we were more willing to give money to local consultants, however, we have to query such massive salaries, profits and turnover, from DFID expenditure and with no real clarity about the outcomes.

The new Secretary of State for International Development has announced an inquiry into the use of such consultants, and we welcome that. Will the Minister tell us when to expect that inquiry to be completed and made available for public discussion? A review of Britain’s multilateral aid programmes, to assess the effectiveness of 43 aid organisations receiving UK money, was concluded to have contributed significantly to improving transparency and achieving value for money. The internal review of the Department’s spending on technical experts ought, therefore, to have similarly benign results, although when we want to review the use of consultants and technical experts we find ourselves in a hall of mirrors. The Independent Commission for Aid Impact, the UK aid watchdog, has also announced plans to examine DFID’s use of contractors, but those plans have stalled because many of the people involved are themselves big aid consultancy organisations.

There is immense good will in this country for the concept of giving money, whether from an individual’s pocket or from the Government, to help some of the poorest people in the world. That good will, however, is being strained by the rising amount that is going to British-based consultancies and by the difficulty of seeing their out-turn. I am concerned that, in DFID’s efforts to cut staff, it has outsourced work such as assessing aid bids that properly ought to rest within DFID and could certainly be done a lot cheaper in DFID, rather than by KPMG with its profit margins—nor is there any reason to think that an international accountancy company knows more about aid than people who have worked in DFID on the matter for all of their careers. Yes, we are on the right track with the overall sums of money, which it is important to ring-fence, but the trend, since 2010 in particular, has been to give the money to UK-based consultants.

When I refer to UK-based consultants, let me be clear that some are expert in house building or malaria nets, for example. One of the most successful pieces of aid to the Caribbean was when Metropolitan Police officers were seconded to the police in Jamaica. Jamaicans appreciated that, because the police brought real expertise and it was a real skills transfer operation. Frankly, it also enabled the politicians of the time to bypass some of the alleged corruption in the Jamaican police department. That aid was valued, so I am not saying that in all times and in all places there is locally based expertise that DFID should pay for. What I am saying is that generalised management consultancies, such as Adam Smith International, to name but one, send young people with no background in aid or development to Nigeria. They fly business class and stay in four-star hotels, earn considerable sums, and then fly back, while Nigeria continues much as before.

[Sir Tony Cunningham]

Is my hon. Friend suggesting that the transformation to a huge increase in consultants is ideologically based?

[Ms Abbott]

My hon. Friend makes an important point. I was anxious to strike a non-partisan note, so I avoided that subject. However, any objective observer who sees the money going to generalised management consultancies with no specialist knowledge of the practical aspects of aid might think that there was an ideological motivation. We are discussing some of the poorest people in the world, and it is wrong that mere ideology should mitigate using money in the fairest and most effective way.

We need to know when the internal inquiry is due to report. The Department for International Development must consider whether some of the simple work of assessing bids for aid—there is a habit of sending out expensive management consultants—could be done more cost-effectively in-house. I urge the Government to look at some of the margins and massive profits that some organisations are making—the salaries that bosses pay themselves, and the millions of pounds of turnover—from DFID money. They must examine whether some of those margins can be shaved. Everyone else is practising austerity, so why should the lord of poverty not do so? Why is it necessary to pay people hundreds of thousands of pounds to prevail upon them to take up work to help some of the poorest people in the world?

Above all, we must consider using more local experts and consultants. Everyone who is concerned about aid agrees that that provides better value for money, and the people involved understand local conditions and are in it for the long term. If I were a young man working for Adam Smith International, I might fly out to Nigeria for a couple of months, and in 12 months’ time I might be in Afghanistan or somewhere in eastern Europe. Would I have a long-term concern that people in Nigeria will be better off in the long run as a consequence of my activities? No, because I would get on a jet plane and leave it all behind. Local advisers, consultants and technical experts live in those countries and will do so for the foreseeable future, so they have a genuine interest, which UK-based consultants may not have, in ensuring that what they are doing will have a long-term effect and make their country a better place to live in.

Just this morning, we heard about the millions of pounds being spent on an education project in Nigeria. It sounds like an excellent project, but the report that was published this morning queries its effectiveness, and says that children leave the school without mastering basic educational skills. That brings the whole issue of aid and development into disrepute. In these times of austerity, British taxpayers are entitled to know that aid money is being well spent and not top-sliced by overpaid, UK-based management consultancies. The very poor people we want to help need to know that the UK Government are straining every sinew to ensure the best value for money from their expenditure.

I go to Jamaica most years, and apart from UK policemen on secondment, people there and in other Caribbean countries have no idea where aid money for the region goes to, because so much of it is spent on UK-based consultants who mix in an exclusive social circle in the capital. They train, and write reports and e-mails, but they do not interact with people.

Aid has a purpose, because in a 21st century global economy, I am my brother’s keeper. It has a purpose, because it is the right thing to do, and promotes global stability. The aid we give to countries such as Afghanistan and Palestine should build general relationships with this country. If it is trousered by UK-based consultants, and people in those countries do not see its practical benefits and believe that the only beneficiaries are those consultants who jet in and out, far from helping to build relationships, that aid raises a question mark at the very least.

For the whole time I have been a Member of Parliament, this country has had one of the best records for aid, including individual donations, of any country in Europe. It has had a great record under some Conservative Ministers and some Labour Ministers. We have every reason to be proud of that. The new phenomenon of increasing amounts of money going to UK-based management consultancies—some people say it is an ideological move, but I would not—far from building a constituency in this country for high and continuing levels of aid, bids fair to undermine it. We are a better country because we meet our commitments on aid. The very least the Government can do is to ensure transparency and accountability, and to assure the British public that they are receiving the maximum value for every penny of that aid.

In a world where small, vulnerable island states are buffeted by climate change, small countries in Africa are at the mercy of the commodities markets, and China, sometimes unscrupulously, is moving into areas where Britain was once the most influential foreign donor and partner, ensuring that our aid budget is spent effectively could not be more important. I urge the Government to examine the issues, and to introduce an internal inquiry, and I assure the Minister that I will return to the subject over the course of this Parliament.

15:08

[Sir Tony Cunningham (Workington) (Lab)]

Thank you, Mr Howarth for chairing the debate; it is a pleasure to serve under your chairmanship. I also thank my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) for introducing the subject and for the passion that she always brings to such debates. It is a pleasure to sit alongside her.

With our economy suffering, value for money has never been so important to taxpayers. Understandably, there was some confusion and great concern about the revelation that the Department for International Development had spent more than £500 million on UK consultants. It is hugely important to raise the issue here today.

I want to make a number of points about value for money, the use of the private sector and the use of UK companies, rather than companies from developing countries. Last March, the International Development Committee released its annual report. Even then, there were concerns about the effectiveness of aid and the possibility that it was being undermined by the use of UK consultants. In particular, the Chair of the Committee, the right hon. Member for Gordon (Sir Malcolm Bruce), highlighted plans to reduce DFID’s operating costs to 2% and cut administrative costs by a third, from £128 million to £94 million. Does the Minister believe those plans are hampering our aid programme? We understand that the measures have been implemented to reflect similar cuts at other Departments, but it is concerning that, although the Department’s budget is increasing, its capacity could be decreasing. We believe that that has led to an increase in the number of UK firms and consultancy agencies receiving money from the taxpayer.

I was not fully aware of all the figures my hon. Friend the Member for Hackney North and Stoke Newington referred to, but it seems that people are making salaries of £1 million and £1.5 million at the expense of some of the poorest people in the world.

[Ms Abbott]

The fact is that people who would regard themselves as middle income in the countries that these people are allegedly flying off to to help would not earn the sums we are talking about in a year. DFID should pause and think about whether it is right to drive a system that encourages people to cream off money in this way.

[Sir Tony Cunningham]

I totally agree. Does the Minister feel that that approach represents true value for money for the British taxpayer? Can she demonstrate that it is the most effective approach to reducing poverty? If DFID is about anything, it is about reducing poverty among some of the poorest people in the world.

The British public—my hon. Friend touched on this—are compassionate, caring and extremely generous, and we have only to witness some recent examples to see that that is true. I could cite Haiti, because of the disaster that struck it. It is not in the British Commonwealth, and it is not a country that DFID deals with; indeed, it was suggested that, because it was a French colony, France would lead the way in dealing with the disaster there. However, the British people showed huge generosity; they did not care whether Haiti was a French colony or a British colony—they cared for the people of Haiti and gave enormously generously.

It is vital that we can show people that their money is going to help millions of families—women and children around the world—and that it is not being wasted by large consultancies in the UK. In the light of that and the Department’s recent announcement that it will investigate where its money is spent, may I, in the spirit of transparency, pick up on my hon. Friend’s comments and ask the Minister yet again when the internal report will be published in full? Interestingly, I asked that question at DFID questions recently. The Secretary of State—I appreciate that she is new to her post—gave me the longest answer in the whole Question Time, but did she tell me when the report will be produced? No. We need to know when it will be produced and whether it will be produced in full. We have a right to know where the money is being spent.

I hope the Department will be open and transparent about how British taxpayers’ money is spent and where it is going. The Secretary of State is relatively new, but I hope she will get to grips—people keep using that term—with how money is being spent in her Department, because the £500 million given to UK consultants represents 8% of the DFID budget. We also hope that the report will shed light on other funding streams. What struck me about my hon. Friend’s comments was the fact that a small non-governmental organisation that was digging wells for poor people was refused £250,000 when we are spending 8% of the budget on consultants.

The coalition Government have sought a different style of development. I do not want to get into an ideological argument, but there seems to be an increased emphasis on the private sector and on a more—I choose my words carefully, and I should when I am looking at my hon. Friend—paternalistic approach to the way we deal with the developing world. That approach ideologically favours the private sector, and we have seen examples of that.

I am not saying that I am against the private sector, which is hugely important. Let me give one example. Recently, I was in Nairobi, and I went to look at private schools. Now, private schools in Nairobi are not like the private schools we would imagine in other parts of the world. Kibera is the largest slum in Nairobi—one slum, one million people. There are a handful of schools on the outskirts. If local people want their children to have an education, they have no choice but to pay a relatively small amount to allow their children to go to school. The amount they pay for their child to go to school for a month is the same as the cost of a bottle of beer in one of the top-class hotels in Nairobi that some of the consultants we are talking about might stay at. People do not have a choice about making such payments, but this is more a social enterprise than anything else, so I am not against everything that is private.

[Ms Abbott]

Does my hon. Friend agree that, although no one in the 21st century objects in principle to money going to the private sector, being spent in-house by the Government or being spent by aid organisations, the watchword has to be whether it is spent effectively? Is the maximum benefit going to the recipients of aid? We do not take a position as between private, public, Oxfam or whatever; the issue is effectiveness and whether we are helping the people we seek to help.

[Sir Tony Cunningham]

I totally agree. There are two things: effectiveness and value for money—value for money for the British taxpayer and for the developing country.

The aid process was supposed to encourage developing countries to be involved in their own development. Untied aid—we have a proud record on untying aid—offers an excellent example of partnership with developing countries. By hiring agencies in developing countries, we make development more accountable to local people, and I made that point very clearly earlier. That uses local expertise, builds capacity and provides job opportunities.

I want to make a little point about capacity. I was in Zambia not too long ago. One company—I am told it is British—owed £70 million in unpaid tax. Some £70 million should have been paid to the Exchequer in Zambia, but it was not, and part of the reason for that is that Departments there do not have the capacity—lawyers, accountants, tax experts and so on—to get the money. Surely aid could be used to help countries help themselves.

In using local expertise, we ensure that value for money and effectiveness are our criteria. That is an example of how the private sector can be used effectively alongside development. The Government have been vocal in their support of partnership over aid, but by not using consultants from developing countries they appear to be squandering an excellent opportunity to engage with developing countries on an equal footing.

There is, understandably, some resistance to aid in the press and some parts of society. It is therefore imperative that the Department is open about its spending. The public should understand why the Department has chosen to select 92% of contractors from Britain, rather than from the developing world. I want to give the Minister quite a bit of time to answer the questions we have raised.

My hon. Friend is absolutely right: aid is about our effectiveness in helping people in developing countries, and if we waste huge amounts on consultancies in this country, we have to ask whether that is value for money for the British taxpayer and right for the people of the developing world.

15:18

[The Parliamentary Under-Secretary of State for International Development (Lynne Featherstone)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I thank the hon. Member for Hackney North and Stoke Newington (Ms Abbott) for calling a debate on such an important topic. As she and the hon. Member for Workington (Sir Tony Cunningham) said, it is important that we deliver effective aid and get value for money—something the Government have made their watchword in relation to development aid. I was a little disappointed in a way to hear terms such as trousering money, creaming off the aid budget, lords of poverty and hardship tycoons.

I think that the hon. Lady did her case a disservice, because the real test is whether there is value for money. As to what those lords of poverty get, if the sum delivers the aid and it is effective, the quantity is not the issue. The issue is whether it is effective and whether we get value for money, as both Opposition Members who spoke said.

[Ms Abbott]

The Minister may think that I sound a little harsh about the lords of poverty, but she needs to hear a rising class of intellectuals in Africa, the Caribbean and the far east talking about those same people. They are more than harsh; they are scathing. They query the value of aid altogether. If the Minister is concerned about my tone, she needs, on her travels abroad, to meet some of those rising young intellectuals and hear their critique.

[Lynne Featherstone]

I assure the hon. Lady that I do meet and will meet members of the rising intellectual classes, or whatever she termed them, and that I would give them the same answer: the point is whether aid is effective and whether the British taxpayer gets value for money. That is important.

The good part of what the hon. Lady said was that the Opposition are committed to the 0.7% aid target, or are glad that the coalition have made that commitment. We will be the first country to deliver that, as set out in our manifesto and the coalition agreement, in 2013. She is right in what she says, in the sense that that is the percentage that we as a first-world developed country should give, not just because it is right, but because it is smart. It is a wise and good thing to do because it helps us and others. I am glad that both sides agree about that. The hon. Lady spoke of safety for all, and that is part of it.

There have been political shenanigans to do with aid recently, and as the hon. Lady has taken to reading The Daily Telegraph, she will have noticed that it often levels a salvo or two at the 0.7% target, and not only at the consultants. However, the whole point of a percentage is that it is geared to the fortunes of the country as they go up or down. We can maintain our commitment to the figure, because it is geared to our economic fortunes.

I want to put the debate in context. When the coalition Government came to power in 2010 we made it clear that we would ensure maximum development impact on the ground, and full accountability to British taxpayers, so that their money would be well spent. We have done much to improve value for money for UK taxpayers, and for the poor people who receive our aid and development assistance. As the hon. Lady mentioned, that has included, through the bilateral and multilateral aid reviews—which are revered across the development spectrum throughout the world for the work they have done in examining value for money, a full assessment and analysis of where and how we spend the aid budget to ensure that it gives maximum value for money. That has adjusted the focus so that it is now on a smaller number of countries, and funding to some poorly performing international agencies has been cut, in a move that gets life-saving help to many more people.

I prefer the term “suppliers” for those to whom the hon. Lady refers as consultants, because, as she said, while a global figure is given to them, only a percentage of it is administration, and the vast majority of it is for delivering the programme in-country. It is important to recognise that the direct engagement of contractors, or suppliers, is only one of a number of channels that we use to deliver development assistance on the ground. We strengthened the business case process in January 2011, to ensure that there would be good decision making about when and how to use contractors in our programmes, and we must also acknowledge that the suppliers engaged by DFID undertake a wide range of activities to support the delivery of the development programme. The majority of those suppliers’ contracts are managing the delivery of programmes, or managing the distribution of funds to deliver programmes on behalf of DFID. Those were some of the examples that the hon. Lady raised.

[Sir Tony Cunningham]

I understand the point that the Minister makes, but I wonder how she can justify salaries of £1 million or £1.5 million to some of those people.

[Lynne Featherstone]

The proof of the pudding is in the eating: it is a question of what they delivered, whether it was value for money, whether it could have been got cheaper elsewhere, what the processes were, whether they were rigorous and whether the arrangement delivered, on the ground, the enormous programmes that we are carrying out throughout the world, in-country, across Africa and Asia. As to the suppliers we use, yes, UK firms win a significant proportion of our work, and the vast majority—90%—of the larger contracts. Technical capacity is one of the major deficits in the poorest countries, and the market for professional services and technical assistance in developing countries runs to tens of billions of pounds a year. British firms have strong expertise in the area and compete effectively in that big, global market—including for contracts awarded by DFID, but also right across the world.

UK aid is, as the hon. Member for Workington said, untied, and almost all our contracts are subject to competitive tender. When UK firms win contracts from DFID it is because they have offered value-for-money solutions to the requirements in the contract. We encourage firms from developing countries to compete for DFID business. However, local markets often lack the capacity, especially for programmes where specialist skills and experience are required to maximise results. That is particularly relevant as we have increased our focus on working in fragile and conflict-affected states. However, it is important to note that local firms and staff benefit from DFID contracts when our suppliers establish local teams in-country to deliver the programmes and to advise, just as we employ members of the local community to work in DFID offices, for the very reasons that the hon. Lady gave: they have local knowledge and experience. However, often it is not possible for local firms to mount the sorts of applications that can deliver.

[Ms Abbott]

The reason the firms in question can compete is their size, which is due to the bloated DFID contracts. The Minister seems to imply that the work goes to UK-based consultancies because the skills and knowledge are not available locally. I remind her that there are in her constituency, as in mine, thousands of people from the same areas of the world to which she dispatches UK-based consultants, and that they have the relevant skills, knowledge and potential; but nothing in DFID policies encourages them to go home and set up the consultancies that could meaningfully bid for the contracts.

[Lynne Featherstone]

The contracts and tenders are open and anyone can compete for them. If there is a fair process that encourages local employment I do not see how the hon. Lady can argue that it is not a fair and due process. However, it is true that 90% of the larger contracts go to UK contractors, who have a lot of experience in the field. That is not to say that others could not make a bid that would beat them; but the percentages are the way it is. That is the result of the tenders.

Suppliers such as Population Services International can deliver significant results and value for money. In the Democratic Republic of the Congo—and not everyone knows how to work and deliver in such fragile states—97% of the population live in areas with high rates of malaria, and the prevalence is as high as 80%. The hon. Lady raised the question of bed nets: a supplier contracted by DFID is providing and distributing bed nets. That will provide more than 4 million bed nets to people in remote locations and educate the recipients to ensure that they are used effectively. Such programmes, although a British company may contract them, will be delivered locally.

The challenge for us and our suppliers is to ensure that we maximise the results achieved and the overall return on investment from each contract, and on every programme. With that in mind, we want our suppliers, in some priority areas, to do more to support our goals. We want them to reflect our objective of building local capacity by ensuring that programmes develop sustainable solutions and encourage self-sufficiency, and we are looking for that in those bids. Given our change in focus towards fragile and conflict-affected states, we increasingly look to our contractors to develop the capability to deliver effectively in more challenging environments.

The hon. Lady raised the question of transparency. It is of course hugely important to us. We want contractors to operate transparently and to reflect that important principle in the programmes that they run for us.

[Ms Abbott]

The Minister has admitted, or confirmed, that 90% of the contracts go to UK-based consultancies.

[Lynne Featherstone]

The larger contracts.

[Ms Abbott]

To avoid doubt, is the Minister saying that she is happy with that high proportion, and that she has no plans over time to try to bring it down? I want to be clear about that.

[Lynne Featherstone]

I have the ambition of delivering value for British taxpayers’ money. That is the objective. Within that, we want more of our contractors to show us how they will use local people, and we want that to be encouraged and embedded. DFID is a great skills educator, in terms of the work that it does in-country to educate and train people to take on roles and become more experienced, so that in time, they will be able to win a larger proportion of those contracts.

On improving value for money overall, we want our contractors to recognise more explicitly and to reflect more clearly our common objective of reducing poverty. We want them to take action to demonstrate that: for example, by focusing on value for money and by sharing with others their learning and knowledge of what works, in order to improve the effectiveness of our development work. It is an iterative process.

I want to try to answer some of the hon. Lady’s specific points. I agree that the British public are generous. They are proud of both our record on international aid and development and the work that we do, and they look to support us. That is why in DFID, and as a coalition Government, we make such strenuous efforts to deliver value for money and aid effectiveness. As she said, there are political and dark forces out there that might wish to destabilise that commitment, but only by delivering effectively and ensuring that we provide value for money for the British taxpayer can we defend ourselves and the work that we do.

The hon. Lady said that she was not going to raise issues about decisions being ideologically driven—I think she was implying that there was a switch to private contractors. I want to ask, however, whether she and perhaps more directly, the hon. Member for Workington, were ideologically opposed to the use of contractors, because in my book, it is about whoever delivers the best results.

The hon. Lady asked about Triple Line Consulting’s assessment of the application for £250,000. Triple Line manages the global poverty action fund on behalf of DFID. Applications are reviewed in accordance with criteria set by DFID to maximise the effectiveness and value for money from the budget, in line with the Department’s policy priority. Most of the money that goes to Triple Line is passed through to fund projects, as we have said. It was interesting that the hon. Member for Workington said, in questioning whether we have value for money, that poverty reduction should be looked at as one of the criteria. However, one reason for rejecting WellFound’s application was that it made no mention of poverty reduction; it did not demonstrate to Triple Line’s satisfaction that poverty reduction could be delivered.

I actually thought that the argument that clean water and sinking wells should be enough, and that we should not seek anything to do with innovation or new thinking, was quite poor. The sum of £250,000 is a lot of money, and in any contract that DFID lets, or that goes through any funds that are managed for us, we want to see how that thinking can develop and how it can be scaled up. It may not be a matter of just doubling wells, as the hon. Lady suggests. It is dangerous to go into the detail of how or why things were rejected and whether they should have been, when neither she nor I have the details of the bid in front of us. We cannot just look at the broad picture—“We will sink wells”—and then criticise the bid’s rejection, because three things were asked for, one of which was how poverty demonstrably would be reduced. If that was not in the bid, I cannot see why that should not be a reason to reject it, when the hon. Gentleman made such a point of its being a critical criterion for DFID to consider.

[Ms Abbott]

For clarity, I am not saying that digging wells and innovation are mutually exclusive. My point was simply that DFID refused to dig the wells, which would have cost a mere £250,000, but the people who managed that refusal process took a profit of £1.9 million. The public cannot understand that.

[Lynne Featherstone]

As I said, Triple Line is in charge of the whole global poverty action fund, and an administration fee is not that unusual. The real question, as both Opposition Members said, is whether effective aid is delivered.

The hon. Lady raised the issue of the scale and size of projects excluding small firms from competing, and asked whether we wanted to reduce the current 90% of large contracts that are contracted to the UK. We would like to use local staff and firms more, but we need to recognise that some of that will be achieved through contracts directly awarded by DFID. We also need our large suppliers to do that down their supply chain, and we are pressing them to do so. I shall move on to what we are looking at in future in due course.

The hon. Lady asked about transparency. Future contracts are all published on the Her Majesty’s Government’s Contracts Finder website to provide suppliers with the opportunity to bid. I asked about that the other day, as I was inquiring how people anywhere would know that a contract was out that could be bid for. They are all published on that website. All payments over £500 are published, as are business cases for the programmes and the details of the contracts awarded. We want to use it to improve the way we do things, and transparency is very important to us.

The hon. Lady also raised the issue of former DFID staff becoming contractors or suppliers. The Department’s staff are loyal, passionate and committed, and they develop massive expertise, so it is not surprising that after five, 10, 15 or 20 years with DFID, they then move on within the industry or market. Some movement between staff and organisations is to be expected and salary levels are determined by the labour market. I do not seriously think that she would say that someone who worked in DFID for 10 or 20 years, and is committed and passionate, should not then go on to use that expertise in the industry. The Department has business rules in place covering the appointment of civil servants when they leave, and there are controls on conflicts of interest. New controls have been introduced to ensure the appropriate tax treatment of interim staff, and the new PEAKS framework—professional evidence and applied knowledge services—will strengthen controls on the engagement of short-term specialist contractors. If I have misinterpreted what the hon. Lady said, I am sure that she will tell me.

[Ms Abbott]

I do not doubt that many people in DFID are committed and passionate. Years ago, when I was a graduate trainee with the civil service, the most committed and passionate people chose DFID, for example, over the Treasury. I would argue, however, that in the countries that we are trying to help, there are committed, passionate and knowledgeable people, some of whom have to migrate overseas in order to gain employment opportunities. We could do so much more for those countries if we were committed to a policy of developing the capacity of local people, rather than shovelling money at Adam Smith International.

I have listened carefully to what the Minister said about transparency, but how does she explain that the International Development Committee raised concerns about DFID’s use of contractors and external partners and that it has complained about the lack of publicly available information? If the information is available, clearly the Committee does not know about it.

[Lynne Featherstone]

I will return to that issue in due course. The hon. Lady keeps returning to the point about local employment and local opportunities, but we agree about that. It is a question of making it happen and encouraging that, but I have explained to her how that is being done.

On the implication that somehow a tsunami of contracts is now going to management consultants, there is an increase, but there is an increase to what we are doing in all our areas. There is an increase in what we are doing through budget support. There is an increase through sector support. There is an increase to NGOs and there is an increase in the use of suppliers. That is because, as we build towards the 0.7% figure, we are having to scale up and ensure that we deliver. Having different channels through which we deliver is probably the best way forward. A mixed economy of development assistance ensures that we are working and firing on all guns.

Of course DFID’s use of suppliers has grown in recent years. That is because our overall programme has grown and because we are doing more in fragile and conflict-affected states, where the risks are such that we have to retain more control ourselves, rather than channelling money through Governments. In some places, it is just not possible to work through the Government system, and NGOs are not always in place, so we have to work through those with specialist expertise, who can work in these very difficult circumstances. We do that by using suppliers who are accountable to us; it is to us that they are accountable.

We have asked ICAI to review the use of consultants. It is in the early stages of conducting a review of DFID’s use of suppliers to deliver programmes. The report is due in May 2013. The scope of the review is such that it will examine how DFID uses contractors. I am referring to the make-or-buy decision in relation to the business case: how do we decide whether we are going to do something ourselves or whether we need to buy in the service? The review will examine how we select contractors and secure value for money in the procurement process and how we hold them accountable—the contract and supplier management. The ICAI methodology for the study is to select and review a sample of five or six contracts as case studies to identify whether DFID is achieving impact and value for money in its use of contractors.

[Sir Tony Cunningham]

Will the Minister commit to publishing the report in full?

[Lynne Featherstone]

I am coming back to that report. The ICAI report will be published in May 2013.

In terms of the response to the IDC, I do not have the information to hand. I shall have to write to the hon. Member for Hackney North and Stoke Newington on that point.

The hon. Lady referred to the lack of clarity about outputs from DFID programmes. In terms of how we ensure that UK aid money is spent effectively, the main tools are the new business case process, which has brought value for money and results up front in the design of all programmes; annual reviews, which enable us to monitor the value for money of programmes during implementation; and research and evaluation to identify what works best and to learn lessons both from our own projects and from those of others.

In terms of measuring value for money, the value-for-money framework ensures that the value for money of a programme is assessed at various stages of the programme cycle, from business case to DFID’s annual review process, and projects are then scored on whether they are achieving value for money. DFID has also invested heavily in building the evidence base and conducting research and evaluations of programmes to learn lessons about impact and drive greater value for money in future programmes. That is one of the biggest changes in aid and development assistance since the days of the Government whom the hon. Lady supported. There has been a shift in focus on to the evidence base and an insistence that almost everything can be measured and we can look to outputs. The evidence base is critical to evaluating what works, so that when we spend more money, we ensure that we spend it in the most effective way.

There was an assertion from the hon. Lady that consultants add little real value and do not do real work. Contractors actually perform a very wide role. Most of the supplier contracts are buying people and services that support delivery, either by managing the implementation of programmes or by managing the distribution of funds. Sometimes that includes in-kind aid distributed by suppliers. Examples include bed nets and cash—the 40p or 50p a week given to extremely poor people by suppliers contracted by DFID. We also use contractors to provide technical assistance to country Governments to support them in the development of local capacity. Others are used to undertake monitoring and evaluation of programmes or to conduct research to help to improve the effectiveness of our aid. Many of these suppliers play a key role in DFID delivering tangible development outcomes in the world’s poorest countries. I have made clear the importance that we attach to value for money, but also the importance of delivering for the poorest.

I do not have a date for when the report commissioned by the Secretary of State will be finished. I know that the Secretary of State has announced the details of the actions being taken as a result of the review. The recommendations of the report—so it must have been finished—are still being considered, and work is ongoing to plan for implementation. The reason why the report is not in the public domain is that it comes under advice for Ministers and it includes commercially sensitive information, but what the Secretary of State is doing as a result of the report will be published; in fact, I think it has been published already.

The hon. Member for Hackney North and Stoke Newington asked why some of the suppliers working for DFID do not appear to pay enough UK tax.

[Sir Tony Cunningham]

The hon. Lady suggests that the report cannot be published because it contains sensitive material. Is she prepared to produce and provide this information? She can redact the delicate, sensitive information. We want information that is as full as it can be in order to prove that the Department is as transparent as it should be.

[Lynne Featherstone]

I am afraid I have forgotten the point that I was addressing to the hon. Member for Hackney North and Stoke Newington, because the intervention came then.

[Ms Abbott]

Tax.

[Lynne Featherstone]

I shall come back to tax. I am coming to the response to the report. There was a freedom of information request, which was answered in the same way—that advice to Ministers is exempt from FOI. However, I will come on to what the Secretary of State is proposing to do, in due course.

In terms of tax, which I have now lost the sheet about—I shall come back to that as well. I am sorry; I have managed to juggle the sheets and where I have put down that one I do not know.

[Ms Abbott]

Will the hon. Lady give way?

[Lynne Featherstone]

Let me progress, because as hon. Members have seen, it is better to let me speak all in one go.

The information on tax has come to hand. Almost all large supplier contracts are awarded following an open and competitive tender process under standard HMG rules. DFID clearly states in the invitation to tender terms and the contract terms that the supplier is responsible for meeting its requirements for Government tax. If a company is found not to be meeting its tax requirements, it will be excluded from tendering for future DFID contracts. The amount of tax that an individual supplier pays will depend on its corporate structure. For example, one of our suppliers has advised that it is set up so that it pays tax in the countries where it operates. That is an argument that it has made, but as I said, if a company is found not to be meeting its tax requirements, it will be excluded from tendering for DFID contracts. Right now, we are looking at the way in which a number of corporations pay tax—not particularly in DFID but across the board. That is at the top of everyone’s agenda because we all think that it is unfair and inappropriate.

The questions raised by the Opposition were mainly about value for money and whether the money going to suppliers where there is an administration fee is well spent or is creamed off. That was the inappropriate—I hope—language used by the hon. Member for Hackney North and Stoke Newington. Our new Secretary of State has made it clear that this is a top priority and has further increased the focus on it in the Department. As well as lowering the threshold at which projects come to Ministers for approval from £40 million to £5 million, the Secretary of State is reviewing DFID’s use of contractors to see how we can improve value for money. She has taken action, further to having brought down from £40 million to £5 million the threshold at which projects must have ministerial approval, by introducing new controls so that ministerial approval is now needed for all supplier contracts worth more than £1 million. She is writing to our top suppliers to reinforce to them the importance of ensuring value for money in their work for DFID. She will also meet them to tell them that the Department will look for even better value for money when deciding to award new contracts in future. Our suppliers will have to show that they are not in it only for the money; we want evidence of their commitment to poverty reduction and to the cause of development assistance.

The Secretary of State is also taking steps to introduce tougher monitoring of the performance of supplier contracts, to enable us to review value for money throughout contract delivery and take action accordingly. Instead of having wide gaps in the contract, we will be able to bring up issues at any point and as often as necessary. We will look carefully at our future outsourcing strategy, including the choice of delivery channels and our make-or-buy decisions. The hon. Lady asked about what we do in-house as opposed to what we contract out.

[Ms Abbott]

The Minister has been generous in giving way. I want to remind her of a point I made: concerns about the efficacy of aid are not confined only to the TaxPayers Alliance in the UK. A New York Times bestseller by Dambisa Moyo, a Kenyan former Goldman Sachs trader, called “Why Aid is Not Working and How There is a Better Way for Africa”, points to £1 trillion of development-related aid over 50 years and little to show for it. I am pleased to hear about what the Secretary of State is planning, but if she does not move forward as the Minister indicates, there is a danger that scepticism here will be matched by scepticism abroad and the weakening of the international commitment to aid.

[Lynne Featherstone]

There is no weakening of our commitment to aid. It is important to send that message loud and clear. I do not agree that there is little to show for aid; the hon. Lady prays in aid a book. Even Opposition Members will agree that since the coalition came in, a vast amount has been done to ensure value for money, such as the multilateral and bilateral aid reports and the review work we are doing now.

The hon. Lady mentioned the report on schools programmes in Nigeria. In a sense, the report seems to demonstrate that we spent all this money and have very little to show for it—that is the link I am making—but it was a very limited inquiry. The team visited only 1% of the schools, most of which were in only one state, and they did not take into account the most recent evidence of the projects’ progress. We will obviously review the report’s recommendations and respond in due course.

On that point, I want to say something more generally about the millennium development goals, one of which was about getting children, particularly girls, into primary education. It was a simplistic goal, but it sure focused the world’s attention. Of course, enrolment has been successful, but development is more sophisticated and complicated than that, because it also requires completion, and it requires us to ensure that children learn while they are in school. When the millennium development goals came in, we all said, “We will put a proportion of our money into that.” The programmes are now much more sophisticated and we look at development more broadly. We will obviously look at the report and at what happened in Nigeria.

The whole world has grown up in terms of aid; it is no longer about giving money in the traditional, old-fashioned way to starving poor people, but about working in countries to enable them to become sustainable and look after themselves. That is the point of development aid. To say that we have little to show for the work we are doing is an insult.

[Ms Abbott]

I did not say that, the writer said it.

[Lynne Featherstone]

Whoever said it, it is an insult to the work going on to change people’s lives, deliver on the ground and make future prosperity sustainable.

The private sector is part of the solution. A growing economy that can lift its people out of poverty, as well as the technical assistance that more developed countries can offer, is important.

[Sir Tony Cunningham]

rose—

[Lynne Featherstone]

I will not give way, because I am coming to my peroration.

In conclusion, contractors can perform an important role supporting the delivery of programmes that make a difference on the ground. They can, and do, deliver impressive results, often in incredibly challenging environments, but we look to them to do more. If they read the debate, they will know that they need to think about how they bid, knowing that our focus will be even sharper and our demand for value for money even greater. Our demand that they put more emphasis on how they will encourage local people along their supply chain to bid for work for them and for us is important. I am adamant that we will strive to maximise value for money, results and impact in every possible way. I am acutely aware of how important that is to those whose lives we seek to improve, as well as to UK taxpayers.

15:55

Sitting suspended.