Commonwealth Development Corporation Bill

Richard Fuller Excerpts

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

[Priti Patel]

I thank the right hon. Gentleman for his comments. It is right that the focus is on development impact and on outcomes. That has been shown by many of the reforms that the CDC has undertaken since 2010. Yesterday, a National Audit Office report was published which showed exactly that.

[Richard Fuller (Bedford) (Con)]

Will my right hon. Friend please be reassured that her efforts to ensure that we have accountability and transparency in all aspects of public expenditure, but particularly in the area of international development, are a key part of maintaining public confidence behind the 0.7% target?

[Priti Patel]

My hon. Friend is absolutely right. We owe that to those who contribute to the taxes that enable the Government to make these important decisions about international development, and in particular our humanitarian responses and how we spend and invest that money. As I will go on to say, there are many examples around the world of lives being transformed, and that is something that our country can be very proud of.

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[Priti Patel]

No, I will not give way.

Under its new leadership, the CDC has transformed itself. As I said, it operated a financial-return-first strategy before 2011. It has now introduced dual objectives to deliver development impact and financial return. It has developed completely new ways of assessing and measuring development through job creation and of screening prospective investments for development impact. It is an innovative and intelligent investor with a core mission of fighting poverty. That was recognised in yesterday’s NAO report, which stresses that DFID’s oversight of the CDC led to

“important, positive changes...a significant departure from the previous strategy”.

Following new objectives agreed with the UK Government, the CDC now invests only in Africa and south Asia, where 80% of the world’s poorest live, and where private capital is scarce. The CDC focuses now on the sectors that create the most jobs and on sectors that create environments for other businesses to thrive, such as infrastructure and financial services. In the last year, CDC-backed businesses have helped to create over 1 million new jobs, and they have paid over $7 billion in local taxes in the last three years. That is money that Governments can use to invest in vital services, such as health and education.

As yesterday’s NAO report recognised, the CDC has addressed Parliament’s concerns about pay, and salaries have been cut, as I have just outlined. The whole ethos of the organisation has changed and, importantly, strengthened, with oversight from DFID. The CDC of today is a different, and much improved, organisation from the one it was many years ago. Some of the media coverage in recent days has not properly reflected that important shift, and I urge all Members to look carefully at the facts rather than some of the reporting.

Of course, there is more to do. Therefore, as part of the Bill, my Department will work to improve the transparency of the organisation further and to strengthen further the assessment of its development impact. As the NAO recognised, my Department has commissioned several independent evaluations of the CDC’s impact. Just last year, a team from Harvard, reviewing the CDC’s investments from 2008 to 2012, concluded that they had been “transformational”, creating hundreds of thousands of new direct jobs and billions of pounds in increased earnings. We are currently in the design stages of a complex new study to generate even more detailed data on the wider market impacts of CDC investments. We are the first Government ever to conduct such an in-depth study into their development finance institution.

There is no question but that the CDC offers value for money. Over the last five years, we have seen significant returns from it. Every penny of profit generated by the CDC is reinvested into businesses across the world’s poorest and most fragile regions, making every taxpayer pound invested in the CDC go further. The NAO further concluded that the CDC now has

“an efficient and economic operating model”

with low costs, compared with other development finance institutions. CDC salaries are covered by the returns the CDC makes on investments, not from development budgets.

Wherever possible, the CDC invests in countries, and it uses neutral jurisdictions only when it is absolutely necessary to do so, to protect taxpayer moneys from being lost to weak legal systems and to bring confidence to other global investors in the hardest-to-reach markets. However, the CDC uses only financial centres that are compliant with international tax transparency standards, as monitored by the OECD’s global forum on transparency and exchange of tax information. There are no exemptions.

Far from hiding investments, the CDC was one of the first development finance institutions to make public investment information about every single investment. In fact, with DFID’s support, the CDC is now a global leader on transparency. It has signed up to the international aid transparency initiative and has an online searchable database on its website, allowing users to access information on every investment and fund in the CDC’s portfolio. I can assure the House that my Department will continue to be an active and engaged shareholder in the CDC, ensuring that it continues to deliver for the world’s poorest and the UK taxpayer.

[Richard Fuller]

My right hon. Friend is outlining a strong case for what she proposes for the CDC. However, on the issue of probity, there are tremendous resources in the City of London, which could provide support for some of the businesses the CDC invests in as they look to get to the next stage of growth capital. Is there any element in the Bill, or are there any DFID proposals, to encourage City of London firms to provide that support for DFID goals?

[Priti Patel]

It is important to acknowledge the City of London and the great expertise that exists there when it comes to not only investment in some of the most challenging parts of the world but transparency. Through the work the Government have done on tax and transparency, the City of London has moved incredibly far. My Department is working across the City of London on a range of issues, such as insurance. We are also looking at how we can do more on transparency and accountability, and that is absolutely right.

We will shortly be setting out a new investment policy for the CDC, covering the next five years. That will include a new reporting framework to better capture the broader impact of investments on development, beyond job creation and the tax revenue generated. We will ensure there is maximum transparency, so that CDC investments can be scrutinised and, importantly, so that their impact on combatting poverty is made clear. As I stated, the CDC has a strong and transparent track record on which to build. With our support and oversight, we want the CDC to do more, and that is why we need the Bill.

The Commonwealth Development Corporation Act 1999 set a £1.5 billion limit on the overall amount of Government financial assistance that can be provided to the CDC. That limit was reached in 2015. The need to raise the CDC’s capital limit was clearly signalled in the UK aid strategy back in 2015. The Bill builds on the economic development objectives of Clare Short’s 1999 Act and should be seen not as a new political direction, but as a logical continuation of the cross-party approach that has been in place for decades.

Any money given to CDC will meet the internationally agreed rules about which spending counts as aid. Raising the limit by £4.5 billion to £6 billion and introducing a delegated power to raise the limit further via statutory instrument to £12 billion over time will enable the UK to accelerate the CDC’s growth, so that the UK can deliver on its international development objectives. Let me stress that this £6 billion is not an annual spend; it is a cumulative figure and a limit placed on the total amount of financial assistance that a Government could provide to the CDC over a period of time before coming back to the House to seek a further increase via statutory instrument.

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[Richard Fuller (Bedford) (Con)]

Sitting through the debate and listening to so many informed contributions has been informative, even the speech from the hon. Member for Cardiff South and Penarth (Stephen Doughty). Perhaps it was a little overlong in duration and repetitive in argument, but none the less it was a valuable contribution to the overall debate. Many of us welcome his general support for the direction of travel in the Bill and his points about oversight were well made.

Although I fully support the 0.7% commitment to aid, I do not agree with its statutory underpinning, which I believe will lead to unintended consequences. One reason why I welcome the Bill is that it helps in that respect. I fully and wholeheartedly welcome the Secretary of State’s introduction of the Bill for three principal reasons: it is modern; it will prove to be effective; and most importantly, it sets a tone of mutual respect between the United Kingdom and those countries and peoples who are the recipients of our DFID budget. The Bill will do that by harnessing the power of entrepreneurs around the world. It is those people who hold the key to so much in terms of the improvement of lives in less developed countries.

The CDC is an institution in which taxpayers can trust. We have talked about oversight and past concerns—as my hon. Friend the Member for Portsmouth South (Mrs Drummond) said, they are in the past. We should also recognise that the CDC has been around for 60 or 70 years. My right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) spoke of his experience as Secretary of State, when he saw people’s recognition of the brand’s strength. My hon. Friend the Member for Rochford and Southend East (James Duddridge), who is no longer in his place, spoke of his ministerial experience. Trust in our DFID budget is important. It is not enough for hon. Members to say, “It doesn’t matter. Everything’s fine. We all agree.” Out there in the country, there is tremendous scepticism—it is fuelled not only by the press—about the amount of money, whether it is being spent in the right way, and whether we should continue with the 0.7% commitment. Having institutions that we can trust to spend the money wisely is important. The Bill gives us that and is a big step forward in restoring trust.

The Bill is modern. As I have said, I am not knowledgeable about DFID issues in general, but I was drawn to the 2015 speech by Bono at Georgetown University, when he said:

“Aid is just a stop-gap. Commerce, entrepreneurial capitalism takes more people out of poverty than aid…of course, we know that.”

He was correct. Through the Bill, we must counter some of the pre-scepticism about the role of the private sector in developing countries in achieving some of our development goals. We must put our foot down on the accelerator of supporting the private sector through institutions such as the CDC.

I am tempted to quote Sir Angus Deaton from Bloomberg—he is the Scottish-American economist who won the Nobel prize last year. He said:

“Aid funded projects have understandably done much good…but the negative forces are always present: even in good environments, aid compromises institutions, it contaminates local politics and undermines democracy”.

The greatest bulwark against the corruption of political institutions, and one of the greatest defenders of democracy, is the opportunity for people to have a stake in something. People having a stake in a small business can preserve and protect freedoms, as well as enhance economic wellbeing. Human happiness is not solely a matter of one’s GDP; once one gets above a minimum, other issues start to matter, such as freedom and social environment.

Having that stake is also effective. The CDC and its work as a fund of funds created a distinctive expertise in investing in first-time funds in some of the most challenging investment environments across the world. We should be proud of that track record. I am grateful to my right hon. Friend the Member for Sutton Coldfield for explaining the move to direct investment. I had been sceptical, thinking it was drawing the CDC away from a pivotal part of its success, but I now better appreciate the role of direct investment, thanks to his contribution. The CDC nurtures investment talent. Growing entrepreneurship and private enterprise is not just about entrepreneurs; it is about developing people to spot the talented entrepreneurs from the less talented, and in that the CDC does a tremendous job.

That said, I have some questions and concerns about the Bill. Will the Minister explain how, if we are to give more money to the CDC, the skills within it can be developed and monitored? As many hon. Members have said, the worst thing is to pile money in if the team investing the money does not have the skillset, capacity or capability to invest it. What will we do about the investment focus areas? Contrary to other comments, perhaps, I am keen to see the investment focus move into more modern areas that provide opportunities for companies in developing countries to trade with the UK, as well as provide domestic support. Will the CDC be able to lever investors from other countries into its fund to develop further its capital for international development? Will he comment on the likely value of the CDC in the near term, given the comments by President-elect Trump on international development and the likely impact of the rising dollar on turbulence in local currencies in many developing countries?

Finally, I support the Bill because it will create mutual respect. It is time for us to recognise that development in developing countries is a matter for many UK citizens through the diaspora. There is no imbalance in that relationship: a British Nigerian sees themselves as a British subject and, on an equivalent basis, looks to their heritage in Nigeria. The work of DFID should reflect that equivalence in its treatments. The Bill is perhaps a first step towards promoting mutual respect. Other possible measures are turning back protectionist intellectual property restrictions between developed and developing worlds, using the opportunity of Brexit to lower trade barriers, and creating more and effective ways to harness remittances between ourselves and developing countries.

This is a small but important Bill because it sets the tone in the right direction. It sends a message that this organisation, which had a long history of effectiveness, went through a period of turbulence and is now back on the right course, can have the confidence of the British people as it continues to pursue its development goal for people in the poorest countries of the world.