Foreign aid: UK wants more business involvement but rejects contract changes

Image caption,
The government wants a bigger role for the private sector in overseas economic development

The government has rejected reports it is considering changing its aid policy to insist funds are used to purchase goods and services from UK suppliers.

There has been speculation the UK may reinstate the practice of "tied aid" on contracts - banned by Labour in 2001.

Development Secretary Justine Greening said this was the "wrong way" but there would be more focus on UK business involvement in overseas development.

Labour said the UK's reputation for a "progressive" aid policy was at risk.

The government has been under pressure from Conservative MPs to get greater value for money out of the UK's annual £11bn aid budget - one of the few areas of spending ring-fenced from cuts.

Ahead of next month's Budget, there have been reports that the government is considering how it can get more contracts for British firms to build roads, railways, schools and hospitals in countries that are major recipients of its aid.

Unlike some other countries, the UK does not oblige recipients to spend a proportion of their funds with suppliers from the donor country and there have been calls for the 12-year ban on "tied aid" to be lifted to give a shot in the arm to British firms.

'Wrong way'

Miss Greening said the UK was not changing its policy as she did not believe tied aid - criticised by the World Bank for distorting competition, pushing up costs and reducing quality - "was the way to secure good, sustainable development".

"It is the wrong way to go about things," she told MPs.

However, she said the private sector had a key role to play in boosting economic development and providing the platform for the increased investment in public services that was needed to lift people out of poverty.

"I want to see more businesses, including those in the UK, join the development push with Dfid (Department for international development).

"We all have the opportunity to build up responsible trade with developing countries."

She announced a series of measures to help boost enterprise and economic development in poorer countries.

  • Tax experts at Revenue and Customs will work with development specialists to help increase countries' tax base.
  • There will be a push to remove legal and other barriers to doing business in developing countries
  • An added £51m investment to provide independent growth advice in Burma, Malawi, Liberia and Nigeria

Labour said it had "serious concerns" about the future of UK development policy at a time when there should be "unity and pride" over the decision to honour a commitment to spend 0.7% of national income on aid.

"This Tory-led government are committed to promoting a discredited growth model of trickle-down economics which will do nothing to reduce poverty in the developing world," said shadow international development secretary Ivan Lewis.

Since becoming development secretary last year, Ms Greening has ended direct financial aid to India and ordered a review of all contractors. She recently announced future UK aid to Rwanda would be channelled through NGOs rather than the government after criticism of its conduct.