Commonwealth Development Corporation Bill (First sitting)

Richard Fuller Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 6th December 2016 Public Bill Committees

[Kate Osamor]

Yes.

[Richard Fuller (Bedford) (Con)]

Q I apologise, Mr Streeter, for being slightly late. Graham, can I ask you a little about the potential for the CDC to attract investment from other investors? Diana was just talking about the fund of funds drawing funds in, but at the top level of the CDC are there opportunities to get sovereign wealth or other enlightened investors, perhaps high net worth individuals, to put their money alongside the increasing capital of the CDC?

Graham Wrigley: That is an interesting question. The other day someone asked us whether it would be possible to turn the CDC into an ISA or a PEP. Looking at how other DFIs are funded, the IFC has created a vehicle whereby people have invested alongside the IFC; the FMO is owned partly by some banks as well as—

[The Chair]

Q Do you want to explain some of those acronyms for the record?

Graham Wrigley: Yes. I am sorry. The IFC, which is the International Finance Corporation and is part of the World Bank, has created a programme called the AMC, which has mobilised other capital. The FMO is the Dutch equivalent of the CDC and it is partly owned by some banks. The CDC’s business model, though, is one whereby we are 100% owned by the UK Government, and that is how we see ourselves. We see ourselves as we are, as the world’s oldest development finance institution.

We have mobilised other capital mostly through the fund structures, and we are now looking at permanent capital vehicles whereby we will get investors who are interested at the project level. It has not been on our agenda for the past five years to look at raising capital at the CDC level because, as I said, we see ourselves as 100% owned—

[Richard Fuller]

Q Are you open to putting that on your agenda? If the British taxpayer is being asked to put more money in—Diana was talking about how well we are leveraging in at the project level—surely we should have a strategy. Loads of people, not only in the UK but around the world, may be willing to put their money alongside the expertise of the CDC, so will you look at that?

Rory Stewart: May I come in on that? Technically that would be a call for the Department for International Development rather than for the CDC, and it would be set out in the five-year forward business strategy produced at the end of this year. It is certainly something we can consider. Among the things that we would have to consider is the fact that we are driving the CDC very hard to make high-risk investments in some of the most difficult countries in the world. We have dropped our expectation of the level of financial return because our primary objective is development, so the type of investor who would co-invest with the CDC would have to be a specialised one, engaged, essentially, in some form of philanthropic investing. But we can certainly look at that.

[Richard Fuller]

Q I am intrigued by Mr Wrigley’s suggestion about an ISA or a PEP, which are much more about individual investors. Every day on the television we see requests for people to put money—£2 a week, £3 a week—into those sorts of things. There is a tremendous interest in this country in development work, and pride in the public support for it. Would you be interested, Minister, in taking up the indication from Mr Wrigley about an ISA/PEP model to galvanise individuals in this country to put some of their money alongside the CDC?

Graham Wrigley: May I be clear that that was not my suggestion? The CDC, as the Minister said, provides incredibly high-risk, development-driven, impact investment in the hardest countries in the world, and it is the last place I would recommend anyone put their pension—

[Richard Fuller]

Thank you for the clarification, Graham. I did not mean to misinterpret you. It was something you said. But, on the principle, Minister?

Rory Stewart: Perhaps, Mr Fuller, we can sit down and explore your idea in more detail. It is an interesting idea.

[The Chair]

Thank you. We will move on. Alison McGovern.

--- Later in debate ---

[Rory Stewart]

Q Just as a quick follow-up, Sir Paul, you have used the phrase “public risk capital”; would you expand a little bit on what you are saying about the need for public involvement?

Sir Paul Collier: Yes. These environments are risky environments, in which there are not great amounts of money to be made by private enterprise. That is why so few firms go there. So one of the purposes of public money is to bear some of the risk. I believe we should be prepared to lose some public money in incentivising firms to go to places where there is a public interest. Parliament has not, and DFID has not, authorised CDC to go that step—yet. I very much hope that that will happen. In the negotiations for the latest International Development Association round—IDA 18, which is being signed this month—the World Bank’s aid arm is authorised to lose money in International Finance Corporation investments, to get firms to go to places where there is big public interest. We are on a journey, and scaling up CDC is part of that journey.

[Richard Fuller]

Q Just on the issue of low-tax environments and tax havens, and their use by CDC, I am not sure if you were all present for the earlier evidence session, in which a question was asked about that, but essentially the point was that in a number of the locations in which CDC operates they do not have the financial infrastructure or probity to encourage either CDC or other investors around that. Do you think that CDC makes effective and good use of tax havens in its investing, and do you have any concerns about that?

Sir Paul Collier: I should say that I was instrumental in the British G8 trying to clamp down on secrecy havens and get the compulsory register of beneficial ownership, so I had a lot of fight to push this agenda forward. The use of the overseas territories for registering companies has a triple function: sometimes it is a tax haven, which is bad; sometimes it is a secrecy haven for banking, which is worse; and sometimes it is a neutral administrative centre for a lot of third-party investments. If a company from the middle east wants to invest, along with a company from India and a company from Singapore, along with CDC, they try to find a neutral territory.

[Richard Fuller]

Q So CDC is the third of those.

Sir Paul Collier: Yes, where CDC is a party in it, and often it will be—

[Richard Fuller]

Q I think we understand, but I appreciate you clarifying. Mr McDonald, from the point of view of the NAO?

Tom McDonald: We did not actually look at that in our reports—

[Richard Fuller]

Q Do you have any concerns about it?

Tom McDonald: I am aware of the CDC’s position, but we have no view as to—

[Richard Fuller]

Q If you had a concern about it, would you have looked at it?

Tom McDonald: [Pause.] I suppose—

[Richard Fuller]

Q I think one can infer that you did not have a concern, as you have done an extensive review of CDC and you did not even think about it as a topic to look at.

Tom McDonald: We did consider it at the beginning. It didn’t—

[Richard Fuller]

Oh, you did consider it. But it wasn’t a priority.

Tom McDonald: It didn’t emerge as a priority.

[Richard Fuller]

You are quite evasive, Mr McDonald, in your answers. I mean, just in the answers to the Minister you were quite evasive.

[The Chair]

I don’t think that is fair.

[Richard Fuller]

Q Specifically on this, Mr McDonald, you should have told the Committee right at the start, yes, you thought about it, but you didn’t think it of concern to look at in your inquiry, shouldn’t you?

Tom McDonald: When we start a value-for-money audit, we have to consider a huge number of issues. This was one of the ones that we considered at the beginning but didn’t undertake any detailed field work on. Apologies.

[Richard Fuller]

Thank you. You didn’t have any concerns about this really.

[The Chair]

Was that your last question?

[Richard Fuller]

It is, Mr Streeter.

[Stephen Doughty]

Q I have a follow-up question for Oxfam or War on Want. I do not agree with everything War on Want says, but a good point it made was about the differing standards that appear to be applied to the CDC as opposed to non-governmental organisations, other multilaterals and so on. The multilateral aid review is pretty robust on how we should deal with multilaterals—publish every item of spending over £500 and so on. Gideon, perhaps you could say a little more about where a double standard might be going on here in expectations.

Gideon Rabinowitz: I have made the point already: it is clear and on the record that the CDC has a bit of catching up to do on transparency. One of the reasons why it would be helpful for it to make progress on transparency is that everyone would then know a lot more about where it is investing, what it is investing in, what the justifications for those investments are, and why it thinks it is providing financial and value additionality in those investments. We would all be starting this debate from a different position if there was greater awareness of what the CDC was doing and how it is working.

The other point that we are keen to emphasise is that if there is some way in which the Bill can leverage that additional transparency to include encouragement of reporting around a wider range of development impacts and indicators to help secure our confidence that the CDC is focused on the right investments, that would be very valuable. The type of indicators that we have to report against in our programmes could be rolled out more broadly in some of those investments.

--- Later in debate ---

[Richard Fuller]

On a point of order, Mr Streeter. In some comments earlier about Mr McDonald, I used the word “evasive”, which on reflection I think was overly strong. I would not like those to remain without correction.

[The Chair]

Thank you—much appreciated, and I did notice.

Thank you, witnesses, for all your expert evidence, which has been greatly appreciated by the Committee.

Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)