My right hon. Friends the Secretary of State for Defence, the Secretary of State for International Development and I would like to inform the House about our plans for conflict funding for the next financial year.

In October 2007 the Government announced a new Public Service Agreement for Preventing and Resolving Conflict (PSA 30). The 2007 comprehensive spending review (CSR) settlement set out the programme resources available for supporting implementation of PSA 30— £109 million through the Conflict Prevention Pool (CPP), £73 million through the Stabilisation Aid Fund (SAF) and an additional call on the Treasury reserve for peacekeeping costs, currently capped at £374 million. The peacekeeping budget currently covers both the UK's assessed contributions to UN, OSCE and EU international peacekeeping missions, as well as certain discretionary peacekeeping activity. In the CSR settlement it was agreed that the new CPP would continue to be the first port of call if assessed (obligatory) peacekeeping costs rose above forecast.

The UK's total available conflict resource for FY 2009-10, leaving aside the cost of UK military operations in Afghanistan and Iraq, was therefore set at £556 million —£109 million CPP, £73 million SAF, £374 million peacekeeping budget.

A year into the CSR settlement we face a large projected increase in the UK's assessed peacekeeping contributions caused by:

an increase in peacekeeping activity through the UN and the European Union. This reflects a positive trend; for example, the UN mission in Darfur moving towards full strength. And it also reflects some new commitments. These include the decision by the Security Council in Resolution 1863 to provide a package of logistical support to the African Union mission in Somalia and its decision to reinforce MONUC, the UN mission in the Democratic Republic of the Congo (DRC), following the renewed hostilities in eastern DRC.

exchange rate changes. The Government are billed by the UN, EU and OSCE in US dollars and euros. While the impact of this in financial year 2008-09 has been partly offset by the effects of forward purchasing our foreign currency requirement, the fall in the value of sterling means that our costs will be significantly larger in 2009-10 than in the past.

In this context we have agreed the following:

We will earmark £456 million from the £556 million available for 2009-10 to cover the projected rise in assessed peacekeeping contributions allowing us to meet our legal obligations. This is significantly higher than the current £374 million peacekeeping allocation from the Treasury reserve and would leave only £100 million from the CSR settlement to fund all other conflict activity, including discretionary peacekeeping previously funded from the reserve (estimated at some £70 million in 2008-09).

To offset the impact on UK conflict prevention, stabilisation and discretionary peacekeeping activity, the Department for International Development (DFID), Foreign and Commonwealth Office (FCO) and Ministry of Defence (MOD) will provide an additional £71 million from Departmental budgets

We will therefore have £171 million from which all discretionary conflict prevention, stabilisation and peacekeeping activity will be funded. There will be five strategies: the SAF Afghanistan and CPP South Asia programmes will be merged; so too the SAF Iraq and CPP Middle East and North Africa programmes. A new wider Europe programme will fund activity in Russia/Commonwealth of Independent States and the Balkans (both currently individual programmes). The Africa programme will continue. A separate programme will be earmarked for thematic work, including support to international institutions to maintain our influence in international missions and security sector reform. The strategies will be managed tri-departmentally as is the case now.

Although DFID, the FCO and MOD are providing significant additional resources we are still unable to sustain funding levels to all regions. We have therefore undertaken an exercise to prioritise UK discretionary conflict expenditure more tightly on countries where the risk and impact of conflict is greatest. An outline of the revised programmes is provided below.

The total allocation for South Asia, including Afghanistan, will now be £61.3 million. This will allow us fully to sustain current levels of conflict related activity in Afghanistan, reflecting the very high priority which we attach to stabilisation in that country. A large proportion of the available resources will be spent on stabilisation programmes in Helmand, including on capacity building of the provincial institutions, communications with the Afghan people, counter narcotics and the rule of law. The priority given to this region sees a continuation of current levels of financial support for India/Pakistan issues, Sri Lanka and Nepal and an increase in support for work on the Afghanistan/Pakistan border.

In Africa, under a revised programme totalling £43 million, we will continue to give significant resources to both peacekeeping and conflict prevention work in countries such as Sudan, Somalia and the DRC. The balance of resources will necessarily shift away from West and Southern Africa towards East Africa and the Horn in line with PSA 30 with a few exceptions.

In Wider Europe, the total allocation will now be £33 million. This will allow us to maintain our national contribution to United Nations Forces in Africa (UNFICYP), the UN peacekeeping operation in Cyprus, in 2009-10. NATO has informed us that the current UK contribution to KFOR, the NATO peacekeeping force in Kosovo, is no longer required and we will therefore make plans to draw this down. We will fund a reduced level of commitment to EU and OSCE operations in the Balkans and the Caucasus, and continue to fund conflict prevention work in the Balkans.

In the Middle East, we will prioritise work in Iraq, Israel/Palestine and Lebanon within a revised programme of £18 million. A majority of the resource available will support stabilisation activity in Iraq. The allocation will also allow us to continue to support the emerging conflict prevention programme in Yemen.

The £6.5 million thematic programme including support for international organisations will provide resources for a security sector reform advisory capacity, a peacekeeping training capacity, defence education within priority countries, and support for the United Nations' Rule of Law Unit, Department of Peacekeeping Operations and Peacebuilding Support Office.

The need to prioritise within the limited resources available means that we have taken a decision to discontinue funding the CPP programme in Latin America. We will maintain the UK's significant contribution in the region on such issues as human rights and democracy; countering the illegal drugs trade; and climate change. Our embassies will also continue to work alongside international partners including the UN on conflict issues.

Within the £171 million we will retain a small central reserve to act primarily as a buffer against fluctuations in the exchange rate and increases in assessed peacekeeping or other conflict related costs. The likely cost of the assessed contributions will be reviewed regularly, so that any likely underspend or overspend against the upper limit of £456 can be identified and addressed.

This process has involved a series of difficult decisions and we will not be able to fund all areas of activity to the same level as in previous years. However, we are confident that the rigorous approach to prioritisation which has been taken, as well as the additional £71 million allocated by Departments, should allow us to maintain our significant contribution to international peacekeeping, and to fund essential conflict prevention and stabilisation activity in priority regions.

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