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.