Appendix 7
Recently Disclosed Information about Links between Aid
and Arms
The Prime Minister took the final decision to overrule his own officials and pump £234m of British aid into a Malaysian dam project described by the Overseas Development Administration as "a very bad buy".
Until yesterday and the appearance before the Commons Public Accounts Committee of Sir Tim Lankester, the former ODA permanent secretary, it was widely assumed the green light for Britain's funding of the Pergau hydro-electric project came from Douglas Hurd, the Foreign Secretary.
Not so, said Sir Tim, pushing John Major, who spent yesterday giving evidence to the Scott inquiry less than a mile away, into further difficulty.
In a report in October, the National Audit Office, the public spending watchdog, condemned Pergau as uneconomic, environmentally unsound and a waste of taxpayers' money. The office pointed the finger at Mr Hurd, saying he order Sir Tim to spend the money – on 4 July 1991.
But under repeated questioning from MPs, Sir Tim said the decision was actually taken in Cabinet on 26 February 1991. He said that Mr Major was confirming an oral undertaking given by Margaret Thatcher personally in 1989.
Sir Tim, now Permanent Secretary at the Department for Education, also admitted for the first time that aid for Pergau was linked to a £1.3bn sale of arms to
Malaysia – something the Government has consistently denied.
His admission came the day after Lord Younger, then Secretary of State for Defence, told the Independent he had always assumed that to be the case.
After reading out a statement from Mr Hurd, in which the Foreign Secretary claimed increases in exports to Malaysia justified the expenditure, Sir Tim agreed he took that to include defence sales. "Clearly there was a perception of linkage," he said. Sir Tim's opposition to Pergau was contained in a memorandum for Mr Hurd. The Government drew accusations of a cover-up by refusing to release the document.
The initiative for British involvement in Pergau cam from the Department of Trade and Industry, with the building work awarded to Cementation International and Balfour Beatty. Cementation is owned by Trafalgar House, which donated £590,000 to the Tory party from 1979 to 1992.
A cheaper alternative gas turbine power station to be built by another company was rejected.
Tom Clarke, shadow Minister of State for Overseas Aid, said afterwards it was "very serious, with the present Prime Minister agreeing to use our limited aid reserves in this way". Mr Major's decision, claimed Mr Clarke, "benefited a small number of people closely associated with the Tory party".
A Government that portrays itself as a believer in basic values is increasingly being shown to be a ruthless practitioner of realpolitik. The Scott inquiry is revealing the extent to which ministers and officials have been prepared to bend the rules to boost British exports to Iraq, despite their military potential. To that can now be added the linking of a large slice of Britain's development aid budget to a big arms deal with Malaysia.
The project involved was an uneconomic dam. The Prime Minister himself insisted that the funding should go ahead as a sweetener. His own officials said it would be a waste of taxpayers' money. For years ministers denied that there was any link with the weapons deal. Finally, this week, the truth emerged at the Commons Public Accounts Committee hearings into Britain's funding of the hydroelectric project in Pergau, Malaysia.
The arms deal was worth £1.3bn, while the aid given will eventually amount to £234m. This is a huge sum. The total annual British aid budget is just £1.9bn, and only India receives more than £100m a year.
This week's disclosure throws into doubt frequent ministerial assertions that the motive of Britain's aid effort is to reduce poverty and suffering in the poorest countries. It has long been recognised that aid is intended to boost British exports. But the sale of weapons was never supposed to be linked to humanitarian help.
The revelation would be less damaging were British aid substantial. It is not. Relative to GDP, this country is one of the least generous donors among industrial nations. A sweetener paid to one country could be seen as food not given to the starving of another. The Malaysian project certainly means that many useful and much-needed capital projects will not materialise because of lack of funds.
Yesterday Mr Major defended his behaviour. He told the House of Commons that the Malaysian policy was justified because it helped to promote billions of pounds of British exports and created many jobs here. No doubt he is right that the sweetener achieved its intended outcome. But if the Government wishes to bolster the sale of British arms abroad, it should not pilfer the little cash set aside for the world's poor.
And if Major as so proud of his policy, why was the link between arms and aid denied for so long? Why is he still withholding papers from MPs on the matter? Perhaps because he has realised that the public is not prepared to accept that the end always justifies the means. The Government evidently has felt the need to draw a veil over an aid policy that was proclaimed as highly moral but has in fact been perverted to support the sale of weapons to a far from impoverished industrialising nation.
The Malaysian affair is yet another instance of ministers hiding the truth from Parliament and the electorate. The evasions and the perversions are characteristic of a government that fails to adhere to the moral code it preaches.