Commonwealth Development Corporation Bill

Patrick Grady Excerpts

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

[Mrs Drummond]

My hon. Friend makes an excellent point. One reason that I am so passionate about the CDC is that we need to build the capacity of developing countries. In my first speech on this subject, I said give a man fish and he will eat it, but give him a fishing rod and he is set for life. That is exactly the philosophy behind the CDC that I am so keen on.

There are circumstances in which some relatively more developed countries are host to companies involved in much poorer ones. As with the misplaced fears about offshore financial centres, we should not close off any path to investment and development. New clauses 3, 4, 6 and 9 all fail in that respect. All the amendments before us share a fundamental weakness and a misunderstanding of the CDC’s role in the world. We put less of our development investment through the CDC than other countries do through their equivalent bodies, as my hon. Friend the Member for Bedford (Richard Fuller) mentioned earlier. We should be doing more through the CDC if we want to develop mature and robust market economies in the developing world, which is why I welcome the Bill.

Markets are transparent and flexible, and they empower people who take part in them. The aim of our development policy should always be to encourage self-sufficiency and the development of market economies. As I said in my first contribution on the Bill, the CDC is transparent, as the NAO report agreed. I champion the CDC’s philosophy of enabling people to build their own businesses, rather than handing out grants. It is an efficient and transparent model, and we should all give the Bill our wholehearted support and continue to be a major investor in improving the lives of our fellow citizens in developing countries.

[Patrick Grady (Glasgow North) (SNP)]

I will speak to amendment 3 and new clause 6, which are in my name, and I will offer support for the Labour party’s amendments that I have added my name to.

Nobody here is arguing that the CDC should not exist. We all recognise there is a role for development finance and private investment. As I noted on Second Reading, the Scottish Government have just set up their own investment mechanism in Malawi. But even if we wanted to change some of the deeper fundamentals, that is not in the scope of the Bill. The Government, probably deliberately, have presented a very narrow Bill with the aim of increasing the statutory limit of their investment. Therefore, by definition, that is what our amendments must focus on.

I hope that the Government will see—certainly in the amendments I have tabled and, I think, in the Labour ones—that we have tried to respond to and take on board some of their concerns about some of our amendments in Committee. It is up to the Government to respond and indicate how they will take our concerns on board. We all want to work constructively with the Government on the Bill. We want to recognise and maintain the consensus on the importance of aid, our commitment to 0.7% and the effective use of those resources.

Amendment 3, which is in my name, and amendments 2 and 4, which are contingent on it, gets to the heart of the technical aspect of the Bill: what the cap on investment in the CDC should be. The Government have been repeatedly asked for their reasons behind the figures of £6 billion and £12 billion in the Bill, and I am afraid that they have still come up short. The best we have heard is that this is roughly what they think is needed, or could be managed, over the coming years. In the lifetime of this Parliament, that could still equate to an additional £1.5 billion to £2 billion a year of investment from the official development assistance budget to the CDC. As we have repeatedly said, every penny invested in the CDC is a penny not invested in other mainstream, grassroots and not-for-profit development projects and support.

On Second Reading, I asked about the use of a formula to link the cap with overall ODA budgets, and I proposed such a formula in Committee. The Minister’s first concern about a formula was that it would blur the line between stock and flow. But the aid budget is a flow. It goes up and it can, theoretically, go down as well. I recognise that the CDC investment is a stock: once funds are transferred, that is where they stay and they remain part of the overall capital fund. However, the formula would ask the Government, each time they want to disburse funds to CDC, to calculate how those funds will relate to overall aid spending in the coming years.

The Minister’s second concern was that my formula in Committee effectively discounted the £1.5 billion already invested in the CDC. Amendment 3 and the contingent amendments take that into account. By my calculations, based on figures from the Library, this formula would still allow the Government to invest an extra £3 billion, or a total of £4.5 billion, in the CDC by 2021. Even if the Government will not accept the amendment and we cannot persuade enough of their Back Benchers to join us in the Lobby to support it, I hope that they will commit to recognising that the £6 billion figure currently stated in the legislation is a maximum and that any additional investment they intend to make will ultimately reflect the ebb and flow of overall ODA calculations in any given spending round.

Irrespective of the caps and limits, much concern has been expressed throughout the passage of the Bill over how some aspects of the CDC’s resources have been spent in the past and how they will continue to be spent in the future. That is what I seek to address with new clause 6, which is particularly important in the context of increasing—potentially quadrupling—the overall resources available to the CDC. I welcome the range of amendments in Committee and here today that attempt to place various conditions on the exercise of the power to increase the limit.

As I said at the start, owing to the scope of the Bill, my amendments and those of Labour Members must relate to the increase in the limit from £6 billion to £12 billion under the terms of section 15(4) of the Commonwealth Development Corporation Act 1999. Try as we might, it has not been possible to find a way to attach conditions to the investment of up to £6 billion. The Government have indicated that the timetable for using the statutory instrument powers would be some way in the distance, so it is not unreasonable to suggest that there should be some kind of conditionality and review process before those powers are used, especially given that we will apparently have so much time to prepare.

New clause 6 combines two conditions I called for in Committee: before the Government could increase the limit of their investment, the Secretary of State would be required to make an assessment of how an increased limit would contribute to a reduction in poverty, which is the statutory aim of ODA in the International Development Act 2002, and how that increase would help to meet the sustainable development goals. The Government have repeatedly argued that the CDC is doing both those things very effectively, in which case this is hardly an onerous request, but the new clause would have the effect of making it much clearer that this is the CDC’s overall purpose and that commercial gain, returns on investment and even raw figures on the number of jobs created are not an end in themselves, but only the means to the end of reducing poverty and building a more stable and secure world. Again, the responsibility is on the Government, if they will not accept our amendments, at least to acknowledge the concerns being expressed and to give commitments to show in any business case they publish for further investment how the key pillars of poverty reduction and the global sustainable development goals will be advanced.

I briefly speak in favour of, and indicate the Scottish National party’s support for, the range of thoughtful amendments tabled by the Labour shadow team and by the hon. Member for Cardiff South and Penarth (Stephen Doughty), who serves on the Select Committee on International Development. I welcome the fact that there has been cross-party support for the amendments and suggest that the Government pay attention to that. There remains consensus in this House and across the country in support of the principle of aid, the 0.7% target and, of course, the effective use of that aid. Many of Labour’s amendments, as the hon. Member for Edmonton (Kate Osamor) said, simply ask DFID to hold the CDC to the same standards that the Government now demand of their external stakeholders. Their recent bilateral and multilateral development reviews were pretty much unilateral declarations of everything that was terrible and wasteful on the part of so many of their stakeholders and demanded that the highest standards of efficiency, impact and transparency be applied to them. It stands to reason that those standards should also be demanded of the CDC.

A Government who say they want to crack down on tax dodging should not be allowing an agency of which they are the sole stakeholder to be making use of offshore tax havens. A Government who want value for money and clear impact from their aid budget should not be afraid to ask for reporting on exactly those areas. My colleagues and I will be happy to join the Labour party, hon. Members from other Opposition parties, and any Conservative Member persuaded of the case in the Lobby in support of any amendments they wish to press.

I said on Second Reading that it was disappointing that the scope of the Bill was so narrow. The Government had the opportunity to widen the scope to strengthen the CDC’s effectiveness, transparency and accountability. They also had that opportunity with the substantial and, in some cases, creative amendments that have been proposed by Opposition Members from different parties. If Ministers continue to indicate an unwillingness to accept amendments—it is disappointing that they did not table any of their own to reflect the concerns raised by Members—they must give the strongest possible commitments now in response to the concerns we have raised. The Government must recognise, as the Labour Front Bench spokesperson said, that this is the beginning, and not the end, of a process.

[Several hon. Members rose—]

--- Later in debate ---

[Richard Fuller]

My hon. Friend is absolutely right. We have to be clear what is being proposed today. The proposal is not to do more than is being done now, but to enable the CDC to continue to do what it is doing now. If we were to take some of the suggestions from the SNP and others, that might imply that that support should be reduced in the future, and that would be to the detriment of the countries affected and the British taxpayer.

[Patrick Grady]

ODA flows and gross national income can go up or down, so if, for some reason, GNI were to contract, and the ODA budget were to contract, surely it would make sense for the amount of overall capital investment in the CDC to contract so that more money was available for the traditional aid flows.

[Richard Fuller]

That is the hon. Gentleman’s point of view, but it is not my point of view, and I will come to the point about balance in a minute.

A general view of the amendments is that they seek to solve problems that do not exist, but that may exist. Statute is not the right way to approach such circumstances; that is a matter for oversight and scrutiny by the departmental Ministers and by us here in Parliament on behalf of our taxpayers—it is not about putting things into Bills. On that basis, I will oppose every amendment that has been proposed today.

There would be some validity to the amendments if there was a question about this aspect of foreign direct investment being unusually large. There might be something to them if the CDC had a poor investment record because it was losing shed loads of taxpayers’ money by making poor investments, if it was clearly ignoring development goals and was being held to account in reports for doing that, or if a problem in reporting oversight was evident and explained in various reports. However, not a single one of those conditions pertains to the circumstances of the CDC, so there is no a priori reason to put these amendments in place.

As I mentioned earlier, the proportion of our development budget that goes to our development finance institution—the CDC—is 4% if taken over five years, which is the usual investment period for a fund. That compares to PROPARCO of France, which has 12% of the development budget; DEG in Germany, which has 8% of the budget; and FMO in Holland, which is a very successful DFI, and which has 30% of the budget. So we are not unusually large—we are actually unusually small. In terms of such initiatives, we should be looking for a measured and slow increase in our ability to invest, so that we can play a fuller role. So I do not think that the point about that really holds.

The point about the poor investment record does not hold either. I have the numbers here, and the truth of the matter is that in terms of its annual return—this is a commercial return, and we have to understand that there are commercial returns for funds—the CDC was set a target of 3.5%, and it achieved 7.8% over the past five years. So there are not really grounds for saying that it is a poor performer in terms of its core function of investing on a commercial basis or that it is doing something untoward.

On the missing development goals, I understand that there is a bit of a laundry list of sectors that the hon. Member for Cardiff South and Penarth (Stephen Doughty) wishes to turn his nose up to. I have no idea whether the list in his new clause is a full list or whether it just contains things he does not like. One of my hon. Friends made a good point about why there are good reasons to support parts of them. We will hear from the hon. Gentleman in a minute, and I am sure he will make an excellent case for that laundry list. However, in the meantime, I would say that there is not really any evidence of the CDC missing its development goals. Even the National Audit Office report mentioned that the CDC had met the targets for its financial performance, which was point 11 in its summary. In point 12, it said that the

“CDC has exceeded the target for prospective development impact it agreed with the Department.”

So there is no basis in that respect for the amendments.

Are there concerns about reporting for CDC? There may be, but I have not heard them. I cannot point to something that says there are concerns. I do not think that we have heard concerns about reporting on Second Reading, in the evidence stages or today. There may be additional pieces of information we wish to have, and they are listed in some of the amendments, but no real concerns have been raised that these things have not been provided in the past and that we should therefore ensure that the CDC provides them. Therefore, on the issue of whether there is a problem at the CDC that the amendments are needed to correct, there is no justification for the amendments whatever.

We have to be clear about what the role of tax havens has been. The hon. Member for Edmonton was very fair in pointing out that the CDC’s chief executive had made it clear that the CDC does not use tax havens in its policies, and the chief executive explained where those are used and why they are used. I am perfectly happy to rest on the judgment of the CDC, on its governance structures and on the oversight by the Department to make sure that that continues. I do not need to put a statutory underpinning on that. I also do not see that there is a problem at the moment in terms of the CDC having wandered off from what it said it would do. If there was such a problem, I would say, “Okay, maybe it is time for statute,” but the hon. Lady has not presented—maybe others will—a recent concern where that has happened. Therefore, I cannot see a reason for supporting new clause 1, although I understand that she wants to put it to a vote. I think we broadly accept—from that point of view, having a discussion about this is perhaps valuable—that there should be a strong message from Parliament about the use of tax havens and about what is and is not appropriate. If that is her intention, that is a perfectly reasonable point for her to make.

The CDC is a valuable institution. It has support from both sides of the House. I look forward to having further discussion on the amendments and then supporting the Bill on Third Reading.

--- Later in debate ---

[Patrick Grady]

My I add my thanks to all the stakeholders and staff who have contributed to the Bill process? This is the first piece of legislation on which I have worked as an SNP spokesperson, so I am particularly grateful to the Clerk of Bills for his advice, to my staff and the SNP research team, and to the various non-governmental organisations that have provided input. I thank my hon. Friends the Members for Edinburgh East (Tommy Sheppard), for Coatbridge, Chryston and Bellshill (Philip Boswell) and for Kilmarnock and Loudoun (Alan Brown) for their contributions during the Bill’s various stages. I also recognise the commitment and hard work of the CDC’s staff, and their positive engagement with the Opposition parties.

This is the first piece of DFID legislation in the current Parliament, but I wonder whether it will be the last. The Minister might be aware that I tabled a question to the Secretary of State about the applicability of the International Development (Reporting and Transparency) Act 2006 now that the millennium development goals it requires DFID to report on have been replaced by the sustainable development goals. The International Development Committee proposed a consolidating international development Act to bring together all the various pieces of legislation passed over recent years. Perhaps that is not such a bad idea, especially as the debate about the purpose of aid and development seems to be getting louder.

As my hon. Friend the Member for Edinburgh East said on Report, throughout the Christmas recess there seemed to be a drip-feed of very negative stories about aid spending, particularly in the gutter press. It is absolutely right that examples of waste and inefficiency are exposed and questions asked about value for money, but the answer is to improve transparency and efficiency, and to measure impact—especially over the longer term—and not simply to cut off the supply or take heavy-handed, but ultimately counter-productive, action.

The debate on the CDC Bill has catalysed a broader debate about the use and purpose of aid, and the Government can be assured in the coming months that the SNP will be happy to support the cross-party and public consensus on our moral duty to help people most in need around the world, and the symbolism and very real impact of meeting the 0.7% aid target. However, as we have just heard on Report, if the highest standards of transparency and effectiveness are to be demanded from DFID’s external stakeholders, they must equally be applied across Government and to their arm’s-length agencies, starting with the CDC in this Bill.

The Government did not accept amendments, but I join the Opposition Front-Bench team in welcoming the commitments the Government have given. We will, through the procedures of this House, hold them to account for those commitments. There is a consensus behind the need for continual improvement of the CDC, and we want to maintain that consensus.

The Government will see this legislation passed today—their majority in the House assures them of that—and it is unlikely, due to the nature of the Bill, that the House of Lords will have any opportunity to amend or delay its progress on to the statute book. So the Government are being given a significant responsibility today; they are asking for the power to quadruple the budget of an agency which has a long but chequered history. The CDC has had significant successes in its history, but significant concerns have been raised and remain. If its resource base is to be massively scaled up, so must be its accountability and the standards it is held to. I hope the Secretary of State and her Ministers will confirm that they are prepared for the CDC, the Department, and themselves as Ministers, to be held to those standards.