Rt Hon Lord Lilley

    Peter Lilley, MP for Hitchin and Harpenden, joined ex-Labour Cabinet Minister Claire Short in attacking Ministers for turning a blind eye to corruption in a deal that saw one of the poorest countries on earth squander $40 million on a corrupt deal to buy an expensive and unnecessary radar system. The debate followed revelations in the Guardian newspaper of a $12 million payment into a Swiss Bank account as part of the deal.

    Peter, who is due to go to Tanzania as Chairman of the Globalisation and Global Poverty Policy Review, condemned the corrupt deal between the Tanzanian Government and BAE systems as being at the expense of some of the poorest people in the World.

    Speaking in the debate, Peter said, “We know that Ministers did not conclude that this was a good deal for Tanzania. The International Civil Aviation Organisation had already advised that, “The proposed system is not adequate and is too expensive.”

    Peter accused the government of falling back on what he called ‘the Pontius Pilate defence‘, claiming their excuse was “We knew it was a bad deal, and we suspected it was a dodgy deal, but we washed our hands of it and left it to the Tanzanians to decide”.

    Peter pointed out that in this case Government had the power to do some good and under their own code of conduct a duty to prevent this deal happening, but had still granted the export licence necessary for the deal to go through.

    Peter concluded that, “Although tomorrow’s headlines will be captured by “cash for honours”, I believe that the episode that we are discussing today will leave a darker stain on this Government’s reputation. They put the well-being of poor people second to the interests of big business, undermined Britain’s influence for good and set a damaging precedent for the future”.



    Peter Lilley’s Speech from Hansard:

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    Mr. Peter Lilley (Hitchin and Harpenden) (Con): I begin by declaring an interest. I shall shortly go to Tanzania as chairman of the globalisation and global poverty group to discuss development issues, including issues such as this, with Government officials and others, and to address the Democratic Union of Africa.
    Tanzania is one of the poorest countries in the world. I had the privilege of living there when I worked for the east African common market some years ago, and I know it to be a beautiful country with a warm people-but a people living under a cloud of poverty, disease and hunger that few of us in the House can imagine. We should remember, however, that it is in that context that we are discussing this issue.
    The House often discusses waste and misuse of money that occurs in this country, but that waste and misuse dents, at most, our prosperity. Waste and embezzlement of money in a country like Tanzania is a matter of life and death. It means diseases untreated, education forgone, and children going to bed hungry at night.
    That is why the accusations that have been made are so important, including those that the right hon. Member for Birmingham, Ladywood (Clare Short) made outside the House and which we look forward to hearing today. I pay tribute to her because she does not speak now with the benefit of hindsight, as is the case for some of us, but she had the courage and foresight to speak out about her concerns at the time, and to make them known publicly.
    I also have enormous respect for the right hon. Lady’s successor, the current Secretary of State for International Development. He is a man of sea-green sincerity and absolute dedication to the cause of alleviating poverty. Today he responded with great candour, and coped with the embarrassing task of defending decisions for which he was not responsible, which he knows to be indefensible, and with which he undoubtedly disagreed at the time. I do not blame him for seeking what refuge he could find behind the investigation by the Serious Fraud Office. However, that will not stop us debating the issue today, because we are asking not about that SFO investigation, but about the Government’s failure to investigate sufficiently, or act effectively upon, what they knew previously.

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    An even flimsier defence is just to say, as the Government amendment does, that the decision was made after “due consideration” and
    “full discussion at Cabinet level”.
    The issue is not whether it was discussed, but what conclusions were reached and why. Why did the Cabinet disregard the advice of the International Civil Aviation Organisation, ignore the concerns of the then Secretary of State, and push through licence approval before the World Bank had put its well-known criticisms into a recommendation that would have been difficult to reject?
    We know that Ministers did not conclude that this was a good deal for Tanzania. The ICAO had already advised that
    “The system, as contracted, is primarily a military system…If it is to be used primarily for civil air traffic control purposes, the proposed system is not adequate and is too expensive.”
    At no stage has any Minister suggested otherwise. They have fallen back on what might be called the Pontius Pilate defence: “We knew it was a bad deal, and we suspected it was a dodgy deal, but we washed our hands of it and left it to the Tanzanians to decide”-the “sovereign decision” argument to which the hon. Member for Kingswood (Roger Berry) referred-“It’s just too bad if the Tanzanians are being ripped off and the poor lose out as a result.”
    I am certainly not accusing the Secretary of State of taking that position. He would be the last person to argue that we should turn a blind eye to bad governance and waste of resources. His recent White Paper is entitled not “Let’s hope governance will work for the poor”, but “Eliminating World Poverty: making governance work for the poor”-making it work for the poor, not for the big man in Africa or big business abroad. The White Paper is robust about aid being made conditional on good governance. It says:
    “The UK Government has a responsibility to make sure that UK aid money is used for the purpose for which it is intended. We take this very seriously.”
    In 2001, Britain had just given Tanzania £35 million of direct budget support for poverty reduction, yet when Tanzania decided to spend £28 million on a contract that the ICAO said was primarily military, not adequate and too expensive, the Government simply washed their hands. Governments face a difficult dilemma if the only way in which they can react to waste and suspicions of corruption is by cutting off further aid intended to help reduce poverty, but on this occasion we could have prevented this dubious contract by refusing or at least delaying a licence, without cutting off future aid.
    The Secretary of State’s White Paper goes on to say that donor Governments
    “need to be able to stop unscrupulous individuals or companies profiting from…paying bribes” ,
    and that
    “where domestic capacity is weak, international codes of practice can encourage companies to work legitimately”.
    Yet instead of enforcing the combined European Union and national code of conduct on military exports, the Government simply glossed over it, or gave it the most liberal interpretation possible.

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    The Government say that they had no evidence of corruption when the licence was given. We now know, of course, that 30 per cent. of the contract value was paid into a Swiss bank account, but the Government do not want us to talk about that now that we have some evidence. However, we do have the right to know whether Ministers asked themselves the obvious question at the time: why were the Tanzanians pressing ahead with a contract for something that they did not need and could have got cheaper elsewhere, and for which they had arranged some highly questionable finance-all against the advice of the ICAO, the World Bank, the International Monetary Fund and others? We know that the former Secretary of State asked herself that question, and that she reached the only conceivable answer: that someone had been offered big kick-backs. The deal stank-it reeked of corruption-but the Prime Minister persuaded other Ministers to hold their noses and let it through.
    We in this country talk a lot about governance. We lecture the Governments of developing countries, telling them that they must investigate, be transparent and hold Ministers to account, but the sad truth is that on this occasion, the suspicions fell on a British company. It was British Ministers who turned a blind eye; it was the British Government who rushed a decision through before the World Bank could publish its report; it was the British Government who ignored their own code of conduct. The words “mote” and “beam” spring to mind.
    Last year, I met one of the bravest men in Africa: John Githongo, the former anti-corruption tsar in Kenya, who tenaciously exposed massive corruption in the face of threats to his life and family. He said that Britain could still exert considerable moral influence-that anything that we did to highlight corruption and abuse would mobilise and strengthen the forces within African countries trying to clean up their systems. The sad truth is that this whole sorry episode will make it more difficult for the Secretary of State to exert that moral influence. I suspect that he would agree with me, were he in a position to do so.
    Although tomorrow’s headlines will be captured by “cash for honours”, I believe that the episode that we are discussing today will leave a darker stain on this Government’s reputation. They put the well-being of poor people second to the interests of big business, undermined Britain’s influence for good and set a damaging precedent for the future. The stain can be erased only if this House is prepared to do what we demand of others-may I respectfully suggest that it do so through its Select Committee on International Development?-and render the dealings of Government thoroughly transparent and hold Ministers, above all the Prime Minister, to account. It will be to the credit neither of this House nor this country if we let the matter rest as it stands.

    Claire Short’s Speech from Hansard:

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    Clare Short (Birmingham, Ladywood) (Ind Lab): I am pleased that the squalid British Aerospace sale of a military air traffic control system to Tanzania has reached the Floor of the House. All the parties involved in the deal should be deeply ashamed, but it is not an issue for party-political point scoring. It is good that the debate has not proceeded on that level.
    The truth is that successive Governments of both parties go out of their way to promote British arms sales in a way that is unprincipled, is of no economic benefit to the UK, distorts our foreign policy and undermines our reputation. The case of the Tanzanian air traffic control system is a particularly sordid example of the UK’s approach to arms sales. I am well aware-indeed, hopeful-that the investigation of the case by the Serious Fraud Office might result in criminal charges. That will be decided elsewhere. What is important here is for UK politicians to learn the lessons of the reality of UK arms sales policy and make real changes so that similar deals are not supported in future.
    To that end, I want to put on the record what I know of British Aerospace’s contract to provide an overpriced, outdated and unnecessarily military radar system to Tanzania, and of the powerful support given to the deal by the Secretaries of State for Defence and for Trade and Industry, and by the Foreign Secretary and the Prime Minister. Let us be clear: although the individuals holding those offices must take responsibility for the approach that they adopted, they were reflecting deeply held views and values in their respective Departments. The problem is systemic in nature, and that is what the House of Commons has to address.
    When the project was being discussed in Whitehall, I argued that it was clear that the deal was so useless and hostile to Tanzania’s interests that it must have been made corruptly. I had no evidence at that time, but evidence has since emerged that large payments were made to secure the deal. That is especially shameful when what was being sold-to one of the poorest countries in the world-was a useless piece of military technology priced far above its real value. We must therefore ask the following question: if British Aerospace and senior UK politicians were willing to go to the lengths that they did to secure the Tanzania deal, how much further would they go when promoting arms sales worth billions of pounds?
    I became aware of the contract when the World Bank representative in east Africa objected to the proposed sale. Some officials who had served in the Department for International Development for many years were surprised that the project had come forward for a second time. I understand that there had been a proposal some years earlier for a military air traffic control system to cover the whole country, but it had been blocked because Tanzania simply could not afford it. Now it seemed that the same project was being split in two and put forward again as a two-stage project.

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    The World Bank representative in east Africa was very concerned about the contract, as Tanzania was being considered for enhanced debt relief under the heavily indebted poor countries initiative. As a condition of debt relief, HIPC rightly imposes controls on future borrowing that require that it must be confined to concessionary lending-that is, aid lending not at market rates from organisations such as the World Bank, the African Development Bank and so on. It also imposes a ceiling even on concessionary lending.
    In this case, as has been noted, the loan was provided by Barclays bank which, as a commercial bank, was clearly incapable of providing a concessionary loan. Barclays colluded in this sordid project by inflating the size of the loan, it seems, and then pretending that it was concessionary in order to evade conditions set by the World Bank and the IMF. The smell given off by the project spread a long way, and Barclays has not been held to account, although the hon. Member for North Norfolk (Norman Lamb), as his party’s spokesman on international development at the time, tried to do something in that respect.
    As has been said, the World Bank representative in east Africa then decided to commission a report from the International Civil Aviation Organisation on the value of the deal to Tanzania. At the time it was argued by the DTI-and some people have repeated as much tonight-that Tanzania would earn money from the air traffic control fees and that the deal would therefore finance itself. As has been noted, the ICAO made it clear that the technology was old fashioned and expensive, that it would cover only half the country at best, and that it would not provide Tanzania with the air traffic control that it needed to develop its tourist industry. That development was very much in the country’s economic interest.
    By contrast, as I have said, the European Investment Bank was offering a loan at a fraction of the projected cost. From memory, I believe that it put the cost of providing air traffic control to three or four east African countries at about £12 million. The technology had progressed to the point that a much cheaper and more effective civil system was available, and an EIB loan to purchase it was on offer.
    There is no doubt that Tanzania needed a new civilian air traffic control system to enhance its earnings from tourism. The British Aerospace system was an overpriced and old-fashioned military system that did not meet that need, as the ICAO made clear.
    Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): The right hon. Lady is making a powerful analysis of what happened. She said that the DTI had come up with the idea that the project might be commercially beneficial to Tanzania. Did it undertake an empirical exercise and provide relevant figures, or did it merely assume that it was possible that some benefit might arise, and offer no figures in support of that assumption?
    Clare Short: I am trying to make it clear to the House that we need to address a deep culture in our Government system. The DTI sees it as its duty to push
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    all arms sales deals and will always find arguments for them. That is how it is and any incoming Government will face the same culture. We need to change it.
    When the events I was describing were taking place, the Department and I planned to offer Tanzania increased aid to help to fund a big new effort to provide free primary education for all children-it was great to hear the Secretary of State report an achievement figure of 96 per cent. It seemed wrong that our increased aid would finance that objectionable project. The hon. Member for City of York (Hugh Bayley) said that it would not. Of course it would. If we give money to a country that is buying a rotten project for which it has to pay in foreign currency, our increased aid is, in effect, funding the rotten project. We cannot turn away from that; we are implicated whatever we do.
    I made the decision to cut back our promised aid by £10 million and went to see President Mkapa-a man I greatly respect and who did a good job by his country. He told me that the contract had been signed before he came to office, a deposit had been paid and there was a penalty clause if Tanzania did not go ahead. I concluded that the best way forward for all concerned was for the UK to refuse a licence under criterion 8. As has been said, Robin Cook had raised the threshold for deals made by all EU countries to include consideration of whether an arms sale would affect sustainable development-a provision that had never been made previously. There is no question but that the project affected Tanzania’s development and that it should have been refused under criterion 8. If anyone argues that it should not have been refused under that criterion, we have to change the wording to tighten up the criterion so that we adhere to the standard.
    Susan Kramer: Is the right hon. Lady saying that after the presidential election the Tanzanian Government were interested in finding a way out of the contract? If so, that differs from statements we have heard that a sovereign Government wanted to make the purchase.
    Clare Short: The hon. Lady makes an important point. President Mkapa was a technocrat and a fine President, but he was not politically powerful and he inherited the contract. If the UK had done the right thing by refusing a licence under criterion 8, he would have been a very happy man, but there were penalty clauses for breach of contract and a payment of about £5 million had already been made.
    The important point is that it was a UK decision. At that stage, I spoke personally to the Prime Minister, the Chancellor and the Foreign Secretary-then Robin Cook. The Chancellor and the Foreign Secretary agreed that we should stand firmly against the deal, but the Prime Minister just listened and gave no undertaking. The 2001 election then intervened and Robin Cook was replaced by a new Foreign Secretary who was strongly briefed by his Department and strongly supported the deal-the Foreign Office is at it, too; it absolutely believes that its duty to the UK is to promote arms sales.
    The argument going on in Whitehall got into the public domain, and the Deputy Prime Minister convened an ad hoc Cabinet Committee to try to resolve the problem. The clear message from No. 10 was that the
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    deal must go ahead, come what may, and all Secretaries of State were pressurised in that direction. We-that is I and officials at DFID, which is a great Department with lovely people-were still determined to fight, but only then did we discover that there was a secret pre-deal approval system. The Ministry of Defence had given approval for the project, which was already under construction in the Isle of Wight, on the basis that it would not be contested because it was uncontroversial. The thing was being built, people were working on it and by that stage, although we tried, no one could be persuaded not to issue a licence.
    It is easy to say that we should cut off aid if there is corruption, but there are many poor and hungry people in Tanzania. The aid is for them. Someone else stole the money, but if we punish the poor for that we are punishing the wrong people. What should we do? That is the dilemma and that is why we need to tighten up our systems. President Mkapa and I reached the agreement that if he promised that there would be no second half to the project, we would go ahead with increasing our aid. I saw him after he had ceased to be President, and he told me that he had kept the promise, so although that makes the system even more useless-because it covers only part of the country-at least no more money was wasted.
    My conclusion is that we need to ensure that such a project will never again be made. If we all agree that it is disgusting-and I think that it is great to see the Tory party engaging in this debate-we have a chance to try to clean up our system. Current UK policy is based on the assumption that all arms sales are good for the UK economy. Read Samuel Brittan repeatedly in the Financial Times and discover that that is not the case. No other sector is subsidised with so much political muscle pushing up the exports, come what may. If the sector cannot be profitable in its own right, the high-quality engineers who work in it should be redeployed in other sectors.
    Secondly, there seems to be a belief that somehow we have to have an indigenous arms industry as though Napoleon might invade and we need to be able to make our own rifles. It is a completely time-lagged notion of the need to prop up and support arms exports. One of its effects is that our military gets lousy radios, lousy rifles and so forth that would have been better supplied if we purchased some of the equipment on the international markets.
    I repeat how pleased I am that the Tory party has raised this issue, but let us go beyond the usual point scoring. We have really uncovered something dirty here. The sale should never have been approved. All those senior officers in our Government should not be promoting dirty arms deals like this. If criterion 8 allows it through, let us tighten it up. Let us agree it cross party. Let us clean ourselves up and look again at the way in which we organise arms sales for our country. We could improve our reputation enormously and improve our relationship with all sorts of countries, including some of the poorest countries in the world.