Commonwealth Development Corporation Bill

Rory Stewart Excerpts

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

Like many Members, I face questions on a regular basis, but in the past couple of weeks I have increasingly faced them about inappropriate international development spending. People come back to this issue over and over again. Last week, when I spoke to Porthcawl’s Newton women’s institute, I took many questions on spending on international development. I hope that the amendments and new clauses will allay many of the fears that my constituents have raised and set the important work that DFID does—it changes lives in some of the poorest countries in the world—as something that our constituents can all support, because they can see that it is transparent, scrutinised and accountable. Without that, I fear we face yet more weeks of negative and often false news reporting, which will undermine the credibility of the vital work that this country undertakes around the world.

[The Minister of State, Department for International Development (Rory Stewart)]

I begin by thanking right hon. and hon. Members. This has been a very instructive process. The new clauses and amendments tabled reflect what was a really good Bill Committee stage. The Government have huge respect for the intelligence, focus and precision of these amendments, and we hope that Members will see that all the concerns that have been expressed are going to be addressed through the strategy that is produced.

Before I address the new clauses and amendments in turn, I pay tribute very strongly to the Members on both sides of the House who have demonstrated their support for international development. I pay particular tribute to the hon. Member for Edinburgh East (Tommy Sheppard), who gave an extremely powerful speech in support of international development and about the importance of standing up and having the courage to defend complex and innovative projects.

[Mr Gareth Thomas]

At the outset of his remarks, will the Minister explain why the legislation has preceded the strategy?

[Rory Stewart]

I shall deal with that when discussing the second set of amendments, which relate to that directly, but first I want to continue to pay tribute to other Members of Parliament, from both sides of the House, for their support for CDC. I was struck by the support of the hon. Member for Liverpool, West Derby (Stephen Twigg) for the Virunga project in the Democratic Republic of the Congo, by the in-principle support of the hon. Member for Glasgow North (Patrick Grady), and particularly by the phrase produced by the hon. Member for Edmonton (Kate Osamor) that is absolutely right in guiding us as we go forward: we need to get the right balance between long-term investment and short-term need.

I should just recapitulate the extraordinary work that CDC has done and echo the thanks of the hon. Member for Bedford (Richard Fuller). It has been a really tough time. As Members of Parliament, we are used to being under full public scrutiny and attack. CDC works very hard and has delivered some high-quality projects, and this has been a very tough period for it.

Three types of amendments have been tabled. The first set basically says yes, we should be giving money to CDC, but we should be giving slightly less money to CDC; the second set says that there should be restrictions on the Government’s ability to give money to CDC; and the third set would restrict what CDC itself can do with the money. Essentially, the Government’s position is that these are all good points, but they are better dealt with through the governance mechanisms and the strategy than through statutory, primary legislation.

I shall deal first with amendments 1 to 5 and new clause 10, which essentially say yes, we should give money to CDC, but we should give less money to CDC. Why do we disagree with what was essentially the argument put forward by the hon. Member for Cardiff South and Penarth (Stephen Doughty)? First, because, with respect, I still believe that the hon. Member for Glasgow North is confusing the stock and the flow. The fact is that the money put into CDC will be recycled. For the sake of argument, if an investment was 10 to 12 years in length and CDC had $12 billion in the pot, it would be in a position to maintain the current rate of investment of around $1 billion a year—the money would come back and go bounce again at around $1 billion a year. It is not fair to compare what happens in a capital stock used for equity debt investment with the annual expenditure of a Department.

Secondly, there is the question of demand, which the hon. Member for Cardiff South and Penarth referred to. The demand is almost limitless. It is calculated that $2.5 trillion is going to be required annually by 2030 to meet the sustainable development goals, which is why the relevant question is not the demand for the money but the question of the absorptive capacity, which the hon. Gentleman raised.

Thirdly, the Bill is enabling legislation that sets a ceiling—a maximum limit; it is not saying, “This is the amount of money we are going to give.” Fourthly, the design is for the money to go into patient, long-term investment. The three-year review proposed in one of the amendments simply will not work for investments that are intended to be, on average, 10 years in length.

[Mr Ivan Lewis]

If the Bill is passed and its consequences are added to the fact that more than 25% of DFID’s spending currently goes through other Government Departments, the result will be that more than 50% of our aid will no longer be spent through DFID. Does it not raise serious questions about the Government’s intentions for DFID to remain as a stand-alone Department with a place at the Cabinet table if more than 50% of its spending will be spent by CDC and other Departments? No other Government Department would come to the House and ask for more than 50% of its resources to be spent via other means.

[Rory Stewart]

There are two distinct points there: DFID’s spending and the proportion of the spending. The first thing to understand is that CDC is 100% owned by the Department for International Development, which is one reason why a number of these amendments are not appropriate. On the proportion of money spent, as my hon. Friend the Member for Bedford (Richard Fuller) eloquently pointed out, the small increase that we are talking about in terms of the annual amount that CDC will be able to invest will still be much smaller than comparable organisations in Holland, Germany and France. It will be about a third of the amount that the Overseas Private Investment Corporation can invest—OPIC is just one of the US’s development finance institutions that is able to invest—and only about a sixth of what the International Finance Corporation puts out a year. We are not talking—comparatively, globally—about a large amount of money. We are talking about something in the region of 8% at maximum—even if we hit the maximum of official development assistance—and the other 92% will continue to go in the normal way through non-governmental organisations and organisations such as UNICEF for the objectives that we pursue.

[Stephen Doughty]

It would be helpful if the Minister clarified the time period over which this increase, if it was granted, would be played out with CDC. The explanatory notes to the Bill say very clearly that the £6 billion is intended to be used in this spending review to accelerate CDC’s growth. Is that his view, and what about the £12 billion? Is that spread over a 10-year period, a 20-year period or a five-year period? Can he give us a ballpark figure?

[Rory Stewart]

Let me clarify this. The £6 billion represents an additional £4.5 billion, because CDC already has £1.5 billion. We anticipate that that would cover the next five-year period to enable CDC, at maximum—we do not expect it to draw down the maximum amount—to be able to make the kinds of levels of investment that it made last year. The next £6 billion—it is not an additional £12 billion, but an additional £6 billion—would apply to the next five-year period. We are looking at a steady state allocation, which might, at maximum, allow CDC to meet the kind of expenditure levels that it gets next year.

Let me move on now to new clauses 2, 5 and 6 and amendment 6. Essentially, these are a series of measures that restrict the power of the Government to give money to CDC. They do that either by saying that they should not be able to boost the amount of money that CDC has through delegated legislation, or through asking for a strategy to be put in place before the money is disbursed. Again, these measures are not appropriate. The role of Parliament as specified for CDC in the Overseas Resources Development Act 1948 and the Commonwealth Development Corporation Act 1999 quite correctly relates to two things: the setting up of this body and the creation of a cap on the amount of money that this body is given.

However, it is not normal for Parliament to get involved in the detailed implementation of specialist business cases. That is true in everything that the legislature does in its relationship to the Executive. The money allocated to our Department in general through the Budget, which this House votes on, is then delegated to civil servants and to the Government to determine how it is spent. The same will be true here, but the strategy that will come forward will reflect very closely the arguments that have been made at the Committee stage and on Report. We will continue to remain in very close touch with Members of Parliament, and we will be judged by our ability to deliver, through that strategy, something that will address those concerns—above all, through the development impact grid and the development impact assessments on the individual business cases, which will address these particular issues.

[Mr Gareth Thomas]

Will the Minister specifically comment on the use of tax havens by CDC, and will he and other Ministers in his Department echo previous statements by the Secretary of State and instruct CDC to desist from using tax havens for future investments?

[Rory Stewart]

That is an invitation to move on to the last group of amendments, which comprises new clauses 8, 9, 3 and 7, one of which relates to the issue of offshore financial centres. These are restrictions on what CDC itself can do. There is a suggestion that there should be an annual obligation on ICAI to produce reports on CDC. Then there are restrictions on the routes through which CDC can put its money, and there are attempts through the new clauses to restrict the sectors and the countries in which CDC can invest. Let me take them in turn.

On ICAI, we are very open to scrutiny. The CDC has been scrutinised by the International Development Committee, the National Audit Office and the Public Accounts Committee. We expect it to be scrutinised in that way and to be scrutinised by ICAI. We welcome scrutiny from ICAI. However, we do not think it is for the Government to impose obligations on an independent regulator. It should be for ICAI to determine its priorities and where it thinks the problems are, and to be able to apply its scrutiny accordingly. It may determine that an annual scrutiny of 10-year investments does not make sense and decide to do it more frequently, but that should be for ICAI, not for statutory legislation of this House.

--- Later in debate ---

[Rory Stewart]

I beg to move, That the Bill be now read a Third time.

I would like to begin by reiterating my thanks and the tribute we owe to right hon. and hon. Members on both sides of the House for their shared belief in the importance of international development. At the absolute core of the Bill is our moral obligation to some of the very poorest and most vulnerable people in the world. I pay tribute to right hon. and hon. Members for the important points raised, which will be reflected in the new strategy as it comes forward.

I will briefly lay out once more why believe that this is a good Bill. At its core is our understanding that there is extreme poverty and suffering in the world and that economic development will play an important part in addressing it. There is enormous demand in the poorest countries of the world for well-paid jobs. It is one of the first things that any of us discover when we go to Africa and other developing regions. As the Chairman of the International Development Committee, the hon. Member for Halton (Derek Twigg) said, 90% of the growth and employment in the poorest countries of the world is currently driven by the private sector. As he also said, Africa requires 15 million more jobs a year. Every one of those well-paid jobs is an opportunity for a family to deliver the stuff we all care about—for parents to provide education for their children and the healthcare their families need. Above all, it is through the revenue these jobs generate for Governments that a long-term sustainable future can be maintained. That is what allows a Government to pay for their education and healthcare systems and, if there is an earthquake or some other natural disaster, to access the resources to address it. In the end, the only long-term sustainable path is through the generation of that economic development and growth.

Why CDC? We have chosen CDC because it brings together two important things: on the one hand, the rigour of the private sector and its ability to work out whether investments make sense—are there genuine markets for these goods; can these jobs really be sustained? —and, on the other hand, the values of the public sector. The latter are what ensure we go into the hardest countries in the world—for example, that we do renewable energy in Burundi or the Central African Republic or get into Sierra Leone when Ebola happens—and, above all, ensure that investments are not about short-term commercial returns but are patient, long-term investments of the kind that the commercial sector will often not deliver.

Why CDC? Well, having been established in 1948, it is the longest-serving, as well as the best, development finance institution in the world. It proved it in the 1960s, through its investments in Kenya, and, much more recently, since 2012, with its fantastic reforms, which we have talked about at all stages of the Bill, on salaries, transparency, offshore financial centres, the geography of investments and the sectors in which we invest, all of which is summed up in the development impact grid. That is what answers a lot of the points made in the discussion today, and that is what allows us to make sure that every investment focuses on the areas that generate the most jobs and on the countries where investment is most difficult, where the least capital is available and where GDP per capita is lowest.

We can see this in the real world: in the 17 million indirect jobs created by CDC; in its investments in places such as Burundi and the Central African Republic; in the hydroelectric investment in eastern Democratic Republic of the Congo—not an easy place to invest in—which the Chairman of the International Development Committee referred to; and, actually, in the Globeleq investment, where CDC’s investment will help to generate 5,000 MW of power in Africa over the next decade. To put the latter in context, Africa managed only 6,000 MW over the previous decade, so that is almost the entire generation of Africa over the previous decade being driven by a single company supported by CDC. Moreover, there is value for money for the taxpayer because the money is recycled, and the need is absolutely there, as we can see from the fact that we need $2.5 trillion of investment by 2030.

In conclusion, our Department will do many other things besides CDC. Much of the money will continue to flow through NGOs such as Save the Children, CARE and Oxfam. Many of our investments will be with valued partners such as UNICEF. More than 90% of the money we will spend through overseas development assistance will continue to go to health, education and humanitarian assistance. Within that, not all the money in economic development will go through CDC. It will also go through our investments that will take place through support to Governments and technical assistance. However, that CDC investment, combining the rigour of the private sector, the focus on markets and the values of the public sector, reflects the values of the British public who care about poverty and show in their own philanthropic giving how much they care about some of the most vulnerable people in the world. We are showing our respect for the British people by pushing forward with a proven model that will provide the sustainable growth required to address some of the most vulnerable and poorest people in the world. This is our moral obligation.