Commonwealth Development Corporation Bill

Flick Drummond Excerpts

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

[Stephen Doughty]

It is a mixed record. We had a joint DFID-DTI—as I think the Department was called then—Trade Minister, my hon. Friend the Member for Harrow West (Mr Thomas), who did a lot of good work in trying to bring those things together, ensuring investment went to key infrastructure projects, different corridors in Africa and elsewhere, but it is a mixed record and the hon. Gentleman makes an important point.

There are many CDC investments that I and others welcome, which are well run and have delivered poverty-reducing outcomes in the poorest countries. We have heard about some of them today, such as those in Sierra Leone and Uganda. Indeed we were with the National Audit Office earlier today talking about some of the projects it had visited which clearly do justify our investment.

But where is the robust business case for such a large increase of billions of pounds of taxpayer spending? Why has this Bill been published before a CDC investment strategy? In the explanatory notes, the Secretary of State describes forecast market demand as the justification for the Bill. However, she has not explained this at all there; neither has she done so today, and nor did she in answer to a parliamentary question I put to her. I asked her to explain this concept of forecast market demand, but instead of an assessment that might justify this spending of up to £12 billion of taxpayers’ money, I was given some classic development waffle, such as:

“As set out in the UN’s Global Goals, urgent action is needed to mobilise”.

The answer did not go into any level of detail that we would expect on the spending of such a considerable sum of money.

Let me also be clear that, as Members may have gathered earlier, I am also critical of a whole series of actions and policies at the CDC that I am sorry to say occurred under the previous Labour Government; the sell-off of Actis was mentioned, and there was also excessive remuneration, and massive investments made in markets that already attracted foreign investors—which incidentally is still going on. These are just some of the issues that should have inspired tougher intervention. To give credit where it is due, many of the actions that the right hon. Member for Sutton Coldfield (Mr Mitchell) took in agreeing that new strategy took us away from some of the mistakes made in the past, but my question is whether they have gone far enough in justifying such a huge increase in the funding.

We should look at what the NAO said. Yesterday’s report noted:

“Our previous scrutiny of the Department’s oversight of CDC led to important, positive changes.”

It points to improvements in financial performance, organisation and prospective—let us return to that issue in a moment—development impact, as well as the clamping down on executive remuneration. The NAO also agrees that the strategy set by the Department in 2012 has been met.

However, as my hon. Friend the Member for Bridgend (Mrs Moon) pointed out, the question for the House today is not merely whether the CDC has made improvements on a previous record deeply mired in controversy, or whether it is now adhering to the strategy set for it—which we can argue was right or wrong—in 2012; the question before us is whether a good enough case has been made that the CDC is performing so well and so effectively that it should receive that volume of increase in funding versus other potential outlets for that development spending.

It is common sense that asking any institution, let alone one with a history of recent problems, to take on a significant increase in its funding over a short space of time may lead to less optimal outcomes and, at worst, failure. Were we proposing an additional £12 billion for those dangerous campaigning NGOs or the dastardly World Bank, or worse still the EU development funds, I have no doubt that the Government Benches would be crewed by the anti-aid brigade warning of the risk of our aid being “stolen” or squandered. But because it is for a more obscure part of our development finance architecture and has the words “private equity” and “private sector” associated with it, we seem to be willing to accept a lower level of assuredness.

[Mrs Flick Drummond (Portsmouth South) (Con)]

Did the hon. Gentleman also read the bit of the report that says:

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

and DFID’s

“governance arrangements of CDC are thorough”?

[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.

--- Later in debate ---

[Mrs Flick Drummond (Portsmouth South) (Con)]

It is a pleasure to speak in support of a Bill that will strengthen one of the world’s oldest and most respected development organisations. The Commonwealth Development Corporation has always enjoyed cross-party support and has been an important part of the transition of Britain from colonial power to leader of international development. The Bill is a sign of the focus this Government have given to the CDC and to our overseas development programmes across the board. We can be proud of our commitment to supporting overseas development in all its forms.

As my hon. Friend the Member for Congleton (Fiona Bruce) said, when this Government took office in 2010 the CDC was a byword for strategic confusion and mismanagement. Everyone from the National Audit Office to Private Eye could find something to object to in either its structure or its activities. Thanks to the work of this Government, initiated by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and followed up by his successors, the CDC and the way DFID manages it have evolved and improved. The CDC has radically transformed its approach over the past five years, following new objectives agreed with the UK Government. It targets investment where it is most needed, has the greatest impact for the poorest and delivers value for money for the UK taxpayer.

Many of the fears about the Bill and criticisms of the CDC that have been aired today belong to a different era. Some of my constituents have raised the issue of the amount of money that we spend on foreign aid. It is important that that money is spent wisely and transparently in helping countries to develop economically. A strong country will provide for its citizens, meaning that there will not be the economic migration that we have seen over the past few years.

By channelling money through the CDC, we can clearly see where it is going and where it is working. Although the National Audit Office report published yesterday identified some further room for improvement, it was very positive about the work done by DFID and the CDC, as the Secretary of State laid out. I am pleased that Members recognise the great improvements made since the 2008 NAO report and the criticisms of the CDC made by Select Committees in the 2005 Parliament.

I will focus on the reality of the CDC, the future of its work and the potential we will create with the passing of the Bill. The long-term aim of overseas development policy is to build economies and societies like our own—educated, free, and politically and economically stable. The philosophy behind the CDC has always been the same: give someone a fish and we feed them today; teach them to fish and they will eat for a lifetime. In particular, investing in women, where much of our aid is targeted, is investment in a generation, as every mother puts money towards educating their children.

The CDC currently invests in more than 1,200 businesses in more than 70 countries. Those investments supported more than 1 million jobs in Africa and Asia in 2015, almost 25,000 of which were created directly last year. As my hon. Friend the Member for Yeovil (Marcus Fysh) said, there is a virtuous circle of investment, job creation, tax revenue generation for the host Government, creation of sustainable businesses and reinvestment by the CDC at the end of the cycle.

The CDC has reached the ceiling of current Government backing—the Government’s investment of £735 million last year took it up to the limit of £1.5 billion. Through the reinvestment of past profit, it has built up a bigger portfolio, standing at just under £4 billion. It is therefore clear that the CDC is able to support development and recycle the returns to support further investment. We should not be reluctant to enable the CDC to do more and unlock potential. The NAO is clear that the CDC now has an efficient and economic operating model that is working and has improved its procedures for recording allegations of fraud and corruption.

With the clear investment strategy agreed under this Government, the aim is to make the great majority of new investment directly into businesses. If we want to achieve the global goals for sustainable development by 2030, we need to mobilise the private sector and work together. That helps the CDC in two ways. It allows it to help target its involvement at areas that genuinely meet the remit of supporting businesses that struggle to attract private sector investment. It also helps it to meet one of the goals set out in yesterday’s NAO report, namely better tracking of the success rate of the CDC’s investments. The CDC now concentrates on the poorest countries in Africa and Asia, where business finds it hard to attract stable and responsible investment from the private sector. It is right that the development finance institutions lead the way in those countries, and we should not be shy about it.

We invest more in aid overall than our European partners and invest less through development finance institutions. The CDC estimates the investment gap of unmet demand for capital investment in Africa to be more than $100 billion. If we want to bring jobs and growth to the poor, we must help them to help themselves. This simple and, I hope uncontroversial Bill does that. It is not an approval or a commitment to give the CDC access to £6 billion immediately, but to give it when there is a strong, robust, accountable and transparent business case that will provide the best value that aid can provide. I hope the House supports the Bill.

Commonwealth Development Corporation Bill

Flick Drummond Excerpts

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

[Madam Deputy Speaker (Mrs Eleanor Laing)]

I call Flick Drummond.

[Mrs Flick Drummond (Portsmouth South) (Con)]

Thank you, Madam Deputy Speaker—[Interruption.]

[Madam Deputy Speaker]

Order. It is the beginning of a new term after a long Christmas holiday, but may I remind Members that, if they want to speak, it is really easy—they just have to stand up?

[Mrs Drummond]

Sorry, Madam Deputy Speaker. I was expecting the Minister to respond to the first speaker, and I did not realise that I would be called next.

--- Later in debate ---

[Stephen Doughty]

I am listening with interest to the hon. Lady’s point, but does she not accept that there is a bit of a double standard? The Secretary of State issued a letter on 16 December to other DFID suppliers—institutions, non-governmental organisations and people in receipt of our aid money—making it very clear that they should not invest in tax havens, yet she seems unwilling to apply the same to the CDC, which is also in receipt of taxpayers’ funding. Is that not a double standard?

[Mrs Drummond]

No, because we are investing in very difficult areas where robust systems may not already be in place, plus the CDC has very clear guidelines about where the money is going, so we can track it much more easily than we can with other aid agencies.

[Jeremy Lefroy]

Does my hon. Friend agree that the issue is not so much about offshore centres being invested in by funds from a variety of jurisdictions, but about the tax paid in-country for activities undertaken in that country? In that respect, the investments made by the CDC are excellent and provide major tax revenues of billions of dollars a year for those country’s Treasuries.

[Mrs Drummond]

I thank my hon. Friend for his very clear explanation, which beefs up what I have said.

On the case for raising investment limits, amendments l, 3 and 6 and new clauses 2, 5 and 10 would hamper the CDC in the same way. We have already extensively debated the need to increase the limit, and we have had assurances from the Minister and the CDC that business cases for further capital will be clearly made. We will have the full strategy document this year, backed by an analysis from the CDC of the development impact. We will have both before any additional money goes through the CDC.

On the focus of spending, I agree with my hon. Friend the Minister that the question of which specific investments are made must be delegated to DFID and the CDC. That would give the Government oversight and ensure that sustainable development goals are at the heart of the investment. Putting countries or, indeed, limiting sectors in legislation would make delivering the development process cumbersome, and I believe that it would hobble the CDC.

[Pauline Latham]

Does my hon. Friend agree that supporting the CDC is absolutely vital if we are to achieve the global sustainable development goals by 2030? We need to mobilise the private sector to fill an annual financing gap of about $2.5 trillion every year.

[Mrs Drummond]

My hon. Friend makes an excellent point. One reason that I am so passionate about the CDC is that we need to build the capacity of developing countries. In my first speech on this subject, I said give a man fish and he will eat it, but give him a fishing rod and he is set for life. That is exactly the philosophy behind the CDC that I am so keen on.

There are circumstances in which some relatively more developed countries are host to companies involved in much poorer ones. As with the misplaced fears about offshore financial centres, we should not close off any path to investment and development. New clauses 3, 4, 6 and 9 all fail in that respect. All the amendments before us share a fundamental weakness and a misunderstanding of the CDC’s role in the world. We put less of our development investment through the CDC than other countries do through their equivalent bodies, as my hon. Friend the Member for Bedford (Richard Fuller) mentioned earlier. We should be doing more through the CDC if we want to develop mature and robust market economies in the developing world, which is why I welcome the Bill.

Markets are transparent and flexible, and they empower people who take part in them. The aim of our development policy should always be to encourage self-sufficiency and the development of market economies. As I said in my first contribution on the Bill, the CDC is transparent, as the NAO report agreed. I champion the CDC’s philosophy of enabling people to build their own businesses, rather than handing out grants. It is an efficient and transparent model, and we should all give the Bill our wholehearted support and continue to be a major investor in improving the lives of our fellow citizens in developing countries.

[Patrick Grady (Glasgow North) (SNP)]

I will speak to amendment 3 and new clause 6, which are in my name, and I will offer support for the Labour party’s amendments that I have added my name to.

Nobody here is arguing that the CDC should not exist. We all recognise there is a role for development finance and private investment. As I noted on Second Reading, the Scottish Government have just set up their own investment mechanism in Malawi. But even if we wanted to change some of the deeper fundamentals, that is not in the scope of the Bill. The Government, probably deliberately, have presented a very narrow Bill with the aim of increasing the statutory limit of their investment. Therefore, by definition, that is what our amendments must focus on.

I hope that the Government will see—certainly in the amendments I have tabled and, I think, in the Labour ones—that we have tried to respond to and take on board some of their concerns about some of our amendments in Committee. It is up to the Government to respond and indicate how they will take our concerns on board. We all want to work constructively with the Government on the Bill. We want to recognise and maintain the consensus on the importance of aid, our commitment to 0.7% and the effective use of those resources.

Amendment 3, which is in my name, and amendments 2 and 4, which are contingent on it, gets to the heart of the technical aspect of the Bill: what the cap on investment in the CDC should be. The Government have been repeatedly asked for their reasons behind the figures of £6 billion and £12 billion in the Bill, and I am afraid that they have still come up short. The best we have heard is that this is roughly what they think is needed, or could be managed, over the coming years. In the lifetime of this Parliament, that could still equate to an additional £1.5 billion to £2 billion a year of investment from the official development assistance budget to the CDC. As we have repeatedly said, every penny invested in the CDC is a penny not invested in other mainstream, grassroots and not-for-profit development projects and support.

On Second Reading, I asked about the use of a formula to link the cap with overall ODA budgets, and I proposed such a formula in Committee. The Minister’s first concern about a formula was that it would blur the line between stock and flow. But the aid budget is a flow. It goes up and it can, theoretically, go down as well. I recognise that the CDC investment is a stock: once funds are transferred, that is where they stay and they remain part of the overall capital fund. However, the formula would ask the Government, each time they want to disburse funds to CDC, to calculate how those funds will relate to overall aid spending in the coming years.

The Minister’s second concern was that my formula in Committee effectively discounted the £1.5 billion already invested in the CDC. Amendment 3 and the contingent amendments take that into account. By my calculations, based on figures from the Library, this formula would still allow the Government to invest an extra £3 billion, or a total of £4.5 billion, in the CDC by 2021. Even if the Government will not accept the amendment and we cannot persuade enough of their Back Benchers to join us in the Lobby to support it, I hope that they will commit to recognising that the £6 billion figure currently stated in the legislation is a maximum and that any additional investment they intend to make will ultimately reflect the ebb and flow of overall ODA calculations in any given spending round.

Irrespective of the caps and limits, much concern has been expressed throughout the passage of the Bill over how some aspects of the CDC’s resources have been spent in the past and how they will continue to be spent in the future. That is what I seek to address with new clause 6, which is particularly important in the context of increasing—potentially quadrupling—the overall resources available to the CDC. I welcome the range of amendments in Committee and here today that attempt to place various conditions on the exercise of the power to increase the limit.

As I said at the start, owing to the scope of the Bill, my amendments and those of Labour Members must relate to the increase in the limit from £6 billion to £12 billion under the terms of section 15(4) of the Commonwealth Development Corporation Act 1999. Try as we might, it has not been possible to find a way to attach conditions to the investment of up to £6 billion. The Government have indicated that the timetable for using the statutory instrument powers would be some way in the distance, so it is not unreasonable to suggest that there should be some kind of conditionality and review process before those powers are used, especially given that we will apparently have so much time to prepare.

New clause 6 combines two conditions I called for in Committee: before the Government could increase the limit of their investment, the Secretary of State would be required to make an assessment of how an increased limit would contribute to a reduction in poverty, which is the statutory aim of ODA in the International Development Act 2002, and how that increase would help to meet the sustainable development goals. The Government have repeatedly argued that the CDC is doing both those things very effectively, in which case this is hardly an onerous request, but the new clause would have the effect of making it much clearer that this is the CDC’s overall purpose and that commercial gain, returns on investment and even raw figures on the number of jobs created are not an end in themselves, but only the means to the end of reducing poverty and building a more stable and secure world. Again, the responsibility is on the Government, if they will not accept our amendments, at least to acknowledge the concerns being expressed and to give commitments to show in any business case they publish for further investment how the key pillars of poverty reduction and the global sustainable development goals will be advanced.

I briefly speak in favour of, and indicate the Scottish National party’s support for, the range of thoughtful amendments tabled by the Labour shadow team and by the hon. Member for Cardiff South and Penarth (Stephen Doughty), who serves on the Select Committee on International Development. I welcome the fact that there has been cross-party support for the amendments and suggest that the Government pay attention to that. There remains consensus in this House and across the country in support of the principle of aid, the 0.7% target and, of course, the effective use of that aid. Many of Labour’s amendments, as the hon. Member for Edmonton (Kate Osamor) said, simply ask DFID to hold the CDC to the same standards that the Government now demand of their external stakeholders. Their recent bilateral and multilateral development reviews were pretty much unilateral declarations of everything that was terrible and wasteful on the part of so many of their stakeholders and demanded that the highest standards of efficiency, impact and transparency be applied to them. It stands to reason that those standards should also be demanded of the CDC.

A Government who say they want to crack down on tax dodging should not be allowing an agency of which they are the sole stakeholder to be making use of offshore tax havens. A Government who want value for money and clear impact from their aid budget should not be afraid to ask for reporting on exactly those areas. My colleagues and I will be happy to join the Labour party, hon. Members from other Opposition parties, and any Conservative Member persuaded of the case in the Lobby in support of any amendments they wish to press.

I said on Second Reading that it was disappointing that the scope of the Bill was so narrow. The Government had the opportunity to widen the scope to strengthen the CDC’s effectiveness, transparency and accountability. They also had that opportunity with the substantial and, in some cases, creative amendments that have been proposed by Opposition Members from different parties. If Ministers continue to indicate an unwillingness to accept amendments—it is disappointing that they did not table any of their own to reflect the concerns raised by Members—they must give the strongest possible commitments now in response to the concerns we have raised. The Government must recognise, as the Labour Front Bench spokesperson said, that this is the beginning, and not the end, of a process.