Draft Commonwealth Development Corporation (Limit on Government Assistance) Regulations 2023

Preet Kaur Gill Excerpts

Wednesday 5th July 2023 General Committees

[Preet Kaur Gill (Birmingham, Edgbaston) (Lab/Co-op)]

I am grateful to the Minister for outlining the new regulations.

I begin with some comments on BII’s role and objectives. The Opposition recognise the private sector’s important role in the development journeys of low and middle-income countries. The creation of new jobs and markets, especially for Africa’s young and fast-growing working-age population, the boosting of economic growth, productivity and tax receipts, and delivering innovative new products, services and infrastructure to meet the needs of poorer countries are all vital components of a genuinely sustainable development strategy.

Within that, I recognise the good work BII has been doing in supporting the delivery of the world’s first malaria vaccine, reducing pollution and deforestation in Malawi through investment in low-carbon building material providers, and scaling up access to off-grid solar energy systems for families and businesses that cannot access electric grid connections.

I commend all that good work, along with BII’s focus on Africa and its work on climate innovation and tech. However, we are here today to debate this amendment to the Commonwealth Development Corporation Act 1999, which would increase the maximum that the UK can funnel into BII by £3.5 billion.

We live in a time of intense converging global crises: the war in Ukraine, the global cost of living crisis, the sovereign debt emergency in Africa, record levels of conflict and displacement and hundreds of millions falling back into extreme poverty as a result of all those crises. The FCDO has slashed aid year on year, used the budget like a Government slush fund and funnelled billions into the Home Office black hole to deal with a self-made asylum accommodation crisis, so we have to ask the question: is channelling billions more pounds of scarce official development assistance into BII really the best use of Government resources?

First, let me be clear about that context. Investments through BII have a limited and specific role in Britain’s development policy if we are serious about SDG 1: eradicating poverty. Indeed, BII does not even use the standard World Bank definition of extreme poverty of having an income below $2.15 per day, instead using a higher threshold of $5.50. That shows that its work is less able to reach the very poorest and most marginalised. Even then, BII does not provide disaggregated data on the quality of jobs its investments create, including wages relative to local averages or poverty lines.

Does the Minister think efforts should be made to make that basic information publicly available, and is it something he has requested and had access to in advance of shareholder meetings? Does he share my concern about the low number of jobs BII is creating for women? By its own count, only 28% of the new jobs it created in 2021 were for women. Although I recognise the work done through the 2X Challenge, do the loose and optional objectives it set out not illustrate precisely my point that a DFI is often not the best vehicle to deliver on many of the Government’s development objectives?

That is not to say that I do not commend the progress that BII has been making on some of these points since it came under fire from the Independent Commission for Aid Impact in 2019, but there must be an honest conversation about whether this is the best use of what is left of the development budget. Given those constraints, what claim can BII make as a better investment for poverty reduction than all the other bilateral programmes being cut?

Secondly, on transparency and accountability, in last year’s Publish What You Fund DFI transparency index, BII scored 26.5 out of 100, behind its equivalent organisations in the US, France, the Netherlands and Germany. Before this Government destroyed it, the Department for International Development took the top spot among bilateral donors in the international aid transparency index for eight years in a row. The Minister used to take transparency and value for money very seriously when he was Secretary of State, and he is asking to plug more billions of pounds into an organisation that provides only basic information to the taxpayer about its work. On environmental, social and corporate governance, accountability to communities and financial information, BII came joint bottom in the transparency index. At the International Development Committee, it has been called out for its reliance on opaque financial intermediaries and for its failure to mobilise investments in projects that the private sector and other DFIs are not funding anyway.

I noted that the Minister said in a recent Chatham House speech that he accepts many of the criticisms on transparency, and he would set out a road map of commitments to improve BII’s performance. Would it not make sense to have a clear plan to improve things before handing over more billions of taxpayers’ cash? For example, one thing that other DFIs have are mechanisms that allow communities to hold them to account. The German DEG has one; the World Bank International Finance Corporation has one too. Could BII consider developing one? What efforts is BII making to ensure that the intermediated private funds that it invests in are not domiciled in tax havens, and can the Minister explain how he expects to restore Britain’s reputation as a development superpower while funnelling money into opaque private equity funds and financial intermediaries at the expense of UK-branded development assistance and aid?

These questions are not just an abstraction. Last week, I hosted a briefing in Parliament with Oxfam about this new report into DFI investments into for-profit hospitals, where I heard the story of Francisca Wanjiru, a Kenyan woman whose mother died at one of the for-profit hospitals in which BII is invested. For years, Francisca has had to live with the haunting fact that her mother’s body is lying locked inside a freezer at the Nairobi Women’s Hospital mortuary and she cannot get her out. For years, the hospital has refused to release her mother so that she can be properly laid to rest, because Francisca is too poor to pay the hospital fees that racked up when her mother fell ill.

I was deeply moved by Francisca’s story. She accrues another 500 shillings in fees every day that she cannot afford to pay for her mother’s release, and such situations are not uncommon, as Oxfam’s recent report “Sick Development” outlines. The report describes patients blocked from access or bankrupted by eye-watering hospital bills that should never have been charged—patients even imprisoned in hospitals for being too poor to pay. These hospitals are often charging fees that are simply out of reach for ordinary people to meet, and Oxfam has found some hospitals charging more than someone’s annual average income for basic maternity care. Not only is that clearly not helping the poorest people in those countries, but in some cases it is making accessibility and affordability worse. In Uganda, Oxfam found a hospital that BII invests in where prices increased by an incredible 60% in just four years.

The report contains some harrowing stories, and it raises serious concerns about the development impact of some of these investments and BII’s due diligence. Why has it taken years of careful research by a non-governmental organisation to shed light on something that basic functioning oversight mechanisms would have surely picked up and put an end to years ago? I hope that the Minister can tell us what action is being taken in response to the report, and whether, as BII’s sole shareholder, the Government will rule out any further investments in for-profit hospitals.

It is surely uncontroversial to ask that the significant sums of public money that we are talking about should not be invested in businesses that are undermining British policy objectives. Private hospitals are not the only example. There has been the Bridge schools scandal. There has been BII’s flagship billion-pound investment in DP World, the Dubai-owned parent company of P&O Ferries, which summarily sacked its British workers, frogmarched them out of their place of work and rehired foreign staff to replace them on poverty pay of around £1.82 an hour last year. There have also been its investments in the China National Investment & Guaranty Corporation, which is linked to the belt and road initiative.

I was concerned to hear the Minister’s response at the International Development Committee in response to some of these concerns, that BII should simply be left to “get on with it”. That is a remarkably lax response to the risk that millions of pounds of taxpayers’ money is being funnelled into projects that undermine UK policy objectives. At a time when needs are increasing and money is tight, it is surely more crucial than ever that taxpayers’ money is spent as effectively as possible, and I hope today that the Minister can give me some answers to the concerns that have been raised.

Lastly, I wanted to ask the Minister about what is driving UK development policy, as it simply does not make sense to me. Why, one might well ask, is BII the only untouchable domain of UK development spending, when we are scaling back climate finance, when bilateral aid to Africa has been parked, and support to desperate Afghans fleeing the Taliban, who now comprise the biggest group crossing the channel on small boats, has been cut to ribbons?

I have a theory. At the last spending review, 2021, the FCDO was given a £2.4 billion target to spend on financial transactions over three years—a new category of Government spending that was introduced by the coalition Government a decade ago. These financial transactions notionally involve the purchase of an asset and are excluded from the Government’s fiscal rules on the deficit and borrowing. I understand the attraction: after crashing the economy and with inflation soaring, the Chancellor wants to channel more and more money through a mechanism that does not register as day-to-day spending but, as things stand, the target set at the spending review would mean that at least £1.2 billion—around 10% of the total official development assistance budget—must be spent on financial transactions next year. That leaves Ministers with few options but to repeatedly recapitalise BII.

The difficulty is that that is a terrible way of deciding policy. The Treasury might like it, but how will it deliver impact for the very people that the ODA budget is meant to reach, not least when as much as 40% of the bilateral budget is now being spent within the United Kingdom instead of abroad? BII is already limited in what it can invest. Often, the challenge is that in the very poorest countries there simply are not enough businesses with the capacity to absorb the kind of money that BII wants to spend. Meanwhile, war rages in Ukraine, the global economy tightens, a sovereign debt crisis in Africa grows and record numbers of people are displaced by conflict, instability and disaster.

BII has a limited role in tackling many of these challenges, even where it is integral to creating the fertile investment environment, new markets and new job opportunities in the private sector in low-income countries—never mind its own mandate to turn a profit. Despite lofty promises to repair the damage this Government have done to our international reputation in development, accounting trickery rather than impact still seems to be driving Government policy, and it is all of us who are invested in a safer, greener, fairer world who will lose.

I will not divide the Committee on the draft regulations, as I recognise that the Government have already almost breached BII’s financial limit, and I will not seek to frustrate planned investments in things like Ukraine’s economic recovery. However, I hope the Minister will respond to my concerns—I know he will.

Transparency and value for money must be restored to UK ODA spending. A Labour Government will ensure that taxpayers’ money is spent with the respect it deserves. We will undertake a root-and-branch review of BII, including its mandate, transparency reporting and governance arrangements, to ensure it is supporting and not undermining UK policy objectives. Britain once led the way in principled, poverty-focused, transparent global development. Under the next Labour Government, we will make sure it does so again.