Commonwealth Development Corporation Bill

Richard Fuller Excerpts

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

[Kate Osamor]

Labour Members are unswerving in our belief that the UK must continue to spend 0.7% of gross national income on overseas aid. It is imperative, however, that the Government deliver this aid in a way that is accountable, ensures value for money, and delivers on the UK’s development objectives.

Although we support the aims of the Bill—it has reached Report without amendment—we remain concerned about the lack of safeguards. In new clause 2, we ask that no increase in the limit be granted without a report or business case. New clauses 3 and 9 are at the heart of the work of the Department for International Development, which leads the UK’s work to end extreme poverty. We on the Front Bench ask the Government to make sure that the Minister is satisfied that any new investment enabled by a proposed increase in the limit will have a significant impact in reducing poverty.

The Department must be at the forefront of tackling global poverty reduction. It is vital that the bolstering of CDC’s resources does not mean a reduction in funds for emergency and humanitarian aid in places such as northern Nigeria, Yemen and Syria, and in other parts of the world that face grave humanitarian crises. Will the Minister commit to ring-fencing such funds so that those in the direst need of help are able to receive it? Long-term investment and the establishment of a sustainable economy in order to kick-start jobs and growth are, of course, crucial to any credible development programme, but a development programme should, at its core, be a coalition of long-term investment and short-term relief. The consequences of losing sight of the latter element would be grave indeed. Just as the UK has a duty to help to lay the foundations for secure, sustainable economies in the poorest areas, where investment is a risk that few are willing to take, the UK also has a duty to assist those who bear the full force of conflict, climate change and food insecurity.

As was laid out on Second Reading, transparency should be the driving force behind any shift in the focus of the aid budget. I now speak to new clauses 4 and 8. It is vital that taxpayers’ money is spent not only effectively, but as transparently as possible. To that end, it is incumbent on the Government to put in place mechanisms that ensure maximum visibility regarding where aid money is being spent, and that minimise public scepticism. We all know that transparency is something that DFID does very well indeed.

[Richard Fuller (Bedford) (Con)]

Before the hon. Lady moved on to the important issue of transparency, she was talking about balance. It is fair to make the point, is it not, that CDC’s proportion of our development budget for its type, as foreign direct investment, is lower, at 4%, than comparables such as the French FDI of 12% and the Dutch at 30%? For the sake of proportion, it is fair to say that even with that increase, the UK will still spend more on development aid than most of our European peers do, and the proportion of FDI will be smaller than it is for many of those peers.

[Kate Osamor]

The hon. Gentleman makes a valuable point, but the Bill still needs scrutiny. That is what I am laying out.

We all know that transparency is something that DFID does very well indeed. Its performance in the aid transparency index demonstrates an international gold standard in that regard. Historically, however, the same cannot be said for CDC. It is of the utmost importance that the proportion of the ODA budget that is channelled through CDC be subject to the same checks on outcomes and value for money to which DFID holds itself. New clause 4 lays down conditions that would guarantee transparent governance through an agreed framework reached with the Independent Commission for Aid Impact and CDC. Proper annual measurements of outcome would be a welcome addition to the Bill.

In relation to new clauses 1 and 8 and the issue of CDC use of separate financial centres where countries do not have sufficiently robust regulatory environments, now is the time to put on record the Government’s commitment to strengthening financial service centres in developing countries. The Opposition know that the importance of addressing and tackling CDC’s use of tax havens cannot be overstated. Although we heard assurances in Committee from Diana Noble, the chief executive of CDC, that using offshore financial centres ensures legal certainty and lessens risk for investors, far more than reassurance is needed to ensure transparency on that point. We need clear legislative safeguards, which is why the Front-Bench team will press new clause 1 to a vote. New clause 1 requires any proposal to increase the limit by secondary legislation to be accompanied by a thorough analysis of CDCs use of such centres. Where the countries in question do not have sufficiently robust regulatory environments, it is the UK’s job to ensure that those centres are made more robust.

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[Richard Fuller]

Thank you very much, Madam Deputy Speaker. I am taking absolutely to heart your suggestion that, this being the new year, we have to stand up to get the chance to speak.

I would like to start by thanking all the members of staff at the CDC for the work they do on behalf of British taxpayers and, more importantly, for the people who depend on the CDC for their employment in many of the most troubled and difficult countries in the world. Over the past few weeks, the CDC has been the subject of much ill-founded and hostile criticism, and that must make its job much, much harder, so it is important to put on record our support for the work they do in helping to achieve our country’s development goals.

I would also like to thank the Front-Bench spokesman for the Labour party, the hon. Member for Edmonton (Kate Osamor). She did a very good job in putting forward some points of scrutiny and in holding back on some of the wilder suggestions that might have been foisted on her in order to batter the Bill. The fact that historically there has been a cross-party consensus—given what she has said, it continues—on the valuable role of the CDC in achieving our development goals is important. It is a long-standing institution in our country; it is part of the British brand internationally, and she has done a great service today by focusing on the one amendment she wishes to press to a vote but pushing back on other ideas, which other Opposition Members might have asked her to press.

[Pauline Latham]

I am sure my hon. Friend is aware that the CDC last year upped its investment rate to $1.5 billion, which is the level projected for the next five years. Does that investment rate show that recapitalisation is not about some supposed new direction for the CDC but about allowing the good work it has done under its management to continue?

[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.

[Stephen Twigg (Liverpool, West Derby) (Lab/Co-op)]

In July last year, as part of our ongoing inquiry, the International Development Committee visited the Democratic Republic of the Congo. As part of that, we went to see a hydroelectric power plant in the Virunga national park, which has been part-funded by the CDC. It is reinvesting a proportion of its earnings into community development projects and protecting the environment. The plant is bringing electricity to a region in which only 15% of the population has previously had access to power, and it has the potential to generate millions of dollars each year and thousands of jobs for local communities. I cite that because such projects are impressive and demonstrate the positive impact that the CDC is already having.

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In that regard, we have tabled some very important amendments. New clause 2, in the name of my hon. Friends on the Front Bench, rightly calls for a business case. I hope that the Minister will explain further how the process around a business case will work and what scrutiny role Parliament will have in seeking to understand what is being proposed before resources are drawn down by CDC. What scrutiny opportunities will Parliament have to ask the important questions we have all raised? Crucially, can CDC absorb this funding? We are talking about a potentially very significant increase. Were we proposing such an increase for an NGO or other multilateral development institution, there were be howls of fear around its capacity, staffing and planning processes to cope with the uplift. There is a real danger—whether it be CDC or another organisation—that if the resources it receives are massively increased without that degree of planning and staffing needed to ensure that it is done effectively and transparently, the resources can be skewed and not get used in the most effective way.

[Richard Fuller]

Is not the level of investment now consistent with this increase? For CDC’s current level of activity to be maintained, it requires this level of increase, so cannot concerns about too rapid growth perhaps be overstated?

[Stephen Doughty]

I do not believe that that case has been made; there has been no justification at any point for the actual figures. To maintain CDC at its current level of activity, we need to realise that it has managed perfectly well with £1.5 billion since 1999 and has recycled it within its own budgets. If it was going up by £1.5 billion or £2 billion, I could understand it with a view to creating space for the next 10 years, but £6 billion and £12 billion seem to me to be well out of the appropriate range.