UK Development Bank

Jim Cunningham Excerpts

Wednesday 20th June 2018 Commons Chamber

[Jeremy Lefroy]

The hon. Gentleman is right to suggest that we do not want a return to the days when countries were burdened with unpayable debts that eventually had to be relieved, at great cost to the countries themselves and to taxpayers around the world. He rightly points out that there are such financial institutions around the United Kingdom. I was not aware of the Scottish Investment Bank, but it is great to hear about it. No doubt that model could be built on.

[Mr Jim Cunningham (Coventry South) (Lab)]

I congratulate the hon. Gentleman on securing this debate. Before he moves on to the international aspect, does he agree that, in the light of Brexit, this country will need an investment bank? Let us not forget that we trade a great deal, and that trade creates jobs in other countries as well. We will lose regional aid in 2021 as a result of Brexit, and that aid is vital to the midlands in industrial and development terms. He is a midlands MP, and I think he would agree with me on that.

[Jeremy Lefroy]

I entirely agree with the hon. Gentleman. That is why I am saying that the development bank should be for development in the UK and globally—not one or the other, but both. The two are intimately entwined, as he rightly suggests.

We already have a financial institution that deals with investment in developing countries. It is the CDC—formerly the Commonwealth Development Corporation—and it does a fine job. The Government have increased its capital, with the support of Parliament, over the past few years, and I welcome that, but that largely involves equity. There are some loans as well, but it largely involves equity and mostly operates in the private sector. A development bank would deal with the public and private sectors, and it would concentrate on long-term loans that would eventually be repaid, as the hon. Member for Glasgow North (Patrick Grady) suggested.

A development bank has three advantages over a grant-making organisation, which the Department for International Development generally is. DFID does a fine job in many areas, but it works largely with grants. Long-term development loans would offer accountability over a long period. When I was a member of the International Development Committee, I sometimes used to ask what DFID had been doing in a particular country 15 or 20 years previously. That was difficult to know, because projects tended to last two, three, five or, at the most, 10 years. There are some fantastic exceptions such as the community forestry project in Nepal, which has been going for decades and has done a great job, but projects tend to be relatively short term. With a long-term loan, development can be tracked, and there is accountability and regular reporting, meaning that we can see year-on-year results for the financing.

Secondly, and obviously, the finance is returnable. It is recyclable. It can be used more than once. In round 18 of the replenishment of the International Development Association, which is the World Bank’s fund for the poorest countries, a substantial percentage of the money—well over 35%—was returned funds from previous loans. The IDA was able to raise around $75 billion in round 18, which runs for three years, and a large percentage of that was money that had come back in repayments. About a third of it was new grants of course, but that shows just how much leverage a development bank has because it uses returned funds. It is not about grants.

Thirdly, a development bank can raise money on the markets through bonds, and I will give the example of the AFD—the French development bank. Members may be interested to know that it was formed in London in 1941 during the darkest days of the second world war. General de Gaulle wanted a bank to promote development, particularly in French overseas territories, but also presumably in France when it was liberated. So a development bank has been founded here, but it was French, and I long to see a UK development bank founded here.

My proposal is to establish a development bank both for the UK and for developing countries. Funding would come from several sources, including the return of our capital in the European Investment Bank and from the international development budget—it would be a legitimate use of that. We are already rightly putting significant sums into the CDC, which is another form of returnable capital. The International Development Committee has considered the matter and recommended it in at least one report over the past few years. I remember being part of the discussions and the general consensus was that a development bank was something that the UK lacked and needed. We have a fantastic organisation for making grants overseas through DFID—it is probably the best in the world—and we have an excellent organisation for equity capital investing in the private sector through CDC, but we lack that middle, which the French, the Germans, the Japanese, the Brazilians and many others have.

Let me tackle one or two of the arguments against a development bank. One argument is that we already subscribe to development banks—such as the World Bank, the African Development Bank and the Asian Development Bank—so we do not need one. We do have influence with those banks, but we do not control them and cannot specify where their money goes. Clearly, they could not lend money into the United Kingdom.

The second is that such banks are not really what the UK does, and the Treasury views them as anathema. Well, that can no longer be said, because the Treasury supported the establishment of the British Business Bank and the Green Investment Bank over the past half-dozen years. Both have been successful, and I believe that the British Business Bank has a portfolio worth at least £9 billion after a relatively short time. The hon. Member for Glasgow North mentioned the Scottish Investment Bank, which is based in Glasgow. We already have some examples, but I am talking about something on a larger scale and with a larger remit.

The final argument is about the use of taxpayers’ money. I have already said that I am not suggesting that large sums of new taxpayers’ money should go into a development bank; I am suggesting that existing streams could be put into such a bank. In respect of our official development assistance budget, it would seem to me an extremely good use of aid to recycle—I use that word again—development aid through a development bank, because it would mean that it could be used more than once. In fact, DFID already does that through various projects, in which it is called returnable capital. I know that the Treasury has wanted to see DFID do more with returnable capital, and this is certainly one way in which it can.

The European Investment Bank will be leaving us—sadly, in my opinion, but it will be—and here is an opportunity for us to replace it, and to replace it with something that would be very beneficial to the United Kingdom economy and to our work globally. We are a world leader in finance, and this gives us an opportunity to show our innovation and expertise in a type of finance of which the United Kingdom perhaps has not done so much in the past few years.

The United Kingdom now has an opportunity, let us seize it. There is a lot of support for this on both sides of the House. Let us take this opportunity, and let us take it quickly.