Commonwealth Development Corporation Bill Debate
Full Debate: Read Full DebateJames Duddridge
Main Page: James Duddridge (Conservative - Rochford and Southend East)Department Debates - View all James Duddridge's debates with the Department for International Development
(7 years, 9 months ago)
Commons ChamberThat is an important point. Back in 2009, the CDC’s then chief executive was criticised quite extensively for the level of their salary and other pay, which stood at £970,000. The current chief exec’s total remuneration is now limited to a maximum of £300,000, and that is because the remuneration policies have changed dramatically since 2012. It is also important to reflect on the fact not only that pay across the organisation has been reduced by over 40%, but that compensation is no longer benchmarked, as it was prior to the changes in 2012, against the private equity industry. This is not a private equity firm at all. The CDC is now benchmarked against other development finance institutions, and any bonuses are based on the CDC’s development performance and returns, whereas, previously, they were based solely on financial performance. That has now changed.
It is important to acknowledge the City of London and the great expertise that exists there when it comes to not only investment in some of the most challenging parts of the world but transparency. Through the work the Government have done on tax and transparency, the City of London has moved incredibly far. My Department is working across the City of London on a range of issues, such as insurance. We are also looking at how we can do more on transparency and accountability, and that is absolutely right.
We will shortly be setting out a new investment policy for the CDC, covering the next five years. That will include a new reporting framework to better capture the broader impact of investments on development, beyond job creation and the tax revenue generated. We will ensure there is maximum transparency, so that CDC investments can be scrutinised and, importantly, so that their impact on combatting poverty is made clear. As I stated, the CDC has a strong and transparent track record on which to build. With our support and oversight, we want the CDC to do more, and that is why we need the Bill.
The Commonwealth Development Corporation Act 1999 set a £1.5 billion limit on the overall amount of Government financial assistance that can be provided to the CDC. That limit was reached in 2015. The need to raise the CDC’s capital limit was clearly signalled in the UK aid strategy back in 2015. The Bill builds on the economic development objectives of Clare Short’s 1999 Act and should be seen not as a new political direction, but as a logical continuation of the cross-party approach that has been in place for decades.
Any money given to CDC will meet the internationally agreed rules about which spending counts as aid. Raising the limit by £4.5 billion to £6 billion and introducing a delegated power to raise the limit further via statutory instrument to £12 billion over time will enable the UK to accelerate the CDC’s growth, so that the UK can deliver on its international development objectives. Let me stress that this £6 billion is not an annual spend; it is a cumulative figure and a limit placed on the total amount of financial assistance that a Government could provide to the CDC over a period of time before coming back to the House to seek a further increase via statutory instrument.
I fully support what my right hon. Friend is saying. This is a progressive, cross-party movement, and this is not a radical piece of legislation. Decisions have not been made to spend the full £6 billion straight away, but if the Department did commit to spend right up to that limit and fund it each year up to 2020, it would still represent only 8% of the Secretary of State’s budget, so 92% of aid would be spent in a more traditional way. This is a progressive move, not a radical change.
I thank my hon. Friend for his comments. He is absolutely right about the 8% figure. It is also worth pointing out, putting this into context, that total aid spending over the course of this Parliament is likely to be £60 billion.
Some inaccurate reports have suggested that this Bill somehow paves the way for the entire aid budget to be given to the CDC in perpetuity. That is clearly not the case. Increasing the capital limit does not guarantee that we will use our resources in this manner, or commit us to any increases in capital. My priority is to ensure that we achieve maximum value for money with UK aid. The provision of any new capital to the CDC will require a full and detailed business case that will show how further investment will continue to achieve value for money, have a clear development impact for the poorest, and deliver in the UK’s national interests. Furthermore, it is worth noting that because CDC investments generate a return, any additional money we give to the CDC is not spent once and then lost; it contributes to the CDC’s capital, which is continually reinvested now and in future years. Importantly, therefore, it remains an asset that ultimately belongs to the UK taxpayer.
This Bill is fundamentally about people: improving life prospects by helping individuals to find work and earn money, so that they can feed their families, send their children to school and put clothes on their backs; empowering girls and women to determine their own future; and giving people in the poorest and most marginalised places hope, so that they do not feel the pressures to migrate or turn to some of the extreme causes that we see around the world. The CDC is just one part—a relatively small part in the context of overall development spending—of our crucial investment in developing countries. We will continue to invest in our life-saving, life-changing health, education and sanitation programmes, meeting our manifesto commitments. Ultimately, though, this is about jobs, growth and enterprise that will defeat poverty for good. It is right that Britain leads the world to tackle poverty across the world given that we still have more than 1 billion people living on less than a dollar a day. The UK Government are playing a leading role in building a more prosperous world. This Bill is the right thing to do for the poorest people in the world and for British taxpayers, and I commend it to the House.
The vast majority of Members of this House support the UK’s guarantee to spend 0.7% of gross national income on international development. This view is supported by the people of this country, who understand that our aid programme makes a significant contribution to creating peace and economic sustainability around the world and to building a more secure and stable international community. Our aid budget makes a huge difference to the lives of hundreds of thousands of the world’s poorest people. Underpinning the faith that the British people have in our aid programme is the knowledge that the money that is spent in developing countries—taxpayers’ money—is transparent; that the funds are provided for projects that have clear objectives and tangible outcomes; and that the money goes directly to source, with no middlemen, no creaming off the top, and no profiteering from people’s poverty.
We will always welcome any measures that aim to improve the quality of life of those less fortunate than ourselves. This Bill, with the right safeguards, could achieve that. The job of Opposition Members, and of the whole House, is to ensure that some of the previous excesses and failures of the Commonwealth Development Corporation are not repeated. I say that as a friend of the CDC. It was the post-war Labour Government of Clement Attlee who created the forerunner of the CDC. Much of the work of the CDC is vital, and we should of course work to strengthen its ability to support businesses and create jobs around the world.
However, we have a number of serious reservations about this Bill. Since the Government are proposing up to an eightfold increase in the amount it can contribute to the CDC, it is right that we ask questions. Let me begin with executive pay at the CDC. While we would all acknowledge the steps that have been taken to curtail the excesses of the past, what guarantees have the Government received that we will see no repetition of the eye-watering salary hikes that people awarded themselves in the past? It would be fundamentally wrong for the extra money proposed in this Bill to be used to fill the bank accounts of the executives of the CDC instead of going to those who need it the most.
Does the hon. Lady accept that no one is considering going back to those bad old days? While I do not want this to be a partisan issue, because I think there is a wide degree of consensus, the original deal with the chief executive was signed off by Clare Short, and the new deal, which reduced the salary by a third and placed a cap on the maximum, was signed off by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) when he was Secretary of State. There is no going back to those bad old days; this is about working together on the new framework.
I thank the hon. Gentleman for his intervention. I am concerned that we learn from the past. I am not here to pull punches: this is about learning from the past and ensuring that we move forward in the correct, transparent way.
The second question the Government must answer is on the priorities of the CDC. Recent history is not kind to the CDC and the decisions it has made on the allocation of its funds—UK taxpayers’ money. In recent years, the CDC has become a more commercial organisation. In 2004, the CDC created the private equity arm, Actis. In a deal that raised serious concerns on the governance of the corporation, 60% of the equity firm was sold to managers at the CDC at a bargain basement price. In the space of a few years, they had turned the CDC from an aid agency into a cash machine. With the focus turned to maximising profits, mainly for those who worked at the CDC, the traditional areas of financial support that the CDC had focused on for nearly 60 years were being abandoned. Food security through agriculture programmes went, safe and clean water projects were cancelled, and transport and infrastructure projects were abandoned. Poverty reduction—surely key to any development objectives—withered on the vine of self-interest and, I am afraid to say, earning a fast buck.
It is worth comparing the principles and values on which the CDC was founded to achieve its aims with the realities of its present-day operation. In 1998, the CDC spent 50% of its budget on agribusiness in Africa. That investment had two virtues: first, it helped to feed people in those countries, where starvation and hunger were rife; and, secondly, it enabled communities to become more self-sufficient, created jobs, and was a step on the ladder out of poverty. Today, funding for agribusiness has dropped to just 5%.
We see similar patterns in the CDC’s infrastructure programme. For people to live healthy lives, and to enable communities to thrive, not simply survive, we need to help create a solid infrastructure as part of our development priorities. Dirty water and poor sanitation robs the lives of over 300,000 people each year. Infants and young children are especially susceptible to diseases because of their immature immune systems. Their young bodies simply do not have the right immune system to cope with waterborne diseases. According to UNICEF, over 40% of medical facilities in Africa do not have access to clean water. Dirty water and a lack of good sanitation do not just rob people of their lives; they make a country less productive. A recent study estimated that there was a $150 million shortfall for water and sanitation projects in sub-Saharan countries, while the World Health Organisation estimates that we need £535 billion in investment to achieve universal access. I accept that those are huge sums of money, but look at the benefits. It is estimated that every dollar spent on improving water quality and sanitation delivers $4 in increased productivity. With such overwhelming evidence for the health and economic benefits, the case for investing in infrastructure programmes should be beyond doubt.
I totally agree with my hon. Friend. We need not only to look at the health of poorer people but to make sure that they can access water and sanitation.
It is surprising, if not shocking, that the CDC reduced infrastructure support for water, sanitation and roads from 35% of its budget in 1999 to just 8% a decade later. If the money is no longer going to support agribusiness or infrastructure, where is the CDC spending it? Let us begin by looking at some of its recent investments, such as Xiabu. I do not know about you, Madam Deputy Speaker, but I am partial to a takeaway on a Friday night—so, it seems, is the CDC, because it has provided thousands of dollars to the Chinese fast food chain Xiabu. That may be a good commercial investment, but is it the best use of the CDC’s resources? Can the Secretary of State set out what guarantees she has obtained that the UK’s increased contribution to the CDC will not go towards such projects?
While the Secretary of State is here, I would like to hear from her that the Government will seek assurances that in Africa the CDC will put more emphasis on food security than it puts into funding the building of new shopping malls at present. I have no doubt that the people of Accra are grateful for their brand new shopping mall, but what strategic role it plays in increasing life expectancy in Ghana is a mystery to me.
The people who were employed in the construction of those shopping malls in Accra—I have seen them recently—would disagree with the suggestion that that has not helped families in Accra and in nearby villages. Less than 1% of the CDC budget has gone on shopping and infrastructure, which provide a lot of jobs. Agriculture, which the hon. Lady talked about earlier, is incredibly important, but it is less important than it used to be in the modern economy in Africa, where there is a greater degree of diversification and urbanisation.
I thank the hon. Gentleman for his intervention. I know that he went around Africa in his previous role as a Minister, so he knows a lot about Africa, but there are parts of Ghana where there is no electricity and parts of Ghana where there is no water. Yes, middle-income families may enjoy going to malls, but while many people are living in poverty I do not think that a mall is the best use of CDC resources and money.
The examples that I have given lead me to my third and fourth questions for the Secretary of State. The Government propose to increase funding from £1.5 billion to £6 billion, with the option for the Secretary of State to raise it to £12 billion at a future date. But it seems she is putting the cart before the horse. As yet, the CDC has not published its investment strategy for 2017 to 2021. In the absence of an investment strategy outlining how the additional resources would be spent by the CDC, the Government are essentially proposing that we provide the CDC with a multibillion-pound blank cheque. In 2015, the coalition Government gave the CDC a cash injection of £735 million, and the Secretary of State published the business case for that increased funding at the time. Will the Secretary of State place in the House of Commons Library the full business case for the increase to £6 billion of funding to the CDC? Will she assure the House that if the Government wish to extend that to £12 billion, a business case will be brought to the House?
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.
The hon. Gentleman seems to be implying that aid spent through other Departments is a bad thing. He is shaking his head, which is good, because far from being a bad thing, I would view it as a good thing. If we are helping education institutions in developing countries, we should use the expertise in our Department for Education. If we are looking at tackling local government, it should not be looked at through the DFID lens, but should involve our expertise. The key thing is having the same standards across those Departments and meeting the high quality that DFID deploys.
I was shaking my head because I agreed with much of what the hon. Gentleman was saying, but my question is about the volume—the amount—and the fact that it is increasing so rapidly. It is well known that many other Departments have looked enviously at DFID’s budget and have attempted to take parts of its cash for many years. My questions are these. Is the aid being spent effectively; is it being used in accordance with the correct principles; and is it coherent across Government policy? As the hon. Gentleman will know, there are some fantastic examples of joint units involving the Foreign Office and DFID, but over a quarter of our aid budget is being spent on a massive increase, and that is a big issue.
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.
I totally agree with the hon. Gentleman’s point that economic development has been important to DFID, but does he agree with me that successive Governments have been wholly unresponsive to co-ordinated work on economic development, whether we call it prosperity or trade? Successive Governments have not pulled that together and grabbed the opportunity, which could really help to grow continents such as Africa out of poverty. Much more should be done, and this House should be holding the Government and future Governments to account on this, and ask them to do more, not less, with the private sector.
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.
I suspect I am going to have the privilege of serving on the Committee with the hon. Member for Cardiff South and Penarth (Stephen Doughty). I will not go into this at the same length as he did, but he should beware: we are both supporters of DFID and of the 0.7% budget, but our enemies out there will use his comments and his narrative to criticise the fundamentals we believe in. I do not want to stand in the way of proper scrutiny, but hon. Members on both sides of the House should be very careful about the tone of the language we use, because we do now have consensus going forward.
I draw attention to my entry in the Register of Members’ Financial Interests and say from the outset that I am incredibly proud of our 0.7% commitment and of the work that the CDC does. I would find it strange to find any Conservative MP standing to support the work of Clement Attlee and Clare Short in one sentence, let alone one debate, but we do stand united in this work, despite the blips over the years, many of which my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) has resolved or has at least been able to point in the right direction.
My experience of the CDC has been substantive over time. I was a young banker in a small place called Nhlangano, one of the poorest places in Swaziland. It was CDC investment in the Shiselweni Forestry Company, my main client, that really generated wealth for that area. It put food on the table for the thousands of citizens and the hundreds of other clients that I had as a banker in that country. Over the years, Swaziland has been helped by 16 different CDC projects. The one for which I was the banker has now moved on—it is profitable and continuing, but not under a CDC auspice—but the CDC is still in the forestry sector in Pigg’s Peak, Swaziland.
In the Ivory Coast, I was interested in delving into a francophone country, looking beyond the Commonwealth, to see what we were doing in developing middle-income countries that can provide inspiration and trade throughout the geography of west Africa. Although I did not have any clients from the the CDC, I used to work for Banque Atlantique Côte d’Ivoire, now part of the Atlantic Bank Group, in which the CDC has invested. The small bank I was a member of had only about 30 employees. I am not sure exactly what has happened subsequently, but during that investment period that small bank has become much larger, with banks in Benin, Niger, Burkina Faso, Mali, Togo, Senegal and Cameroon. Those countries—a real mix of countries—are hard for British development aid to reach, but are a really good example of where the CDC can assist.
I wish to mention, as other colleagues have, the great work of Diana Noble, who took on the job at a difficult time and who has transformed the organisation and led a very strong team. I wish her well in her future beyond the CDC.
To those who work at the CDC, I say thank you, because in many ways they are between a rock and a hard place. People involved in African private equity feel that those at the CDC are putting development before profit and are not earning lots of money. The non-governmental organisations think that they are putting profit before development. In truth, they are in a sweet spot in the middle, and they do exactly what Clement Attlee wanted: to do good without losing money. In many ways, this is the gift that keeps on giving. Comparison has been made between a pound that goes into traditional aid and a pound that goes into the CDC. The main difference is that the pound that goes into aid is spent immediately, which is very positive, but the pound that goes into the CDC is retained—it is an investment that grows, whether that is by the 7.8% that we have seen over the past five years, or by a slightly more modest investment target of 3%, which focuses more on the development aspect.
As a former banker, I am perhaps the only Member in the House who can get thoroughly excited about compound interest, but, over time, this is a growing pool of money. There are those who will wonder why we are talking about £1.5 billion, when the assets of the CDC are nearly £3.9 billion. That shows the power of investment—of retaining the money. It is the gift that keeps on giving.
I, too, have looked at the investment in palm oil in the Democratic Republic of the Congo, where 9,000 workers are employed. I have dealt with places such as the DRC and Burundi—other colleagues have interacted with them—and they are horrendously difficult places in which to work. They are also politically difficult for the UK Government, but the CDC, through its intermediaries, provides inspiration in those places.
The CDC also actively targets countries that are low on the World Bank’s ease of doing business index, of which I am a great advocate, as a way of proving that business can be conducted more effectively if one can speed up the ease of doing business.
Celtel has been mentioned. Indorama in Nigeria is fantastic. Like Sir Paul Collier, I very much believe that the real benefits and advantages of economic development in Nigeria will come through Port Harcourt and not through the oil industry.
This is, to reiterate a point I made in an intervention, a progressive Bill. I do not share the concerns of the hon. Member for Cardiff South and Penarth that it is a Machiavellian way of diverting money. A business case will come. I do not believe that the Secretary of State will bring forward a business case to spend the full £6 billion over the course of this Parliament. Even if she does, it will still only be 8% of the overall DFID budget for those years. Obviously, the £12 billion of investment is compounded over time. It should not be compared with the slightly larger figure, which is our annual investment in the budget. We need to be careful that our enemies do not take advantage of our criticisms and use the similarity of the figures to make it look like there has been a sea-change on this Bill. If this Bill was about taking money from the poor and making money for the sake of it in India and South Africa, I would not support it.
I will not take the intervention, because I want to conclude.
I strongly support the CDC. It is the right move and it is a progressive move. I hope that Members from both sides of the House will agree to have a proper debate in Committee and to support the Bill on Third Reading to start to grow Africa in particular but also Asia out of poverty.