Commonwealth Development Corporation Bill

Fiona Bruce Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons
Tuesday 29th November 2016 Commons Chamber

[Priti Patel]

My hon. Friend is absolutely right. We owe that to those who contribute to the taxes that enable the Government to make these important decisions about international development, and in particular our humanitarian responses and how we spend and invest that money. As I will go on to say, there are many examples around the world of lives being transformed, and that is something that our country can be very proud of.

[Fiona Bruce (Congleton) (Con)]

Does my right hon. Friend agree that with regard to the concerns expressed about the CDC, the gravest relate to the period when the Opposition were in government—for example, the excessive levels of pay to CDC staff? Has the Conservative Government not got a grip of that, and is the CDC not much more efficient following the review in 2012 by the then Secretary of State?

[Priti Patel]

I thank my hon. Friend for her comments and observation. As I outlined at the beginning, the CDC is an established organisation that we should all be proud of. Clearly, there was a period before 2010 when the management of the CDC was, to put it mildly, not doing what it should have been doing. There were concerns about excessive pay and the lack of focus on development outcomes. Since 2010, when DFID led the way forward in working with the CDC, we have seen great progress.

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[Patrick Grady]

I am happy to take that reassurance from the former Secretary of State, but I hope to hear it from current Ministers.

[Fiona Bruce]

As chair of the sub-committee of the International Development Committee that scrutinises the work of ICAI, perhaps our sub-committee could be added to that list.

[Patrick Grady]

DFID and the other bodies rightly face considerable scrutiny, which is as it should be, but we must ensure that it is extended and applied equally to all DFID stakeholders and all the resource that is spent. Perhaps there was an opportunity for the Bill to go further and to place statutory duties on the CDC to report on all its spending to the standards set by the international aid transparency initiative. I wonder what creative amendments might appear in that respect.

Let me be clear that I am not objecting in principle to the concept of development finance. There is a role for the private sector to play in stimulating the economies of developing countries and helping people into work—if carefully managed, it can support innovation and diversification. The Secretary of State’s letter to Members in advance of the Bill gave the example of the CDC’s early investment in the African mobile phone operator that eventually became Celtel. The investment was made when the technology was unproven and the market barely existed. I have seen first hand the impact that mobile phone technology makes in improving people’s lives across sub-Saharan Africa. Indeed, I have been a customer and user of Celtel services on many occasions.

The Scottish Government recently launched their own development finance initiative as part of their international development strategy. The Minister for International Development and Europe, Dr Alasdair Allan, announced in October £1 million of Scottish Government funding to help Malawian businesses over a three year period, which will be match-funded by private investors, providing £2 million in total to invest in Malawi. Those investments will be managed by a new Scottish company, the African Lakes Company Ltd, which has been registered as a limited company for that purpose. The African Lakes Corporation was originally established in Glasgow in 1878 to develop trade as an effective way of displacing slavery in Malawi. More than a century on, that mission has been revived with a contemporary view to investing in Malawi’s future. Through their support for that venture, the Scottish Government aim to show that responsible investment can help Malawi and similar countries to reduce dependence on aid, support the growth of existing businesses and create sustainable livelihoods.

The question is therefore less about the principle of development finance and more about how it is managed and how it fits within the overall picture of aid spending. The Scottish Government commitment of £l million over three years represents just under 4% of their annual development fund budget. The figures proposed in the Bill are of a far greater order—the Bill proposes the quadrupling of the funding cap from £1.5 billion to £6 billion, which would take the total amount that DFID can invest to the equivalent of around half the annual aid budget. I take the Secretary of State’s point that that will not necessarily be invested in one go, but if my understanding of the Bill is correct, it could be invested in one go in principle, which is a concern to some of us. The new maximum, which will be decided by statutory instrument, could be £12 billion, which is approximately the total annual aid budget. It is therefore worth asking, as the hon. Member for Edmonton did, where those figures came from and how they were arrived at. Why £6 billion and not £5 billion or £7 billion? Where is the needs analysis behind that figure?

As we heard in Treasury questions today, total aid spending is very likely to fall as a result of a slowing economy. The 0.7% target is by definition a proportion of total GNI. With further economic uncertainty on the horizon, there is no guarantee that the current figures will remain stable, let alone increase. Would it have been more sensible for Ministers to express the funding limits in the Bill as a percentage, or through some kind of formula that relates to the total amount of aid funding, to make investment in the CDC relate more clearly to the total aid budget at any one time? Although making the cap a proportion recognises the importance of development finance, it also recognises that it is only one small tool in a box, as the Secretary of State said.

We have been presented with the Bill, which incidentally was not mentioned in the Queen’s Speech, without seeing the long-promised policy statements in the shape of the bilateral and multilateral aid reviews. We therefore have no real idea exactly how the increase in the investment cap fits with DFID’s broader policy direction and goals. The Secretary of State has said that no disbursements will be made to the CDC without a robust business case. Will she assure us today that such business cases will have poverty reduction and the sustainable development goals, and people rather than profit, at their heart? As I asked earlier, has she given any consideration to the opportunity for building that into the Bill as a statutory duty on the CDC? [Interruption.] If the Secretary of State is not here, I hope that at least one DFID Minister can answer those questions at the end of the debate.

I and many other Members are keen to explore in Committee and other stages the question of how that significant scaling-up of DFID finance to the CDC fits into its broader policy goals and the wider global aid agenda. If satisfactory answers are not forthcoming, and if the Government are not willing to offer the reassurances and amendments we suggest, we reserve the right to oppose the Bill in its entirety on Third Reading.

Greater clarity is urgently needed from DFID and the Government as a whole on the purpose of their aid budget and how they will achieve that purpose. A global consensus framework exists, which this Government, or at least the Government elected in May 2015, helped to negotiate and write in the shape of the sustainable development goals. I said last week in Westminster Hall that, despite what may be read in some of the gutter and right-wing press, there is still public and political consensus in the UK on the importance of aid and the need to tackle global poverty.

The Secretary of State talks increasingly about making aid work in the national interest, but that raises the question: what is the national interest and how is it different from the goal of poverty eradication? Surely meeting the global goals in and of themselves is in the national interest, otherwise there is the implication that previously aid did not work in the national interest or that we have a deeper interest in its effectiveness beyond what the SDGs aim to achieve. If that is the case, what is that interest? What better or more noble purpose is there than the eradication of poverty and disease and the building of peace and equality for all? Surely a global community where everyone’s basic needs are met, where education allows people to thrive and where health and wellbeing contribute to more peaceful societies is by definition in our own interests, as well as the interests of those we are seeking to help.

That is why the goals must be at the heart of the work of the CDC. Ending poverty should not be a happy or convenient by-product of profitable investments; it should be the other way around. If investments that create jobs and provide services that lift people out of poverty go on to make surpluses that can be reinvested in more of the same, all to the good, but it should not be assumed, especially in the context of fragile and developing countries and economies, that generating a return on investment will of itself provide a rising tide that floats all boats. Old-style aid-for-trade and trickle-down investment have left us with a world where we still need a 15-year timetable to meet the global goals, after 15 years working towards their predecessors, the millennium development goals; yet we live in a world of plenty with the knowledge, resources and capacity to meet and exceed all the targets in the goals. What is lacking is the political will. The Government must show they understand that and that their support for the CDC is but one small and proportionate intervention in the struggle for a fairer, more just and more peaceful world.

Every penny that the Government invest in the CDC is a penny not invested in traditional, proven methods of aid delivery, so they have to show why each of those pennies is not better spent on gender empowerment, nutrition, farming, education or any of the other programmes working in partnership, on a non-profit basis, with specialist and grassroots organisations on the ground in developing countries. If they want to maintain the consensus in the House on the use and purpose of aid, the Government must show willingness in the coming stages of the Bill to engage on the points that I and others have raised. I look forward to continuing that debate in the coming days.

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[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

I have clearly touched a nerve with some of my comments about the Bill, which I am afraid I will not be giving the wholehearted support that some in the House have given it today.

The Government have attempted to portray the Bill as a minor technical matter, which should go through on the nod with minimal scrutiny and to which we should all give a big hurrah. What appears to be a minor technical two-clause Bill, however, is in fact far more significant and controversial. As we have heard, it proposes an immediate quadrupling of the limits on taxpayer funding of the CDC and then suggests a further doubling at the whim of the Secretary of State and without further primary legislation.

Now the CDC expansion, which has been significant from 1999 to the present day, has required only £1.5 billion of taxpayers’ money, a large amount of it in the recapitalisation that took place last year. By stark contrast, the Bill will permit an increase of up to £12 billion over an as yet undefined period, although the explanatory notes make it clear that the Secretary of State intends to

“accelerate CDC’s growth over the current Spending Round”.

That could imply giving three times extra to the CDC— £4.5 billion—in three to four years’ time than it has needed in the last 17 years. According to the explanatory notes, this is justified as a response to an as yet undefined or evidenced

“forecast market demand over CDC’s next strategy cycle and in order for the CDC to play a fuller role in the delivery of the UK’s international development objectives.”

Ministers rarely take powers without the intent to use them fully, and the transfer of powers to use secondary legislation should always be subject to robust scrutiny. I will explore in due course whether I believe this Bill, and the proposed increase for the CDC, meets three key tests. It is not whether it has met its plans as defined in 2012, but whether, first, it has demonstrated enough effectiveness to justify such a huge increase; secondly, whether it ensures an adequate focus on tackling poverty in the poorest countries; and thirdly, whether it acts in a coherent way with respect to the rest of DFID and indeed wider HMG policy.

Let me first suggest my own answer as to why such a huge increase has been proposed, and why now. One of the primary reasons may lie in a little noticed change to the reporting of our aid spending—official development assistance or ODA—last year, which saw the CDC’s contribution to meeting the 0.7% aid target dramatically altered. Until 2015, the investment activities of the CDC could either add to or subtract from our total aid spending. Simply put, we used to look at the net benefit of the CDC to developing countries by subtracting money flowing back to the CDC from the new investments it was making. In fact, this resulted in a positive contribution to our aid spending of £228 million in 2010; £91 million in 2011; £103 million in 2012; £100 million in 2013; and £42 million in 2014.

In 2015, however, there was a significant change. Instead of reporting with the same measure, which incidentally would, according to the House of Commons Library, have resulted in a negative contribution to the aid budget of minus £9 million, DFID changed its reporting so that the capital flow from the UK Government to the CDC is scored as ODA by DFID rather than the CDC scoring its own net disbursements as ODA. Instead of a negative impact on aid last year, the UK reported the capital increase reported to the CDC as aid, which was £450 million—a stark difference. We now looking at the total money DFID puts into the CDC counting as aid, regardless of which country or sector it ends up in, let alone whether it resulted in a net flow of resources to the poorest countries.

Why does this matter and how does it relate to the Bill? It matters because it would allow the Secretary of State to classify the entirety of future capital increases to the CDC as ODA or aid, potentially diverting, and effectively privatising, up to £12 billion of our future aid via the CDC, yet continuing to count it towards the 0.7% target. This is particularly important, given the different focuses and priorities of the CDC. I acknowledge that the differences have narrowed in recent years, and I shall come on to praise the work undertaken by the right hon. Member for Sutton Coldfield (Mr Mitchell) in this area. However, the differences between the CDC and DFID’s objectives, and indeed its stated aims, are still significant, not least over whether our aid is focused on the very poorest countries that most need our support or on higher-income countries where we can more easily achieve quicker and bigger returns on investment. I shall return to this point.

[Fiona Bruce]

The hon. Gentleman suggests that the aims are significantly different, yet 83% of the new CDC investments are in DFID partner countries and 56% of new investments are now in fragile and conflict-affected countries. Is that not in line with DFID’s objectives?

[Stephen Doughty]

As I shall come on to explain more fully, there has been a significant change and there has been a narrowing, but there is still a significant difference. If we look at the bulk of the spending still being in India, we see a significant divergence from DFID’s priorities, as I shall come on to show. We were told that aid to India had ended, but apparently it has not.

This is also significant when coupled with an answer I received to a parliamentary question. I discovered that the amount of aid—ODA—to be spent by Departments other than DFID is set to increase from 18% this year to 26% in 2019. That is over a quarter of our aid spending going through Departments other than DFID. Even if we focus on the lower end of the implied proposal to spend billions extra via the CDC by the end of the spending review—let alone the £12 billion—we could be looking at anywhere from 35% to 45% of the DFID budget being spent, but not by DFID in the traditional sense. If the Secretary of State used her full power and more quickly than expected, it could be even higher. It is particularly ironic that the Secretary of State who promised us greater effectiveness, transparency and accountability in our aid spending appears to be willing to hand over billions of our aid funding to less transparent and less accountable parts of government.

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[Stephen Doughty]

Absolutely. I shall return shortly to what the NAO report actually said, as opposed to the slightly glossed-over version that we heard from the Secretary of State.

[Fiona Bruce]

The hon. Gentleman is a member of the International Development Committee. He will therefore be aware that the Committee has committed itself to scrutinising ODA whichever Department it is spent through and that the Secretary of State has confirmed that we should have full authority, and her backing, to do so. If he had attended the ICAI sub-committee meeting last week, he would have seen that, for the first time, we had before us a witness from another Department who was scrutinising its spending of ODA.

[Stephen Doughty]

Indeed. I apologise for not being present at that meeting, but, as you will know, Madam Deputy Speaker, I had other commitments at the time. Obviously, the hon. Lady cannot attend all the meetings of all the groups in the House at any time either; she and I are both busy people. I hope that the Committees will investigate those matters, not least because of the volumes that we are talking about, but also because of the lack of transparency when it comes to documentation and the ability to scrutinise CDC’s spending, not least through its use of tax havens.

These dramatic shifts—under the cover of a “minor technical change” that we should all rush through in the House—must always set the alarm bells ringing for those of us who seek to scrutinise the Government and their decisions. I do not want to spend long on this, but we must feel additional alarm when we look at the agenda of the Secretary of State and consider what she has said about the Department being scrapped and about money being “stolen” and squandered. She does not like some of the headlines that have appeared in the Daily Mail. Obviously, she does not like the headlines that have appeared in newspapers such as the Financial Times. However, we are now seeing wild claims and accusations in the right-wing press which are clearly coming from her Department. Indeed, her special adviser has previously called for the 0.7% target to be abandoned, and in 2013 in The Sun described aid as an

“unaccountable, bureaucratic and wasteful industry”.

Why does all this matter to the Bill? I believe that, faced with the legislative and political constraints of the cross-party support for the 0.7% aid target, the Secretary of State has opted for a stealthier route and has chosen to undermine the Department by diverting and reclassifying aid. I appreciate that others may not share my sense of scepticism, so let me now deal with three practical objections to the Bill. The Secretary of State said that she wanted facts, so let us have some.

I should make it clear at the outset that I am not opposed to the existence of a development finance institution of the CDC’s nature, or to its playing its part in our portfolio of international development efforts. Nor, obviously, do I oppose the funding of private sector projects. The development of a vibrant private sector, key infrastructure and the support of new and emerging businesses in the world’s poorest countries should be a key part of any balanced portfolio of development assistance, alongside investments in basic public services such as health, education, water, and support for agricultural improvement to tackle hunger and nutritional challenges.

The Secretary of State likes to give us the impression that she is the only person ever to have realised the importance of private sector development and trade to tackling poverty and promoting economic development, but the fact is that both have been at the heart of DFID’s work since it came into being, under Governments of all political persuasions. Supporting trade is crucial to international development.

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[Stephen Doughty]

I did; I have read the whole report. It also states:

“It remains a significant challenge for CDC to demonstrate its ultimate objective of creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places.”

It goes on to make other serious criticisms. On reporting impact, the NAO says:

“Changes in reporting development impact over the last four years have made it difficult for CDC and the Department to set out a consistent picture of what has been achieved.”

It criticises the CDC’s failure to deliver on the evaluation contract, which was a key part of the business case for the last recapitalisation involving more than £700 million. It criticises the CDC’s claim to have created 1 million jobs, stating that

“in 2015 it reported that more than one million direct and indirect jobs had been created…CDC does not attribute these jobs directly to the investment it makes in the company. Since 2012 it has been considering how to measure job quality but has not yet established an overall methodology to do so…its progress has been slow”.

Worryingly, the NAO warned that

“recruitment and retention challenges remain a significant risk to CDC’s operations.”

That is crucial for an organisation planning a massive financial expansion.

The CDC has indeed clamped down on excessive pay, although the CEO still takes home more than £300,000 a year, which is significantly more than the Prime Minister. However, the NAO also reports that

“the Department and CDC will shortly be negotiating a new remuneration framework”.

Could we expect salaries to go back up? Particularly worrying, one would think, for a Secretary of State who thinks that most of our aid is being “stolen” or squandered is some of the NAO commentary on the CDC’s efforts to tackle fraud and corruption. The NAO tells us that the CDC has

“only recently established systems to consolidate records of all the allegations it receives…This made it harder for it to provide comprehensive reporting to the Department. ”

The NAO report states that DFID’s own internal audit team concluded that the figure of just four allegations of fraud and corruption at the CDC in the entire period from 2009 to 2016 was “surprisingly low”. At the very least, the CDC is worthy of the same level of robust scrutiny and criticism that is levelled at other development funding outlets.

[Fiona Bruce]

The hon. Gentleman asks where the business case is. Has he seen the letter of 23 November from the Secretary of State? In it, she says:

“No new capital to CDC would be released without a business case subject to full Ministerial scrutiny and approval and the agreement of CDC’s board.”

[Stephen Doughty]

That might be reassuring to the hon. Lady, but it does not reassure me, not least because the CDC has not even let the evaluation contract that was a key part of the last business case.

Let me turn to the disjoint between DFID’s priority countries and those in which the CDC operates. That disjoint is likely to grow even larger with such a significant uplift in funding. Even with the refocus in 2012, the list of 63 countries in which the CDC is allowed to invest is significantly larger than the approximately 35 countries on which DFID normally focuses its efforts. The list includes many countries to which DFID has ended its bilateral funding. The CDC can invest in India, South Africa—albeit with caveats—the luxury Indian ocean islands of the Seychelles, the Maldives and Mauritius, and many countries across north Africa including Egypt. Despite their problems and challenges, those countries would not normally be regarded as among the poorest in the world.

According to the House of Commons Library, the CDC spends more in gross aid and official development assistance than DFID does in certain—often middle income—countries and regions, including some rather odd examples such as Algeria, Costa Rica, Mauritius, Morocco, South Africa and Thailand, as well as the more expected locations such as Cameroon, Niger and Côte d’Ivoire. Even if we discount the pre-2012 legacy investments in Latin America, the CDC is still investing the largest amounts in higher-income countries, according to data released to me in another parliamentary question.

At the top of the CDC investment list are India, which has received £760.5 million since 2009, South Africa with £194 million and, oddly, Egypt with £53.6 million. If we include the pre-2012 legacy investments, we find even more odd examples. India, South Africa—with caveats, as I said—and Egypt remain on the list of eligible countries for CDC investments, which is rather remarkable, given the fact that the last three Conservative Secretaries of State have made a huge meal of the fact that aid to India was ending. I find this strange. I took a long time to be convinced of the need to end our aid programme in India. There is clearly severe poverty in a whole series of Indian states. It is odd that a lion’s share of the CDC’s investments continue to go into a country that is not exactly the kind of frontier place for investment that the Secretary of State was talking about earlier. Is she really saying that India struggles to attract private investment capital and that we should be there at the forefront of those giving aid? I would find that hard to believe.

The House of Commons Library has found that the share of new investments in the poorest least-developed countries increased, but from just 4% to 12%, and the increase was from less than 1% to just 4% in the lower-income countries. The lion’s share of the CDC’s investments remained in the lower middle-income countries. The CDC’s own annual report for 2015 admits that its top four highest country exposures are India with 23%; China with 14%; Nigeria with 7%; and South Africa with 6%. It also tells us that just 6% of its investment goes into agriculture and just 6% into education. Bizarrely, those are not far ahead of real estate and mineral extraction. Focus has clearly improved, but the easiest and quickest returns for the CDC remain in certain sectors that are far removed from traditional, vital development impacts and in huge markets such as India and South Africa, not the world’s poorest countries. If the Secretary of State’s agenda is all about building a bilateral trading relationship with India in the post-Brexit environment and if we need to push our aid that way to sweeten deals, we should come clean about that. Many people feel that things are headed that way. Funds are not going towards the Department’s original development objectives.

Why does the CDC require such a potentially massive capital injection of taxpayers’ money when it managed perfectly well without one until last year? It recycles 100% of its profits and has total net assets of £4 billion, which rose by 16% in the last year, and an investment portfolio of £3 billion. Why does it need additional money in such large volumes?

Turning to tax havens and coherence, the Chancellor told us in last week’s autumn statement that the Government are committed to tackling tax evasion, avoidance and aggressive tax planning, and today the Business Secretary told us all about Government plans to crack down on corporate governance. The Government have repeatedly claimed that they have attempted to crack down on tax havens—not least in the aftermath of the Panama papers. Yet we find the CDC’s investment vehicles in those very papers. No less than 11 CDC subsidiaries are located in the Cayman Islands, 40 in Mauritius, and five in the Channel Islands. Oxfam points that three quarters of CDC investments in 2013 were routed through jurisdictions that feature in the top 20 of the Tax Justice Network’s financial secrecy index. Christian Aid has also been critical of the CDC, stating that it

“has been shown to be a heavy user of secretive tax havens, which serve both to obscure what is really going on with its investments and can also reduce the amount of tax its investee companies pay in poor countries”.

Even if Ministers, the International Development Committee or others wanted to scrutinise properly what is going on, the lack of transparency and detail provided by the CDC and the fancy shell companies make it incredibly difficult.

Our wider development and sustainability policies might also be incoherent. Many CDC projects are clearly coherent with DFID objectives and the sustainable development goals. We heard about electricity in Uganda and other excellent examples of investment in micro-finance, so there are clearly many high-quality projects, but there are some odd inconsistencies. The CDC apparently invests £29.2 million in GEMS Education Africa, the website of which describes a network of private fee-paying schools and education providers in “leafy, residential” locations that charge anything from around 582,000 to 1,287,000 Kenyan shillings a year—up to £10,000. The CDC also holds a 22.8% share in Rainbow Children’s Medicare Private Ltd, a fee-paying private hospital group in India that the NAO visited as part of its inquiry, saying that the investment was apparently in the whole company and not even focused on improving access for the poorest, for example. The former Secretary of State, the right hon. Member for Sutton Coldfield (Mr Mitchell), mentioned Feronia Inc. in which the CDC has invested £15.1 million. The main boast on its website is of replanting 13,000 hectares of palm oil, a commodity which is linked to deforestation, habitat degradation and climate change.

Without being able to get more detail from the CDC’s documents, it is difficult to know where the money is going and what it is being used for, but those are odd examples of spending going towards wonderful development objectives. The CDC continues to operate free from day-to-day policy guidance and intervention from Ministers. Oxfam points out that the CDC was assessed as poor in the aid transparency index in 2012, but there have been few improvements since then. All who support the cause of international development and poverty eradication face a tough task in justifying that spending to the public—however small a proportion of overall Government spending it remains. I am sorry to say that the task is not helped in any way by the misleading spin put out weekly in tabloid newspapers by the current Secretary of State, which was not a hallmark of her Conservative or Labour predecessors.

I am normally able to make a case for our development spending by appealing to moral duty and our national interest, not least when it comes to dealing with countries of conflict or instability, or with the huge migration flows we see. I am heartened by those among the younger generations who care about the prospects of our fellow humans around the world. I recently visited Moorland Primary School, in one of the more deprived areas of my constituency, where children told me that they wanted me to speak to Ministers to get more money provided for education in the poorest countries and to ensure that children are able to go to school and that they have healthcare and clean water. I will struggle to explain to those children why the Secretary of State wants to spend billions of our taxes handing money to what is, in effect, a privatised firm that does not need this amount of money; that gives large portions of it to countries that do not need it; that pays its chief executive officer more than £300,000 a year; and that invests through tax havens. It has some laudable aims, but it is not proving its effectiveness.

In conclusion, the Bill massively increases that funding to CDC and it fails three crucial tests. The first of those is the effectiveness test; the NAO assessment simply does not provide the evidence needed to back up such a huge increase in funding—has CDC even requested it? Secondly, it fails the poverty-focus test, as CDC remains massively focused on higher-income countries and high-return sectors, rather than on those that we should be pushing our efforts into. Thirdly, it fails the coherence test, given the continued use of tax havens and projects that simply do not sit comfortably with our wider development objectives. In its current form, this is a bad Bill. That does not mean that I do not support the continuation of the CDC and that I do not recognise that much of its work is good, but this level of increase is a stealthy way of diverting money away from our work in DFID, alongside the diversion to other Departments. We ought to scrutinise the Bill very carefully in Committee.

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[Mark Field (Cities of London and Westminster) (Con)]

Although this is a relatively straightforward Bill, which I had hoped would have the support of all Members of the House, it is worth examining some aspects of the strategic background to our DFID commitments.

I associate myself wholeheartedly with the wise and experienced words of my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and my hon. Friend the Member for Rochford and Southend East (James Duddridge) when they touched on the transformation of the CDC’s work over the past half-decade or so. I must confess that I did not recognise some of the rather more jaundiced views of its work, as set out in the rather long contribution from the hon. Member for Cardiff South and Penarth (Stephen Doughty).

[Fiona Bruce]

Does my right hon. Friend agree that the selective quoting of the NAO report by the hon. Member for Cardiff South and Penarth, who is no longer in his place, did not do justice to its conclusion that, overall, DFID’s grip on the CDC is strong and that the CDC has made radical improvements since the NAO’s last report in 2008?

[Mark Field]

I agree with everything my hon. Friend has to say.

I am glad that the Secretary of State is now back in her place, and I wholeheartedly support her somewhat expansive approach, which has been criticised in certain quarters during the debate. She appears determined to ensure that the UK utilises all its assets, including the DFID budget, to secure an optimal deal for the nation, not just as we extricate ourselves from the EU, but in the years to come.

That must mean extending DFID’s reach beyond the traditional aid referred to in the debate to broader development and infrastructure and to things such as security, but also to community sustainability and resilience across the globe. That change is long overdue, and I should like briefly to set out some of the somewhat negative ways in which DFID’s culture has developed since the Department was established in 1997, which I sincerely trust the Bill will help to address.

DFID was originally seen as a key component of an ethical foreign policy, centralising in a single Department overseas aid moneys that were previously in the budgets of the Ministry of Defence and the Foreign Office. The result was that those major Departments of State were left at that time with little or no financial autonomy on key international projects—regrettably, in my view.

Instead, a new culture of programming took hold in DFID, which managed out what was seen as inappropriate spending that could cause presentational problems for the Government of the day. Cautious mandarins became more risk averse, and DFID project money was routinely awarded to known international bodies, such as the World Bank or UNICEF, rather than to smaller, nimbler UK organisations and businesses.

That ensured that the Government would not be seen to be promoting corporate Britain abroad under the cloak of humanitarian assistance, but it also left those recognised brands to deal with any fallout, should questions be raised about the success of particular programmes. Indeed, the very respectability of those organisations tended to mute any testing questioning about the effectiveness and impact of what has become an ever-larger amount of British aid money. That shift, I fear, went hand in hand with the emergence of increasingly professional bidders, who learned to speak the language of DFID programmers to win contracts.

Too often, the result has been ponderous, expensive and wasteful programming, and I know that that culture is very much in the sights of the Secretary of State, who wants to eradicate it. In part, DFID programmers have often been overloaded with cash, which has been increasingly bundled off to the international bodies I mentioned. I am therefore absolutely delighted that the Bill increases the scope for money to be used by domestic bodies that are within the Government’s control and able to enact the Government’s priorities in the new world rapidly unfolding before us.

My right hon. Friend the Member for Sutton Coldfield laid out the way in which the CDC rightly operates. There is rightly oversight from not just the Government but a range of Select Committees, but we ultimately leave the organisation to get on and do the job that it is best able to achieve.

We need, above all, to ensure that DFID is not as process driven as it has perhaps been in the past, which has reduced our agility in this field and risked the benchmark for the success of our development aid being simply the amount spent, rather than the added value delivered, as has been referred to. That does not make our ongoing 0.7% commitment to overseas aid wrong—some of my right hon. and hon. Friends would probably disagree with that—and I am absolutely supportive of it, as is my hon. Friend the Member for Rochford and Southend East. Indeed, the case for extending Britain’s reach in this field grows stronger every day as we are confronted domestically with problems whose roots start many thousands of miles away.

I do, though, question whether, particularly as we leave the EU, large parts of DFID’s budget should not now be made available to the Foreign Office, the Ministry of Defence or the Department for International Trade, all of which should, necessarily and rightly, come under some scrutiny and oversight from DFID, but there should, none the less, be that sense of joined-up co-operation within the Government. That would enable and authorise those on the ground, whether in overseas embassies, military bases, or part and parcel of our intelligence services, to spend sensibly, carefully and locally against agreed objectives rather than within the rather ham-fisted DFID programming process.

--- Later in debate ---

[Fiona Bruce (Congleton) (Con)]

On behalf of other members of the Select Committee, I inform the House that many of them are abroad on a visit to the middle east but would have spoken in the debate had they been here. It would be wrong for me to indicate how they would have spoken or whether, like me, they support the Bill, but I will put on the record one or two comments previously made by members of the Committee. As long ago as 2011, my hon. Friend the Member for Stafford (Jeremy Lefroy) said in a debate on the CDC:

“It is extremely important that the Government should continue to support CDC.”—[Official Report, 14 July 2011; Vol. 531, c. 169WH.]

An IDC report on jobs and livelihood in the last Parliament stated:

“We are encouraged that CDC has followed our recommendations and has refocused on job creation.”

A final Select Committee example is a recent report on the sustainable development goals, which stated:

“The Government must ensure that the work it carries out to encourage private sector investment, through CDC…is focused on developing and fragile states”.

It went on to mention

“a positive impact on the achievement of the SDGs”,

which the CDC had the potential to achieve. It was interesting to note that in response the Government stated:

“CDC’s mandate is aligned with achievement of the Goals”.

Before I touch on a few of my prepared remarks, I would like to deal with some of comments made by another member of our Select Committee, the hon. Member for Cardiff South and Penarth (Stephen Doughty). He mentioned his concerns about the effectiveness, the poverty focus and the coherence of the CDC’s work, and I would like to respond to these.

The hon. Gentleman said that there should be more emphasis on health and education. However, the CDC’s development impact is amplified by the billions of pounds in local taxes that are generated by the companies it invests in. These help to support the public services such as health and education in developing countries. Over the past three years alone, these companies have generated over £7 billion-worth of local tax revenue. It is important to remember the impact that these taxes can have on those kinds of essential services.

The hon. Gentleman spoke about coherence, and he and others have mentioned transparency, but DFID works very closely with the CDC to ensure that it is at the forefront of global standards of transparency in development impact. Information about all the CDC’s investments is available on a comprehensive database on its website, with details of the name and location of every investment in the portfolio. I am sure that further information would be made available if members of the Select Committee requested it. If DFID is working, as we know it is, with the CDC on a new results framework, this will result in an even better capture of the broader impact of investments on development—even beyond job creation and tax revenue generated.

Finally, the hon. Gentleman raised his concerns about investment by the CDC in a private, fee-paying hospital in India, stating that this might be at odds with DFID’s general approach towards the expenditure of UK aid. However, I clearly remember the Select Committee visiting a private, fee-paying school in Africa not so long ago, and Committee members agreed that DFID’s support for that school was, in fact, well spent, particularly when there was no other option for children in that area to obtain an education. I believe these issues need to be looked at in context, and I am not so sure that support for this hospital is so out of line with DFID’s general approach.

[Stephen Doughty]

The hon. Lady raises the issue of private fee-paying education and health. The issue is about where we focus our efforts. Does she not accept that if we continue to support the expansion of private healthcare and education as opposed to supporting public systems that enable free access to healthcare and education, we will effectively supplant countries’ ability to provide national healthcare and education systems that support all their citizens, including the poorest?

[Fiona Bruce]

As with so many of these cases, it is not an either/or. It is often both when the need is clearly there and the money can be well spent.

I shall move on to my few prepared remarks about the Bill. I absolutely support the Bill and speak in favour of it. It is essential to look at how to support capital investment in countries where there is a paucity of it. A 2014 report from the UN Conference on Trade and Development calculated a £2.5 trillion annual investment gap in key sustainable development sectors, so the CDC has a very important role to play. It is important to remember that the Bill will allow DFID and the British people, as the CDC’s motto states, “to do good without losing money” on an even greater scale than hitherto. I cannot believe that anyone, even aid sceptics, could really object to that.

The NAO report, published yesterday, chronicles the many positive steps that the CDC has taken and the many improvements that it has made. We have heard many references to the report. It says that through

“tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model.”

This morning I spoke to NAO officers who had produced the report over eight months and had visited many projects, including some in Africa. They said that DFID now had a really good grip on the CDC’s work, that there were good lines of communication between the CDC and DFID, and that DIFD’s in-country know-how was being utilised, while it was rightly not interfering in day-to-day management. They identified several cases of CDC investments in areas where the private sector would not have initially dared to go, but three years later private sector money had come in. Indeed, in several instances they saw the results of what they described as “catalytic” investments. They said of the 13 or 14 funds they had inspected in Africa that, with one exception, they were “transformational”. I think that we have a really positive report on which to act.

Of course, there are views about previous investments, but I think it encouraging that 98% of investments are now in Africa and south-east Asia and 82% are in one of the seven priority sectors identified in DFID’s key objectives, which were devised in 2012, following the excellent review conducted by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell).

Without further ado, I shall end my speech, although there is much more that I would like to say in praise of the CDC.

Commonwealth Development Corporation Bill (First sitting)

Fiona Bruce Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 6th December 2016 Public Bill Committees

[The Chair]

We need to move on.

[Fiona Bruce (Congleton) (Con)]

Q I would like to ask Diana about job creation. You say that one of CDC’s key strategic aims is to achieve development impact focused on job creation. How do you measure jobs that are created directly and indirectly? Last week, the National Audit Office said in its report that progress on measuring job quality has been slow. How are you working on that? How are you measuring productivity, quality of jobs and income levels?

Diana Noble: As you rightly point out, we focus on jobs because we believe a job is the first and the best step out of poverty. I think everyone on the Committee understands the difference that a job makes to someone in a poor country: to them and to their family. When we talk to workers it is clear that they also use the income particularly to educate their children, so it has a benefit for future generations. How do we measure job creation? This is something that we take very seriously. Two years ago, in partnership with some academics, we put in place a way to measure job creation across the whole of the Africa and south Asia portfolio.

We are the first DFI to collect data from all our portfolio companies. We do not just collect headcount data; we also collect revenues, supply chain, purchases, work and wages as well. The academic uses that to calculate not just the direct job creation but the indirect job creation. As you can imagine, some of our priority sectors, such as financial inclusion and particularly infrastructure and power, have a far greater job impact beyond the direct jobs. So we have now published the methodology on our website. We are going to go through a peer review process because we want it to become one of the industry standards. We have shown the data from that for two years now. We can start to compare and contrast it. It shows that the portfolio has created over 1 million jobs in the past two years. That is a number we take immense pride in.

You also rightly talked about job quality, because it is not just about volume. Quality has lots of different elements to it. What all of us sitting in this room might consider a good job is not necessarily so with the lens that you should use in the countries where we invest.

On job quality, before we make an investment, our fantastic environmental and social team go and sit down with the company and do due diligence on them. They say, “Are you up to standard, particularly in the areas of health and safety?” If they are not at the right standard, an action plan is agreed with management and put in place.

The second thing we do is collect data across the portfolio on fatalities and serious accidents. We have been doing that since 2008. We have very rich data now and have been able to combine that and give training back to portfolio companies and fund managers about the areas that lead to fatalities and serious accidents. We think that gives huge added value to our portfolio.

We are going further than that. We are collecting information on lost time injury frequency, particularly for manufacturing and construction—places where workers are potentially put at harm. We are looking at staff retention for some of our larger investments, because we are advised that it has a big correlation with job quality. We are doing an evaluation in Bangladesh at the moment—everyone on the Committee will be aware of the issues in garment factories there—to try to understand what workers really want out of their jobs, so that we can build that in. There is a big element of learning. We are on a journey, and there is still a long way to go.

[Jeremy Lefroy (Stafford) (Con)]

The question I wanted to ask has been asked, Mr Streeter.

--- Later in debate ---

[James Duddridge]

It is a ridiculous comment.

Saranel Benjamin: No, DFID subjects the development sector to a number of processes involving deep scrutiny of all our work. It does not do that with CDC. The fact is that a case study such as Feronia, for example, can exist. Either CDC can say that it did not know that it was happening or DFID can say that it did not know that it was happening. It seems to me that there is a lack of oversight.

[Fiona Bruce]

Q Can I ask Terry and Tom about value for money? How should CDC be scrutinised by the various bodies that will scrutinise it, assuming it gets this increased money—DFID, Parliament, the International Development Select Committee, ICAI and the Sub-Committee on the Select Committee, which I chair, which scrutinises ICAI? In view of the increased funding, how can we ensure that we scrutinise value for money effectively? What measurements should we be using?

Tom McDonald: That is a very good question. The first duty is with DFID as the shareholder. What we have seen of the reforms that have been put in place since 2012 is an increased volume of reporting from CDC back to the Department, characterised by a no-surprises policy. CDC is very clear that if it is thinking of undertaking something new or innovative it will consult with DFID first. Similarly, it will have quarterly shareholder meetings and with the shareholder produces a significant volume of information. These are all improvements from the previous regime that Members have talked about before and they help to mitigate the risk that CDC at some point in the future might engage in some of the poor behaviour that we saw previously.

That is the first line of defence in terms of scrutiny. Who else might do that? We will clearly continue to have an interest. We have been writing reports on CDC for at least 20 years. Obviously, it is up to Parliament how else it wishes to do that. The difficulty, as with other aspects of DFID’s spending, is following the money. We have this problem with multilateral expenditure. When DFID makes a payment to a CDC or a multilateral body, it is quite for us as the auditors to track that money through to the eventual point of impact. We have to be creative about it and find ways of doing that. It is not straightforward.

[Fiona Bruce]

Q I am probing a little, if I may. You say that it is up to us how we do it, but you have just spent eight months looking at CDC day in and day out. I am seeking to glean the benefit of that detailed insight when the Independent Commission for Aid Impact and our Sub-Committee, which scrutinises it, looks at the issue. What should we be focusing on? Where should we be asking questions?

Tom McDonald: If you look at our value for money conclusion, we essentially divided it between, on one hand, the economy and efficiency with which CDC was being run and with which DFID was overseeing it, and the effectiveness of CDC. Looking at the first two e’s, we concluded that DFID’s oversight of CDC has improved considerably, and that CDC’s operating model is now pretty economic and efficient. It is a pretty good way for CDC to organise itself and spend the money that DFID has allocated to it.

On the subject of effectiveness, which we discussed at the beginning, this is clearly not an easy thing, but we still think there is more to do. There is more on which DFID could press CDC, and there is perhaps more on which Parliament could press both DFID and CDC to give a better picture of what CDC itself says is its ultimate objective: changing people’s lives, not just creating jobs.

[Imran Hussain]

Q Just a further question to Ms Benjamin from War on Want, to follow up from colleagues. I am slightly lost. Are you saying that you are principally against the development finance institution model—that would considerably weaken where I thought you were coming from—or are you concentrating on specific instances where you think the money was not spent well and most efficiently to target poverty alleviation? You gave the example of the Republic of the Congo. Can you elaborate on that and be more specific about where you are heading? I am slightly confused about where you are going with it.

Saranel Benjamin: As I said, we come from very different development backgrounds. For War on Want, a charity that works with partners in the global south, it is not about creating jobs; that is our approach. We are about supporting grassroots communities and organisations to allow them to envision the change that they want to see in their own countries. For me, when I see a private firm like CDC investing or looking for opportunities, I see it looking for an entry point for the UK to make a profit in the global south. For me, that is what it looks like. Given the use of tax havens, those countries are not really benefiting from what is being invested in those countries.

Again, look at the quality of jobs being created. Feronia in the DRC is one example. Workers are being paid less than $2 a day. Are you telling me that that is poverty reduction? Is that job creation? There is a dispute about the land on which Feronia operates; it is a 100-year-old land struggle. The largest investor in Feronia is CDC, which holds 67% of the investments owned in Feronia. The land dispute has been going on for a number of years, and communities have been displaced off that land. CDC claims that it is all legitimate, but it refuses to make the lease agreements or concessions publicly available. We have requested them from CDC, and have yet to have an acknowledgment that the email was received.

--- Later in debate ---

[The Chair]

Final question: Fiona Bruce.

[Fiona Bruce]

Q On scaling up and the challenges of recruitment and retention, which are highlighted in the NAO report, I am interested to know whether you think that CDC will be able to meet the recruiting challenge and what particular skill sets are needed for CDC, as opposed to other international development work, bearing in mind that a lot of people want to work in this field. Why will CDC have particular challenges?

Tom McDonald: CDC does face a significant challenge if it is going to make use of additional capital to recruit and retain the people it needs to manage that money. In the past, CDC has found it to be quite a slow process to recruit people at the senior level, but it gets there. The real difficulty is recruiting and retaining people at the middle levels of management, because CDC is competing, effectively, with other funds and private equity employers who can afford to pay a lot more. What CDC has changed is that whereas it used to benchmark its salaries against the private equity industry and therefore pay people a lot more through their overall benefits packages, now it benchmarks pay against other DFIs, which we think is a good step. The danger is that as average pay has come down, CDC is in the process of reconsidering its remuneration framework with DFID. That would be something we would want to watch very carefully, because the pressures on retention and recruitment might start to force that average pay up again next year.

[Fiona Bruce]

Q I was not so much concerned about pay levels—well, I am concerned about pay levels, but I am particularly concerned about the skill sets that you are saying there is potentially a shortage of, or there could be a shortage of, for these particular appointments.

Tom McDonald: I don’t think there is an absolute shortage of skill sets. It is about finding the right packages and opportunities to get the right people in to do the job. Because of the change in strategy since 2012, CDC needs a lot more people with experience of making direct investments—understanding the context, as Sir Paul was describing, knowing what an opportunity looks like in a local market, and then being able to put a deal together that makes commercial sense, but also has a development impact. There probably are not that many people who have both of those skill sets.

[The Chair]

Thank you very much indeed. That brings us to the end of our sitting—

Commonwealth Development Corporation Bill

Fiona Bruce Excerpts

Programme motion: House of Commons & 3rd reading: House of Commons & Report stage: House of Commons
Tuesday 10th January 2017 Commons Chamber

[Kate Osamor]

No, I need to make some headway.

It was also encouraging to learn that CDC has not only met but exceeded the targets agreed with DFID relating to its financial performance and development impact, and has improved its procedures for documenting fraud and corruption. Although we on the Front Bench praise CDC for making those changes, we must not forget that the recent NAO report was by no means unequivocally positive, and that it highlighted significant areas for improvement. Allow me to quote directly from a passage in the report examining the efficiency of CDC’s methods of capturing its development impact:

“It remains a significant challenge for CDC to demonstrate its ultimate objective of creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places. Given the Department’s plans to invest further in CDC, a clearer picture of actual development impact would help to demonstrate the value for money of the Department’s investment.”

That is quite some statement. According to the NAO, it is “a significant challenge” for CDC to demonstrate how effectively it does the very thing it was set up to do.

[Fiona Bruce (Congleton) (Con)]

The hon. Lady refers to a quote about the challenges of capturing impact. That is an ongoing challenge in all aid work. In terms of efficiency, which is what she is referring to, the NAO report concluded:

“Through tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model.”

Does the hon. Lady agree that that is a testament to the improvements that have been made to CDC’s work over the last few years?

[Kate Osamor]

I said in my opening remarks that CDC has improved, but the report says that it is still very hard to know and to demonstrate the impact of development, and work on that still needs to be done. The report is not totally scathing, but we must pick up such objections. If CDC was transparent, I am sure Labour Members would not have to stand up in the Chamber and say what we are now saying.

New clause 7, tabled by my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty), lays down conditions about investing only in certain sectors and about not investing in sectors that provide little or no development impact in ending poverty. These sectors include the fossil fuel sector, the primary education and healthcare sectors that charge at the point of contact, the building of real estate, mineral extraction and work in the palm oil sector. If DFID’s investment in CDC is to increase the level proposed in the Bill, this challenge must be urgently addressed and resolved.

In spite of CDC’s very welcome improvements, the NAO’s recommendations show that we should not forget that it remains very much a work in progress for this organisation to demonstrate transparently and robustly that it is achieving its objectives. With that in mind, we cannot regard the Bill as the end of the process. There is no room for complacency within CDC or DFID on the need to alter the organisation’s processes further to ensure and to demonstrate the delivery of its goals. Given the scale of the proposed increase in DFID funding—from a limit of £1.5 billion to one of £6 billion —and the resulting consequences both for the UK’s development programme and indeed for the developing countries it supports, it is right that the Bill is robustly challenged and meticulously scrutinised where it is found lacking, and that stringent precautions are appended to it where necessary.

New clause 10 lays out that any proposed increase in the current limit would not in any one calendar year constitute more than 5% of total official development assistance.