Commonwealth Development Corporation Bill

Mark Field Excerpts

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

[Mr Andrew Mitchell (Sutton Coldfield) (Con)]

I draw the House’s attention to my outside interests, which are listed in the Register of Members’ Financial Interests.

This is an extremely good Bill, and I hope it will be welcomed in all corners of the House. During my brief remarks, I very much hope to be able to satisfy the hon. Member for Edmonton (Kate Osamor), who leads for the Opposition, on the perfectly fair questions that she posed. The fact that the Government are able to bring the Bill before the House today shows the success of Britain’s development policies in general, and specifically the success of the CDC reforms that we introduced in 2010 and 2011. Today’s Bill is the fruit of those reforms.

It is worth reflecting a little further on the history of the CDC. As has been said, it was founded in 1948. It was the first development finance institution— another British lead—and an early example of Britain’s generosity and of recognising the importance of the private sector and of job creation. The CDC made a huge contribution in the years after the war to agricultural development in the poorest parts of the world with which Britain had a close connection. By 1997, the formula had become a little tired, and the Commonwealth Development Corporation, as it had become, was losing money, which was hardly a good example of private sector entrepreneurialism for poorer countries to emulate.

In 1997, the Blair Government considered privatising the whole CDC. That would have been a huge mistake, since the whole point of the organisation is to complement the private sector, not to compete with it. In the end, the Labour Government privatised the management, while leaving the capital in the public sector. The then Government turned it into a fund of funds: it invested in other people’s funding vehicles, while the private sector did what it is supposed to do, which is focusing on making money.

When I travelled as the shadow International Development spokesman, other countries’ development finance institutions would say to me that the transformation of the CDC after 1997 was a warning to other development finance institutions of what not to do. When I travelled in countries where in the past the CDC had generated enormous good will, people used to say to me, “Whatever happened to the CDC? It has simply disappeared.” Of course, that was right. As the CDC was investing in other people’s funds, it had simply disappeared.

In 2010, the coalition Government said that the CDC, this former great development finance institution, had lost its way. The CDC was under regular attack in the press—particularly in Private Eye—and my judgment, as the Secretary of State, was that the attacks were largely valid. It had been turned from a somewhat sleepy development corporation that was losing money into a city slickers private equity business. It was mostly staffed by the same people, who saw their civil service salaries soar to the exotic levels normally populated by very successful hedge fund managers and private equity investors. The central aim of the coalition was to re-inject the CDC once again with its distinguished development roots without losing the ability to earn a commercial return. Our aspiration on entering government in 2010 was that just as DFID is undoubtedly the leading development ministry in the world, so the CDC should become the envy of all other development finance institutions—the best Government-owned DFI anywhere.

We had three key aims. First, we wanted to regain control of investment expertise by bringing the responsibility for investment back into the CDC. In other words—Labour Members may care to take note—we decided to reverse the Blair Government’s privatisation by bringing the expertise back into the public sector. Secondly, we wanted to broaden the toolkit of financial instruments by which the CDC could achieve this. Thirdly, we wanted to shift the geographical focus of the CDC on to the poorest and most difficult parts of the world—Africa and south Asia. The CDC had previously focused on a loose collection of geographical locations in a very undifferentiated way. Of course, capital in such circumstances naturally gravitates to the areas of lower risk and higher return. That was exactly what we did not want it to do, because for the CDC and development, those are the areas of least value.

It was with dismay that I read in the Financial Times of all newspapers—it has a reputation for outstanding financial journalism, and should therefore know better—a rehash of a past that the CDC has long left behind completely. A moment of research would have shown Financial Times journalists that they were completely out of date. The Financial Times said that

“the government should place the CDC under the same broader level of public scrutiny as DfID.”

The CDC is overseen by DFID, the Treasury, the shareholder executive, the International Development Committee, the Public Accounts Committee and, as yesterday’s report shows, by the NAO. Perhaps in a rather better researched piece, those Financial Times journalists could explain who might be added to this already extensive list.

Contrary to the Financial Times view, the CDC is now well on its way to achieving a reputation as the best DFI in the world. The reforms that we introduced inevitably confronted vested interests, and involved an area of expertise that we did not of course have any right to expect within the civil service. We wanted the CDC to provide both pioneer and patient capital. We wanted pioneer capital because we wanted to show the reach of the private sector at its best in promoting economic activity, jobs, decent working practices, and the provision of key goods and services to the poorest in the most difficult places in the world. We wanted patient capital because it can take a longer view of the financial return and can therefore complement the private sector by adding what is often the key ingredient to the mix—funding that would not otherwise be available to generate jobs, whether in the power sector or in infrastructure—in, once again, the poorest places. All of that had the additional benefit of delivering value for money and a return for the British taxpayer, while having a substantial impact on poverty alleviation.

The Bill is part of the proof that these reforms have worked and that this new approach is succeeding. I do not think it is fanciful to believe that in 50 years’ time, the CDC rather than DFID will be seen as the embodiment of the UK’s strong support and success in helping the world’s poorest and most excluded people. The flow of CDC-type investments made by the developed world in the poor world is now overtaking, in quantum, the level of aid. I believe that the work the CDC is carrying out should command everyone’s support from the far left of the Labour party to the development-sceptic press.

To achieve this position, the CDC has faced the need for and delivered radical change. This would not have been accomplished without the high quality of leadership at the top that has prevailed throughout. We were successful in hiring Diana Noble as the chief executive. Diana Noble will retire next year, and the taxpayer and the development community owe her a great debt of gratitude. She has changed a passive organisation by recruiting outstanding new talent. People tell me that the spirit in the CDC has been transformed. She inherited an organisation of 50 people, a figure that was subsequently reduced to 40 but now stands at approximately 220.

Those extraordinary changes would not have been accomplished, either, without the skills and commitment of Mr Jeremy Sillem, a senior and experienced City financier who served as an adviser to DFID and was subsequently a non-executive director of the CDC while the reforms were implemented, and of Graham Wrigley, who now provides his expertise as the CDC’s chairman. That team, above all, has delivered those changes and deserves the gratitude and thanks of Parliament and the taxpayer. Their personal reward will be the transformation of the lives of very large numbers of extremely poor people.

Our reforms turned the CDC from a one-product business—a fund of funds—into a multi-product one. I am not a golfer, but if I may use a golfing analogy, the CDC was traversing the golf course of international development with only one golf club, that of investing in other people’s funds. We have now equipped it with a full variety of golf clubs, including equity and debt, direct investments, trade finance and infrastructure lending. We have also regained control of the golf swing rather than delegating it to others—I have probably pushed the metaphor as far as I should.

Inevitably, operating in markets such as Afghanistan, Pakistan, Sierra Leone, the Democratic Republic of the Congo and Ethiopia is accompanied by considerable risk. Along with development impact, the CDC considers whether it is truly bringing additional funds that are unavailable elsewhere to each investment. It always seeks to avoid the lurking dangers of corruption that are ever present in development. It is a young business that will not always get it right, but for a young banker starting out in the financial world, as I did in 1979, there are few more exciting places to aspire to work across the financial world than the CDC, whose employees deploy their financial skills in an area where they have the power greatly to elevate the social condition of some of the poorest people in the poorest areas of the world. By the way, salaries have been sharply reduced and are well below what the staff at the CDC would earn in the commercial world.

[Mark Field (Cities of London and Westminster) (Con)]

I am just being slightly mischievous, but will my right hon. Friend confirm that all those interested in a career in the CDC cannot expect to spend too much time on the golf course, either on a Friday afternoon or on any other day of the week?

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. Before the right hon. Member for Sutton Coldfield (Mr Mitchell) replies to that intervention, may I just say to him that those of us who do not understand cricket are absolutely delighted to have had a golfing metaphor? It is so much simpler.

--- Later in debate ---

[Mark Field (Cities of London and Westminster) (Con)]

Although this is a relatively straightforward Bill, which I had hoped would have the support of all Members of the House, it is worth examining some aspects of the strategic background to our DFID commitments.

I associate myself wholeheartedly with the wise and experienced words of my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and my hon. Friend the Member for Rochford and Southend East (James Duddridge) when they touched on the transformation of the CDC’s work over the past half-decade or so. I must confess that I did not recognise some of the rather more jaundiced views of its work, as set out in the rather long contribution from the hon. Member for Cardiff South and Penarth (Stephen Doughty).

[Fiona Bruce]

Does my right hon. Friend agree that the selective quoting of the NAO report by the hon. Member for Cardiff South and Penarth, who is no longer in his place, did not do justice to its conclusion that, overall, DFID’s grip on the CDC is strong and that the CDC has made radical improvements since the NAO’s last report in 2008?

[Mark Field]

I agree with everything my hon. Friend has to say.

I am glad that the Secretary of State is now back in her place, and I wholeheartedly support her somewhat expansive approach, which has been criticised in certain quarters during the debate. She appears determined to ensure that the UK utilises all its assets, including the DFID budget, to secure an optimal deal for the nation, not just as we extricate ourselves from the EU, but in the years to come.

That must mean extending DFID’s reach beyond the traditional aid referred to in the debate to broader development and infrastructure and to things such as security, but also to community sustainability and resilience across the globe. That change is long overdue, and I should like briefly to set out some of the somewhat negative ways in which DFID’s culture has developed since the Department was established in 1997, which I sincerely trust the Bill will help to address.

DFID was originally seen as a key component of an ethical foreign policy, centralising in a single Department overseas aid moneys that were previously in the budgets of the Ministry of Defence and the Foreign Office. The result was that those major Departments of State were left at that time with little or no financial autonomy on key international projects—regrettably, in my view.

Instead, a new culture of programming took hold in DFID, which managed out what was seen as inappropriate spending that could cause presentational problems for the Government of the day. Cautious mandarins became more risk averse, and DFID project money was routinely awarded to known international bodies, such as the World Bank or UNICEF, rather than to smaller, nimbler UK organisations and businesses.

That ensured that the Government would not be seen to be promoting corporate Britain abroad under the cloak of humanitarian assistance, but it also left those recognised brands to deal with any fallout, should questions be raised about the success of particular programmes. Indeed, the very respectability of those organisations tended to mute any testing questioning about the effectiveness and impact of what has become an ever-larger amount of British aid money. That shift, I fear, went hand in hand with the emergence of increasingly professional bidders, who learned to speak the language of DFID programmers to win contracts.

Too often, the result has been ponderous, expensive and wasteful programming, and I know that that culture is very much in the sights of the Secretary of State, who wants to eradicate it. In part, DFID programmers have often been overloaded with cash, which has been increasingly bundled off to the international bodies I mentioned. I am therefore absolutely delighted that the Bill increases the scope for money to be used by domestic bodies that are within the Government’s control and able to enact the Government’s priorities in the new world rapidly unfolding before us.

My right hon. Friend the Member for Sutton Coldfield laid out the way in which the CDC rightly operates. There is rightly oversight from not just the Government but a range of Select Committees, but we ultimately leave the organisation to get on and do the job that it is best able to achieve.

We need, above all, to ensure that DFID is not as process driven as it has perhaps been in the past, which has reduced our agility in this field and risked the benchmark for the success of our development aid being simply the amount spent, rather than the added value delivered, as has been referred to. That does not make our ongoing 0.7% commitment to overseas aid wrong—some of my right hon. and hon. Friends would probably disagree with that—and I am absolutely supportive of it, as is my hon. Friend the Member for Rochford and Southend East. Indeed, the case for extending Britain’s reach in this field grows stronger every day as we are confronted domestically with problems whose roots start many thousands of miles away.

I do, though, question whether, particularly as we leave the EU, large parts of DFID’s budget should not now be made available to the Foreign Office, the Ministry of Defence or the Department for International Trade, all of which should, necessarily and rightly, come under some scrutiny and oversight from DFID, but there should, none the less, be that sense of joined-up co-operation within the Government. That would enable and authorise those on the ground, whether in overseas embassies, military bases, or part and parcel of our intelligence services, to spend sensibly, carefully and locally against agreed objectives rather than within the rather ham-fisted DFID programming process.

[Sir Hugo Swire (East Devon) (Con)]

I am listening very carefully to my right hon. Friend and agree with everything he has said so far. Does he agree that there are still some savings to be made by bringing all those agents and representatives of Her Majesty’s Government abroad under one umbrella? Too often we see competing officials from the different Departments who, to save money, should all come under the umbrella of, probably, the Foreign and Commonwealth Office.

[Mark Field]

You can take the boy out of the Foreign Office but obviously, when it comes down to it, you can’t take the Foreign Office out of the boy. I suspect that this will be a live debate going forward. I know that my right hon. Friend feels very strongly about such matters.

[Mr Mitchell]

My right hon. Friend is quite right to slap down the former Foreign Office Minister, my right hon. Friend the Member for East Devon (Sir Hugo Swire), on his implied suggestion that we should go back rather than forwards and put DFID under the Foreign Office: that is basically what he was saying. We have long ago said that that is the wrong way to proceed. Let me point out that there are already pooled funds of the type that he describes. In my day at DFID—I have every reason to believe that this continues—whenever there was eligible funding under the ODA rules that the Ministry of Defence or the Foreign Office wanted to spend, they would always have access to those funds. The huge amount of DFID money that goes through the Foreign Office now bears testament to that.

[Mark Field]

I would like to think that I am much too diplomatic to slap anyone down, although he knows where we are all coming from.

[Sir Hugo Swire]

Just to clarify this, I am not sure that my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) was correct in saying what I was proposing. I was certainly not suggesting that the Department should come back within the Foreign Office. I was merely saying that I saw huge synergies to be achieved overseas where we have representatives from many Departments, including the Ministry of Defence, DFID and the former Department of Energy and Climate Change and that we should look towards making greater savings so that we can spend the money where it is needed.

[Mark Field]

I am sure that my right hon. Friend the Member for Sutton Coldfield was not wilfully misleading anyone on these matters. I am going to be slapped down myself by the Whips if I am not careful, because I need to make a little progress.

I hope that in further empowering the CDC, which, as has been pointed out, is 100% owned by Her Majesty’s Government, we are now making way for a more cross-departmental approach, with the DIT and indeed the FCO able to access CDC funds for projects within the key Commonwealth states, particularly in Africa and South Asia.

In this very dangerous and uncertain world, the importance of integrating our foreign aid with military, diplomatic and trade commitments cannot be overstated. To prevent crime, to curb new waves of immigration and to stop the spread of disease, our efforts can be made more effective by concentrating on the source of an issue. Hunger relief and health programmes may of course be laudable in their own right, but British people want urgently to understand how DFID money benefits them personally, and so there will no doubt be widespread support for more money being channelled through bodies such as the CDC rather than—dare I say it?—virtually unaccountable international organisations that have previously received millions of pounds in UK aid. We should also, as a matter of course, communicate how strengthening our ties with developing countries will be of huge benefit in terms of our trade, energy and security interests in this post-Brexit era. By moving away from a situation where too much of DFID’s budget and powers has been placed in the hands of international non-governmental organisations, I firmly believe that we will be able better to fulfil many more of our nation’s broader strategic interests.