Commonwealth Development Corporation Bill

Baroness Sheehan Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 9th February 2017 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I add my thanks to the Minister for introducing this Bill to your Lordships’ House. Having listened to the speeches of other noble Lords, I am also reminded—if I needed reminding—yet again about the wealth of experience, and the breadth and depth of geographical knowledge, that exists in this House. I thank everybody who has contributed to my knowledge in this area.

This is a Bill that seeks to divert the policy of a government department quite significantly. It is a Bill that was neither trailed in the Conservative Party manifesto, nor mentioned in the Queen’s Speech. Moreover, it has been hastened with unseemly speed to its place on the statute book. Indeed, the passage of the Bill through the Commons gave rise to a good number of complaints from NGOs and think tanks that they had not been able to meet the very tight timescales made available to them and had had their submissions to the International Development Committee’s inquiry committee rejected. The Bill has been designated as a money Bill, so we in your Lordships’ House have no means by which to amend it or add conditions and safeguards—in short, no means to carry out our responsibility to give it proper scrutiny and make refinements which the Government may in time have come to appreciate. This is a pity, because taxpayers’ money—quite a lot of taxpayers’ money—is being moved from under the jurisdiction solely of Governments to an organisation which is not wholly accountable, given that it invests through funds of funds, as the noble Viscount, Lord Eccles, pointed out. That money is then outside of accountability through the Government and through DfID.

I am not the only one who thinks that the Bill’s designation as a money Bill is inappropriate. The noble Earl, Lord Sandwich, agreed with me, as did the report of the Delegated Powers and Regulatory Reform Committee, which said:

“We consider that the Bill contains an inappropriate delegation of power unless the Government can provide a convincing explanation of the need for this Henry VIII power”.


The Government did respond, but not convincingly. The need for development aid confronts us daily on our screens. Surely this is not the time to open up another line of attack for the vitriolic campaign that the Daily Mail and other rags are waging against the Department for International Development. That is what I fear this Bill will encourage. As we have seen, the CDC is vulnerable to attacks. In making this momentous and generous increase in the budget of the CDC, the Secretary of State risks exposing the entire 0.7% of GNI available for aid, yet again, to another round of attacks from parts of the media. She could have given herself some ammunition to rebut the attacks by putting some safeguards into the Bill, but then she has hardly been beforehand in rebutting any of the attacks levelled at her department. I know to his credit that the Minister is supportive of the 0.7% ODA, but will he convey to his boss that her history of attacks on DfID during the EU referendum campaign and her record of failing to defend the department on becoming its head are not reassuring?

I move on to why I think this Bill would have benefited from some refinements. It seeks to allow the CDC a massive increase of £4.5 billion to its overall spend to raise the ceiling to £6 billion, with an option to increase it further by another £6 billion by secondary legislation to a total of £12 billion. This raises eyebrows as the CDC has a chequered past—historically coming under heavy criticism in the really bad old days. Before 2012, the CDC spent 100% of its budget through funds of funds in projects that could hardly be described as pro-poor, including as they did, the arms trade. Nowadays, one-third of the CDC’s investments are made in other intermediary funds—funds of funds—a third are syndicated with other funds, co-invested; and a third are direct investments. We hope that the proportion of direct investments which give greater accountability to taxpayers will increase under the new strategy, once that is published.

First, let me address the problems posed with respect to transparency in the reporting of data. This is important because we need to be sure that ODA invested in the CDC can be traceable and accountable to taxpayers, in line with DfID’s international commitment on aid transparency. It is true that reporting has improved; however, a full two-thirds of the CDC’s investments remain opaque.

The CDC needs to take this on board and push for greater transparency in the deals it does with intermediaries, be they co-investees or other funds. These deals are rarely published with clarity, giving rise to allegations of secrecy and nefarious goings-on. It must publish what it funds. This has become even more imperative given that, since 2014, all capital transfer to the CDC is now reported as ODA by DfID to the OECD credit reporting system, but not all CDC investments are eligible as ODA.

The International Aid Transparency Initiative standard in 2012 rated the CDC as poor—a point mentioned by the noble Lord, Lord Judd—and asked it to publish what it funds. Why can it not publish country-by-country data? Neither DfID nor the CDC publishes data that give us a complete picture of how public money is invested. We do not know who is accountable: DfID or the CDC. This is unsatisfactory, and some clarity from the Minister on this question would be appreciated.

Given that 100% of the capital transfer from DfID to the CDC will now count as ODA, it is essential, to avoid controversy, that CDC projects demonstrate that they are focused on ending poverty. Closely linking its performance framework, evaluation and reporting, strategies and policies to the International Development Act 2002, the International Development (Gender Equality) Act 2014 and the UN sustainable development goals would go some way to countering media attacks. However, the recent NAO report on the CDC’s development impact framework does not include indicators for development impact achieved. Moreover, the CDC is not formally required to report on that. Why not?

Will the Government change their current reporting structure so that the CDC is subject to and compliant with the International Development Act 2002—surely not a big ask? Measuring impact is so important, and a really hot topic in the sector. The CDC has £5 million put aside to invest in a research project to develop a methodology to measure impact, yet that money lies unused. That is inexcusable.

The CDC’s preference for using job creation as a measure of impact is crude. Nor is it readily verifiable, as its intermediaries and co-investees can choose to provide no back-up data for their assertions. The CDC itself must not remain silent when it is attacked in the press. It is imperative that it defends itself, and to do so it must have facts and figures at its fingertips. It is no longer enough to say that it is in the business of job creation: that is only one indicator and is, moreover, unqualified. To be more meaningful, we need to know the quality of the jobs, pay and working conditions of employees, gender and age of the workforce and whether any training or education is delivered.

I move on to the criticism that the CDC has come under because of its use of tax havens. I hear what Diana Noble, the CDC’s CEO—for whom I have great regard, incidentally—says in defence of their use: that it is sometimes unavoidable when co-investees will not commit to a project where they believe there are not sufficient safeguards for the money or to avoid double taxation. My response is that the use of tax havens leads to the diversion of tax revenues from the poorest nations in the world—revenues that could be spent on health, education, clean water and so on—and all efforts must be made to put in place extra precautions and lend expertise to develop more robust financial practices that move that agenda forward. Development is, after all, the key word. These precautions may eat into profit margins, but profits at the CDC are still well above the 3.5% agreed with Ministers—for example, last year’s profits were 16%. The Prime Minister cannot on the one hand promise a crackdown on companies’ use of tax havens and at the same time sanction their use by a government-owned company.

The CDC must be careful to guard against scandal. It must not appear in the press for the wrong reasons. Every deal must meet the Daily Mail resilience test. Will it stand up to allegations of propping up corrupt leaders? Can a luxury mall be justified—for example, would the project struggle to attract investment elsewhere if the CDC were not to invest in it? Can the project withstand allegations of “public money, private profit”? The CDC’s remit is to invest in private enterprises that would typically struggle to attract investment elsewhere, as stated in its mission statement. Does it really need to invest in high-end private education or for-profit private health? These highly profitable enterprises, targeted at the well-off, usually in middle-income parts of a country, are justified, the CDC says, because the country is overall a low-income country. The CDC would do itself a favour if it were to cease investing in such businesses and stick to its objective: invest to contribute to economic growth for the benefit of the poor.

That is not to say that investing in health is wrong—far from it. The health sector is a key area where the impact of aid is clear and one that the public can connect with—very important—so the economic benefits of spending on health are strong, estimated to exceed cost by a factor of 20 in lower or middle-income countries. However, recently published figures for UK bilateral aid show that health has dropped from being the largest area of spending to fourth place. There is a trend of moving away from social development sectors into areas such as economic development and infrastructure, which may not always be pro-poor. That is something we must guard against. Each has its place, but we must ensure that one important sector does not lose out in place of another—a point my noble friend Lord Bruce made far more ably than I can. The CDC’s investment in health can be targeted so that it is demonstrably pro-poor.

In drawing my remarks to a close, I highlight the lack of strategy. The current strategy ended last year. During the Bill’s passage through the Commons, the Minister, Rory Stewart, said in his response that the amendments addressing the points I have highlighted were all valid, but that they were best addressed through internal governance and the forthcoming investment strategy rather than primary legislation. We were told by the Minister that this already much-delayed strategy would be with us by last December. It is now February, and we have had no sight of the new strategy which will guide the investments under which up to £12 billion of taxpayers’ money will be spent. This is unsatisfactory.

We must add to that the fact that the current CEO, Diana Noble, is due to leave shortly and the CDC will be under new leadership. I congratulate Ms Noble on her work for the CDC over the past five years. It cannot have been easy. The changes she has wrought have moved the organisation in the right direction. However, as I have outlined, this is very much work in progress. The appointment of a new head of the organisation will inevitably mean a different way of doing things but, without knowing who the new head will be or what the CDC’s vision for 2017-22 will look like, we are being asked to give our consent to a blank cheque.

I confess that I feel uncomfortable about doing that. However, the Bill’s passage is assured. I hope that the Government and the CDC will take on board not only my comments but those made by others in your Lordships’ House, and ensure that the CDC does not become the weak underbelly of DfID and leave itself open to attacks from those elements in the media which have never understood the imperative for the 0.7% commitment of GNI towards international aid.

UN figures tell us that more than 65 million people across the world have had to leave their homes to seek safety and to try to meet basic human needs for both themselves and their families. If we are to deter even more of them, in their desperation, from exposing themselves to the risks of dangerous journeys across continents, then we must work to ease their misery in their own countries. This is a moral imperative that benefits us as much as them.