Commonwealth Development Corporation Bill

Kate Osamor Excerpts

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

[Kate Osamor (Edmonton) (Lab/Co-op)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

With this it will be convenient to discuss new clause 2—Condition for exercise of power to increase limit: report and business case—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: business case and strategic plan

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if the Secretary of State has also laid before the House of Commons the documents specified in subsections (2) and (3).

(2) The document specified in this subsection is a business case for the proposed use of the new investment enabled by the proposed increase in the limit in force which includes information on—

(a) the expected market demand,

(b) the proposed sectors,

(c) the proposed locations, and

(d) the prospective development returns.

(3) The document specified in this subsection is a strategic plan for the development of the activities of the CDC in consequence of the proposed increase in the limit in force.””

This new clause would require any draft regulations to increase the limit on government assistance under section 15(4) to be preceded by the laying before the House of Commons of a detailed business case for the proposed additional investment and a strategic plan in relation to the additional investment.

New clause 3—Condition for exercise of power to increase limit: poverty reduction purposes for spending outside LDCs—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: poverty reduction purposes for spending outside LDCs

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if the Secretary of State is satisfied that the condition in subsection (2) or the condition in subsection (3) is met.

(2) The condition in this subsection is that any new investment enabled by the proposed increase in the limit in force is in a country which is classified as one of the least developed countries.

(3) The condition in this subsection is that the Secretary of State is satisfied that any new investment enabled by the proposed increase in the limit in force will have a significant impact on the reduction in poverty (within the meaning given in section 1(1) of the International Development Act 2002) in the country or countries concerned.

(4) In determining the classification of a country for the purposes of subsection (2), the Secretary of State shall use the latest analytical classification of the world’s economies prepared by the World Bank.””

This new clause would require any draft regulations to increase the limit on government assistance under section 15(4) to be for additional investment which is either in least developed countries or which makes a significant impact on poverty reduction in another country.

New clause 4—Condition for exercise of power to increase limit: independent assessment of aid impact—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: independent assessment of aid impact

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if the Secretary of State is satisfied that arrangements are in place for the independent assessment of the aid impact of new CDC investment which meet the conditions in this section.

(2) The first condition is that a framework agreement has been reached between CDC and the Independent Commission for Aid Impact for the Commission to carry out such an assessment on an annual basis.

(3) The second condition is that each annual assessment will be able to assess projects with a monetary value equivalent to at least 5 per cent of the total value of current investments in the year in question by the CDC.

(4) The third condition is that the Secretary of State is satisfied that the Independent Commission for Aid Impact has the additional resources required to carry out such annual assessments without impairing its capacity to undertake its other work.””

This new clause would require any proposal to increase the limit by secondary legislation to be contingent on an agreement being reached for an annual independent assessment of aid impact to be carried out by the Independent Commission for Aid Impact covering at least 5% of CDC’s investment portfolio at the time.

New clause 6—Condition for exercise of power to increase limit: review of poverty reduction impact and contribution to Sustainable Development Goals—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: poverty reduction

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he has also laid before the House of Commons a review in accordance with subsection (2).

(2) A review under this subsection must provide the Secretary of State’s assessment of the extent to which the increase in the limit on the Crown’s assistance to the Corporation is likely to contribute to—

(a) a reduction in poverty, and

(b) achievement of the Sustainable Development Goals.

(3) In this section—

“reduction in poverty” shall have the same meaning as in section 1(1) of the International Development Act 2002; and

“the Sustainable Development Goals” means the Goals adopted at the United Nations on 25 September 2015.””

This new clause would require any draft regulations to increase the limit on government assistance under section 15(4) to be preceded by a review, also to be laid before the House of Commons, of the extent to which the increase in the limit will contribute to a reduction in poverty, the aim of development assistance, and to the achievement of the Sustainable Development Goals.

New clause 7—Condition for exercise of power to increase limit: prohibition on investment in certain sectors—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: prohibition on investment in certain sectors

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he is satisfied that the condition in subsection (2) is met.

(2) That condition is that any new investment enabled by the proposed increase in the current limit at the time is not in any of the following sectors—

(a) education providers that charge the end user,

(b) healthcare providers that charge the end user,

(c) the real estate sector,

(d) mineral extraction,

(e) the palm oil sector,

(f) the fossil fuel sector.

(3) In this section—

“the current limit at the time” means—

(a) prior to the making of any regulations under section 15(4), £6,000 million,

(b) thereafter, the limit set in regulations made under section 15(4) then in force.””

This new clause would prohibit any new investment arising from any increase in the limit on government assistance under regulations under section 15(4) from being in the sectors specified in subsection (2).

New clause 8—Condition for exercise of power to increase limit: prohibition on use of tax havens—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: prohibition on use of tax havens

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he is satisfied that the condition in subsection (2) is met.

(2) That condition is that any new investment enabled by the proposed increase in the current limit at the time is not in either—

(a) an investment entity, or

(b) a company

which uses, or seems to the Secretary of State likely to use, tax havens.

(3) In determining whether the condition in subsection (2) is met, the Secretary of State shall consider—

(a) information provided by the OECD on countries or territories which are considered to be tax havens, and

(b) such information as is available to the Secretary of State, whether supplied by the CDC or others, about the current location of funds of the potentially relevant entities for the purposes of subsection (2).

(4) In this section—

“the current limit at the time” means—

(a) prior to the making of any regulations under section 15(4), £6,000 million,

(b) thereafter, the limit set in regulations made under section 15(4) then in force.””

This new clause would prohibit any new investment arising from any increase in the limit on government assistance under regulations under section 15(4) from going to an investment vehicle or company which uses or seems likely to use tax havens.

New clause 9—Conditions for exercise of power to increase limit: countries, poverty reduction and SDGs—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Conditions for exercise of power to increase limit: countries, poverty reduction and SDGs

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he is satisfied that the conditions in subsection (2), (4) and (5) are met.

(2) The condition in this subsection is that any new investment in a country enabled by the proposed increase in the current limit at the time is in a country which is classified as either—

(a) one of the least developed countries, or

(b) one of the other low income countries.

(3) In determining the classification of a country for the purposes of subsection (2), the Secretary of State shall use the latest analytical classification of the world’s economies prepared by the World Bank.

(4) The condition in this subsection is that the Secretary of State is satisfied that any new investment enabled by the proposed increase in the current limit at the time is likely to contribute to a reduction in poverty.

(5) The condition in this subsection is that the Secretary of State is satisfied that any new investment enabled by the proposed increase in the current limit at the time is likely to contribute to achievement of the Sustainable Development Goals.

(6) In this section—

“the current limit at the time” means—

(a) prior to the making of any regulations under section 15(4), £6,000 million,

(b) thereafter, the limit set in regulations made under section 15(4) then in force;

“reduction in poverty” shall have the same meaning as in section 1(1) of the International Development Act 2002; and

“the Sustainable Development Goals” means the Goals adopted at the United Nations on 25 September 2015.””

This new clause would limit any new investment arising from any increase in the limit on government assistance under regulations under section 15(4) to the least developed countries and other low income countries and require the Secretary of State to be satisfied that such new investment contributed to the reduction of poverty and the achievement of the Sustainable Development Goals.

New clause 10—Condition for exercise of power to increase limit: proportion of annual official development assistance—

“After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: proportion of annual official development assistance

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he is satisfied that the conditions in subsection (2) is met.

(2) The condition in this subsection is that the total value of any re-capitalisation of CDC enabled by the proposed increase in the current limit at the time will not, in any one calendar year, constitute more than 5% of total official development assistance.

(3) In this section—

“official development assistance” has the same meaning as in the most recent annual report laid before each House of Parliament in accordance with the provisions of section 1 of the International Development (Reporting and Transparency) Act 2006;

“the current limit at the time” means —

(a) prior to the making of any regulations under section 15(4), £6,000 million,

(b) thereafter, the limit set in regulations made under section 15(4) then in force.””

This new clause would limit any new investment arising from any increase in the limit on government assistance under regulations under section 15(4) to 5% of official development assistance in any one calendar year.

Amendment 2, in clause 1, page 1, line 4, leave out “£6,000 million” and insert

“the amount specified in subsection (1A)”.

This amendment paves the way for amendment 3.

Amendment 5, page 1, line 4, leave out “£6,000” and insert “£4,000”.

Amendment 3, page 1, line 4, at end, insert—

“(1A) After subsection (1), insert—

“(1A) The amount specified in this subsection is whichever is the lesser of the following amounts—

(a) £6,000 million,

(b) £1,500 million plus the amount determined in accordance with subsection (1B).

(1B) The Secretary of State shall determine the amount for the purposes of this subsection by estimating the amount which will constitute 4% of official development assistance in the relevant period determined in accordance with subsection (1C).

(1C) That period begins with the financial year in which the Secretary of State considers that the Crown’s assistance to the Corporation (determined in accordance with subsection (2)) will exceed £1,500 and ends at the end of the fourth subsequent financial year.

(1D) For the purposes of this section, “official development assistance” has the same meaning as in the most recent annual report laid before each House of Parliament in accordance with the provisions of section 1 of the International Development (Reporting and Transparency) Act 2006.””

This amendment would replace the proposed limit on government assistance under section 15 with a new amount, expressed as either £6 billion or the existing investment of £1.5 billion plus a sum not more than 4% of forecast official development assistance over a five year period, whichever is the lesser amount.

Amendment 6, page 1, line 5, leave out subsection (3).

This amendment removes the power of the Secretary of State to set a limit on government assistance above £6 billion up to £12 billion by means of secondary legislation.

Amendment 4, page 1, line 7, leave out “£12,000 million” and insert

“the amount specified in subsection (4A).

(4A) The amount specified in this subsection is whichever is the lesser of the following amounts—

(a) £12,000 million,

(b) the current limit at the time plus the amount determined in accordance with subsection (4B).

(4B) The Secretary of State shall determine the amount for the purposes of this subsection by estimating the amount which will constitute 4% of official development assistance in the relevant period determined in accordance with subsection (4C).

(4C) That period begins with the financial year in which the Secretary of State considers that the Crown’s assistance to the Corporation (determined in accordance with subsection (2)) will exceed the current limit at the time and ends at the end of the fourth subsequent financial year.

(4D) For the purposes of this section—

“the current limit at the time” means—

(a) prior to the making of any regulations under subsection (4), £6,000 million,

(b) thereafter, the limit set in regulations made under subsection (4) then in force;

“official development assistance” has the same meaning as in the most recent annual report laid before each House of Parliament in accordance with the provisions of section 1 of the International Development (Reporting and Transparency) Act 2006.”

The amendment would set a new limit on the power to make regulations to increase the limit on government assistance under section 15, expressed as either £12 billion or the current limit at the time plus 4% of official development assistance over a five year period, whichever is the lesser amount.

Amendment 1, page 1, line 8, at end insert—

“(4A) The Secretary of State may not exercise the power under subsection (4) to increase the limit by more than the amount that the Secretary of State estimates is required to meet the plans for investment by CDC in the ensuing three years.”

This amendment has the effect of restricting each increase in the limit by secondary legislation to an amount necessary to support additional investment by CDC over a three year period.

[Kate Osamor]

Labour Members are unswerving in our belief that the UK must continue to spend 0.7% of gross national income on overseas aid. It is imperative, however, that the Government deliver this aid in a way that is accountable, ensures value for money, and delivers on the UK’s development objectives.

Although we support the aims of the Bill—it has reached Report without amendment—we remain concerned about the lack of safeguards. In new clause 2, we ask that no increase in the limit be granted without a report or business case. New clauses 3 and 9 are at the heart of the work of the Department for International Development, which leads the UK’s work to end extreme poverty. We on the Front Bench ask the Government to make sure that the Minister is satisfied that any new investment enabled by a proposed increase in the limit will have a significant impact in reducing poverty.

The Department must be at the forefront of tackling global poverty reduction. It is vital that the bolstering of CDC’s resources does not mean a reduction in funds for emergency and humanitarian aid in places such as northern Nigeria, Yemen and Syria, and in other parts of the world that face grave humanitarian crises. Will the Minister commit to ring-fencing such funds so that those in the direst need of help are able to receive it? Long-term investment and the establishment of a sustainable economy in order to kick-start jobs and growth are, of course, crucial to any credible development programme, but a development programme should, at its core, be a coalition of long-term investment and short-term relief. The consequences of losing sight of the latter element would be grave indeed. Just as the UK has a duty to help to lay the foundations for secure, sustainable economies in the poorest areas, where investment is a risk that few are willing to take, the UK also has a duty to assist those who bear the full force of conflict, climate change and food insecurity.

As was laid out on Second Reading, transparency should be the driving force behind any shift in the focus of the aid budget. I now speak to new clauses 4 and 8. It is vital that taxpayers’ money is spent not only effectively, but as transparently as possible. To that end, it is incumbent on the Government to put in place mechanisms that ensure maximum visibility regarding where aid money is being spent, and that minimise public scepticism. We all know that transparency is something that DFID does very well indeed.

[Richard Fuller (Bedford) (Con)]

Before the hon. Lady moved on to the important issue of transparency, she was talking about balance. It is fair to make the point, is it not, that CDC’s proportion of our development budget for its type, as foreign direct investment, is lower, at 4%, than comparables such as the French FDI of 12% and the Dutch at 30%? For the sake of proportion, it is fair to say that even with that increase, the UK will still spend more on development aid than most of our European peers do, and the proportion of FDI will be smaller than it is for many of those peers.

[Kate Osamor]

The hon. Gentleman makes a valuable point, but the Bill still needs scrutiny. That is what I am laying out.

We all know that transparency is something that DFID does very well indeed. Its performance in the aid transparency index demonstrates an international gold standard in that regard. Historically, however, the same cannot be said for CDC. It is of the utmost importance that the proportion of the ODA budget that is channelled through CDC be subject to the same checks on outcomes and value for money to which DFID holds itself. New clause 4 lays down conditions that would guarantee transparent governance through an agreed framework reached with the Independent Commission for Aid Impact and CDC. Proper annual measurements of outcome would be a welcome addition to the Bill.

In relation to new clauses 1 and 8 and the issue of CDC use of separate financial centres where countries do not have sufficiently robust regulatory environments, now is the time to put on record the Government’s commitment to strengthening financial service centres in developing countries. The Opposition know that the importance of addressing and tackling CDC’s use of tax havens cannot be overstated. Although we heard assurances in Committee from Diana Noble, the chief executive of CDC, that using offshore financial centres ensures legal certainty and lessens risk for investors, far more than reassurance is needed to ensure transparency on that point. We need clear legislative safeguards, which is why the Front-Bench team will press new clause 1 to a vote. New clause 1 requires any proposal to increase the limit by secondary legislation to be accompanied by a thorough analysis of CDCs use of such centres. Where the countries in question do not have sufficiently robust regulatory environments, it is the UK’s job to ensure that those centres are made more robust.

[Jeremy Lefroy (Stafford) (Con)]

The hon. Lady makes some important points. Does she agree that the changes made to CDC five years ago, under which CDC was encouraged to make direct investments in developing countries—contrary to the preceding situation, in which it made investments in funds situated offshore—were a major step forward?

[Kate Osamor]

The hon. Gentleman makes a valid point, and I will touch on that in my speech. Regardless of any development, we must always be robust and we must be able to show taxpayers that we have a transparent and accountable system. That is at the forefront of our objections to the Bill.

I seek assurances from the Minister of State, the hon. Member for Penrith and The Border (Rory Stewart), that he will consider supporting the implementation of such safeguards. It is of course to be applauded that the whole ethos of CDC has been transformed since it was the subject of widespread controversy some years ago. It is testimony to the organisation’s willingness to change that it reacted to that criticism by becoming a more positive institution and implementing an overhaul of the systems that were in place. These efforts were praised in the most recent report by the National Audit Office, which assessed CDC’s progress in implementing the recommendations that the NAO made in a report in 2008. It was heartening to read in the follow-up report that CDC has proved successful in adapting its strategy in accordance with NAO’s earlier recommendations, including instituting frameworks to limit excessive pay and to refocus CDC’s priorities on the world’s very poorest nations, rather than investing in markets that already attract foreign investors.

[Jeremy Lefroy]

Will the hon. Lady give way?

[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.

[Wendy Morton (Aldridge-Brownhills) (Con)]

I want to take the hon. Lady back to new clause 7—I tried to intervene earlier—when she listed the sectors that she feels should be excluded. Does she not agree, however, that by specifically mentioning

“education providers that charge the end user”

as an exception, she risks children in some of the most underprivileged communities not being able to access education? From some Select Committee work, we know that such means are the only way of getting education for many of these children.

--- Later in debate ---

[Kate Osamor]

The hon. Lady makes a valid point, but I am talking about private education, for which someone with no money would have to pay. I do not think we should support that in a developing country, because we do not do it in this country. If someone wants to pay to go to university, there are challenges in relation to that, but I am talking, ideally, about primary education.

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

New clause 7 is in my name, and I will speak about it in due course. Does my hon. Friend agree that there is an important choice for DFID to make? It previously invested significantly in promoting free healthcare and education—making it available to all people, and removing such user fees—so to allow the CDC to continue to invest in private, fee-paying education is a significant shift away from the work the Department did in the past.

[Kate Osamor]

My hon. Friend makes a valid point, with which I totally agree.

[Pauline Latham (Mid Derbyshire) (Con)]

Will the hon. Lady give way?

[Kate Osamor]

I now need to make some progress.

Labour Members remain positive about the Bill’s ability to achieve its aim of improving the quality of life of people in some of the least developed countries in the world, but we believe that this can be achieved to its fullest extent only if appropriate safeguards are put in place. We retain our right to withdraw our support for the Bill if it becomes clear that the Government have not made sufficient progress.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

I call Flick Drummond.