All 8 contributions to the Commonwealth Development Corporation Act 2017

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Wed 16th Nov 2016
Points of Order
Commons Chamber

1st reading: House of Commons & 1st reading: House of Commons
Tue 29th Nov 2016
Commonwealth Development Corporation Bill
Commons Chamber

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons
Tue 6th Dec 2016
Tue 6th Dec 2016
Tue 10th Jan 2017
Commonwealth Development Corporation Bill
Commons Chamber

Programme motion: House of Commons & 3rd reading: House of Commons & Report stage: House of Commons & Programme motion: House of Commons
Wed 11th Jan 2017
Commonwealth Development Corporation Bill
Lords Chamber

1st reading (Hansard): House of Lords
Thu 9th Feb 2017
Commonwealth Development Corporation Bill
Lords Chamber

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thu 23rd Feb 2017
Royal Assent
Lords Chamber

Royal Assent (Hansard) & Royal Assent (Hansard) & Royal Assent (Hansard) & Royal Assent (Hansard) & Royal Assent (Hansard) & Royal Assent (Hansard)

Points of Order

1st reading: House of Commons
Wednesday 16th November 2016

(7 years, 8 months ago)

Commons Chamber
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13:21
Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP)
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On a point of order, Mr Speaker. On two occasions during Prime Minister’s questions, the Prime Minister suggested that the Scottish National party campaigned during the independence referendum to leave the European Union single market. That is untrue. We campaigned to remain in the EU, including the single market. That is not a matter of speculation or debate; it is a matter of fact. What powers do you have, Mr Speaker, to ensure that no one in this House, including the Prime Minister, can mislead the House, however inadvertently, when the facts are clear?

John Bercow Portrait Mr Speaker
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I am grateful to the hon. Gentleman, both for his point of order and for his characteristic courtesy in giving me advance notice of it. I have heard what he has said and my response is as follows: it is the responsibility of each and every Member of the House faithfully to communicate what he or she regards as facts and to take responsibility for their own statements. I hope that the hon. Gentleman will understand that I do not think that it is right for me to be drawn into the matter any further. I understand entirely what he has said. I think that I also understand the Prime Minister’s position in relation to Scotland’s status within the United Kingdom and what the alternative to that status might entail. Therefore, notwithstanding the hon. Gentleman’s insistence that the matter is a straightforward one of facts, as with many things the situation lends itself to a number of different interpretations. If any Minister, including the Prime Minister, thinks that she has erred and needs to correct the record, it is incumbent on the Member to do so. Meanwhile, the hon. Gentleman can go about his business with an additional glint in his eye and spring in his step, in the safe knowledge that he has articulated his concerns and that they are on the record, both for the people of Scotland and for the world to see.

John Pugh Portrait John Pugh (Southport) (LD)
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On a point of order, Mr Speaker. Today’s calendar of business shows no Government business for Monday 21 November. Rumour has it that it will be the Higher Education and Research Bill and the Clerks have been told that the amendment deadline is tonight. Members are gifted, but they are not psychic. Can you do anything, Mr Speaker, to clarify what is clearly an unsatisfactory situation?

John Bercow Portrait Mr Speaker
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I am grateful to the hon. Gentleman. Members are gifted, but, as he rightly observes, they are not psychic. However, I hope that he will not take great umbrage if I remind the House and communicate to the world the fact that he does at least have the advantage of being a noted philosopher. That may aid him in seeking to decipher matters, or it may not avail him. We shall see.

I had not heard bruited what apparently has winged its way to the hon. Gentleman about the likely business for next Monday. Admittedly, I had not inquired about that business. It may be so. In general terms, it is clearly desirable for the House to have the maximum possible notice of upcoming business. It is, in all likelihood, going to fall to the Leader of the House at business questions on Thursday to specify Monday’s business.

What I will say to the hon. Gentleman in respect of the point about the deadline for amendments is this: I, from the Chair, always seek, within such powers as I have, to facilitate the House. If the House ends up being disadvantaged by lack of notice, it is open to the Chair to consider, exceptionally, manuscript amendments. I make the point and I am sure that the hon. Gentleman, who is a sagacious and perceptive fellow, will have got it.

Kevin Foster Portrait Kevin Foster (Torbay) (Con)
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On a point of order, Mr Speaker. Could you advise me on how it would be in order to put on the record the widespread anger felt in Torbay at the theft over the weekend of poppy boxes belonging to the Torquay branch of the Royal British Legion? While thousands attended remembrance services, some light-fingered thieves stole boxes that had been positioned in a number of shops in the centre of Torquay. It is the actions of the thousands of people who supported the appeal, the hundreds of people who helped to with the collection and the people who diligently run the Torbay poppy appeal that should be remembered, not the actions of a handful of thieves.

John Bercow Portrait Mr Speaker
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That is not a point of order, as the barely concealed grin of the hon. Gentleman in raising the matter eloquently testifies. Nevertheless, what I will say to the hon. Gentleman, who is certainly a quick learner in the House, because he entered only last year, is that, as he knows, he has now found his own salvation. I have a feeling that his clarification in the Chamber may well communicate itself, or be communicated, to media outlets across Torbay and possible elsewhere.

Patrick Grady Portrait Patrick Grady (Glasgow North) (SNP)
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On a point of order, Mr Speaker. At Prime Minister’s Question Time, the Prime Minister alluded to a written ministerial statement to be published later today on the fate of hundreds of UK citizens—in other words, on whether or not the Chagos islanders will finally be granted their right to return. That written statement has yet to make an appearance, but the Government’s decision has been reported all over the morning papers, and apparently that decision is to maintain the 40-year injustice. Is it in order for us to read about Government policy in the papers before it has been reported to this House? What opportunities are available to us to question Ministers on such disappointing decisions?

John Bercow Portrait Mr Speaker
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The short answer is that it is up to the Government to decide whether the matter warrants an oral statement or a written statement, and that is not for the Chair to judge. What I will say to the hon. Gentleman, however, is that it is highly undesirable for there to be a significant time lag between public disclosure and parliamentary opportunity. He will know that other business has so far occupied us today. But that is true of today. The written statement that he legitimately anticipates has not yet been made. Doubtless it will be, and that may well lead Members to want to raise the matter in coming days, particularly if there has been no substantial parliamentary discussion of it beyond the brief exchange at Prime Minister’s questions. I am sure that the hon. Gentleman will be ready to explore what utensils are available to him.

Cat Smith Portrait Cat Smith (Lancaster and Fleetwood) (Lab)
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On a point of order, Mr Speaker. Are you able to give me any advice regarding incidents in my constituency? I have been contacted by a number of my constituents regarding letters that they have received from the hon. Member for Morecambe and Lunesdale (David Morris) about the Boundary Commission’s proposals. Some of my constituents have been left confused, given the subject matter, believing that their MP has already changed under boundary changes. Given that the hon. Gentleman gave me no notice of his activities in my constituency, may I seek your guidance, Mr Speaker?

John Bercow Portrait Mr Speaker
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I am grateful to the hon. Lady for her point of order, and for notifying me in advance of her intention to raise it. Moreover, I gather that she did notify the hon. Member for Morecambe and Lunesdale (David Morris), who is in his place. He can hear what I have to say, and we can judge whether it requires any further comment today.

What I will say to the hon. Lady is that this is not a point of order relating to conduct in the Chamber. That said, as Members who have been here for a long time know, the Speaker will always encourage Members to observe the usual courtesies in informing others if they intend to visit, for political purposes, other colleagues’ constituencies, and they should do so in a timely way. I think the point about visiting is also applicable to communication with another Member’s constituents. The truth of the matter is that, especially in the run-up to potential boundary changes, there have often been, if I may put it this way—I do not mean this disobligingly—spats of this kind. It is much better if such spats are avoided, and the whole House and all its Members benefit if these courtesies are observed.

If the hon. Gentleman particularly wants to say anything—I am not sure that the nation needs to hear it—as I have heard from the hon. Lady, I am happy briefly to hear him as well.

David Morris Portrait David Morris (Morecambe and Lunesdale) (Con)
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Further to that point of order, Mr Speaker. The nation may not want to hear this, but my constituents will do. I have not written to the hon. Lady’s constituents by name or used parliamentary paper, resources or a portcullis emblem. I also did not deliver any of the letters personally, as I was away on parliamentary business out of the country at the time. I have therefore not breached any protocol. As far as the views that have been expressed are concerned, they are the views of my constituents and I am representing them as their Member of Parliament. Their responses to the letter concur with the opinion of both sides, which is that we should keep Morecambe and Lancaster separate.

John Bercow Portrait Mr Speaker
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I am grateful to the hon. Gentleman for his response. I note what he says about not using parliamentary notepaper and so on. We are certainly most grateful for that, because that would have been very wrong. I thank him for being characteristically up-front.

What I would say to the hon. Gentleman, for the benefit of all Members, is that we have to take responsibility for conduct in our name by our staff or volunteers who are, or might reasonably be thought to be, acting on our behalf. Beyond that, I have no wish to intrude into this matter, and I hope that people of good will who represent neighbouring constituencies and who are doing their honest best can try to observe these courtesies. I have a sense that that is what the public would expect of us, or—let me put it this way—that that is what the public would like to be able to expect of us.

John Bercow Portrait Mr Speaker
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Mr Turner, your chuntering from a sedentary position, “Say sorry!” does at least represent a welcome change from your usual sedentary utterance, which several times a week, as you know, tends to be: “Shocking! It is a disgrace.” That does not render it any more orderly, however. We will leave the matter there for now, and I thank colleagues for what they have said.

Bills Presented

Commonwealth Development Corporation Bill

Presentation and First Reading (Standing Order No. 50)

Secretary Priti Patel, supported by the Prime Minister, Mr Chancellor of the Exchequer, Mr David Gauke, Rory Stewart and James Wharton, presented a Bill to amend the amount of the limit in section 15 of the Commonwealth Development Corporation Act 1999 on the Government’s financial assistance.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 93) with explanatory notes (Bill 93-EN).

Clean Air Bill

Presentation and First Reading (Standing Order No. 57)

Geraint Davies presented a Bill to require the Secretary of State to set, measure, enforce and report on air quality targets; to require that vehicle emissions targets and testing reflect on-road driving conditions; to make it an offence to remove permanently devices that reduce vehicle emissions; to provide powers for local authorities to establish low diesel emissions zones and pedestrian-only areas; to restrict the use of diesel vehicles in urban areas; to make provision about the promotion of electric and hydrogen powered vehicles and for the development of sustainable public, private and commercial transport by road, rail, air and sea; and for connected purposes.

Bill read the First time; to be read a Second time on Friday 16 December, and to be printed (Bill 94).

Commonwealth Development Corporation Bill

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

(7 years, 7 months ago)

Commons Chamber
Read Full debate Commonwealth Development Corporation Act 2017 Read Hansard Text Read Debate Ministerial Extracts
Second Reading
14:02
Priti Patel Portrait The Secretary of State for International Development (Priti Patel)
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I beg to move, That the Bill be now read a Second time.

The Bill will raise the limit on the total cumulative level of financial support that can be provided to the CDC, the UK’s development finance institution. The CDC was founded by Clement Attlee’s Labour Government in 1948 and is the world’s oldest development finance institution. It is wholly owned by the UK Government and does not have private shareholders. Its mission is to tackle poverty by creating jobs and driving inclusive economic development for people in the poorest countries in Africa and South Asia.

The CDC exists to help to address what economists call a “market failure”: the desperate shortage of investment in the world’s poorest countries because, in part, of a misperception of the risks of doing business there. It addresses that market failure by providing investment capital to support the building of businesses throughout Africa and South Asia. Its explicit mandate is to drive labour-intensive growth by creating jobs and opportunities for working people. Since its creation, the CDC has been supported by all successive Governments—Labour, coalition and Conservative—because of its core purpose of tackling poverty through sustainable economic growth. I present the Bill in the hope that that spirit of cross-party support will continue. I look forward to colleagues across the House offering the fullest possible scrutiny, and I welcome the opportunity to constructively address any points that Members raise.

In recent years the UK has led the world in efforts to eliminate extreme poverty. The previous Labour Government made an important contribution, for example, in relieving the unpayable debts of the world’s poorest countries. Under David Cameron’s leadership, the UK become the first G7 country to meet its promise to spend 0.7% of our gross national income on international development. The current Prime Minister has made it clear that the Government will honour that commitment and intensify our leadership on key global issues such as tackling modern slavery.

The Government have also rightly made clear and bold manifesto commitments to tackle poverty directly.

Keith Vaz Portrait Keith Vaz (Leicester East) (Lab)
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I warmly congratulate the Secretary of State on her appointment to the Cabinet in this very important job—I know that she has been doing it for a while, but this is my first opportunity to do so. Later, she will meet the officers of the all-party group on Yemen. Will she confirm that the refocusing of funds in support of the CDC will not affect the Government’s commitment to the provision of emergency and humanitarian aid that she and her Minister of State have spoken of and given to Yemen over the past few years, as did her predecessor, the right hon. Member for Sutton Coldfield (Mr Mitchell), who is also in the Chamber?

Priti Patel Portrait Priti Patel
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I thank the right hon. Gentleman for that welcome and for his remarks. He is right: successive British Governments have been very clear not just about their commitment to the CDC but about our collective focus on humanitarian need at times of crisis. I look forward to seeing the delegation from the all-party group later today, when I will of course speak more about the work that the Government are doing in Yemen, where we are seeing the most awful and horrendous catastrophe. I will speak to the right hon. Gentleman later in more detail about the type of interventions and the support we are providing to those trapped in that dreadful conflict.

By 2020, we will save 1.4 million children’s lives by immunising 76 million children against killer diseases. We will help at least 11 million children in the poorest countries to gain a decent education, improve nutrition for at least 50 million people who would otherwise go hungry, and help at least 60 million people get access to clean water and sanitation. We will lead the response to humanitarian emergencies. We will lead a major new global programme to accelerate the development of vaccines and drugs to eliminate the world’s deadliest infectious diseases, while investing to save lives from malaria and working to end preventable child and maternal deaths. We will also continue the inspirational leadership of my predecessor, my right hon. Friend the Member for Putney (Justine Greening), on women and girls.

Those commitments stand, along with our commitment to human development and directly meeting the needs of the world’s poorest, which is absolute and unwavering. Indeed, the first major decision I took in my role as Secretary of State for International Development was to increase the UK’s contribution to the Global Fund to Fight AIDS, TB and Malaria from £800 million to £1.1 billion. That will help to save millions of lives in the years ahead.

Stephen Doughty Portrait Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
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The Secretary of State is outlining a long list of the Department for International Development’s achievements and her plans for the future, and she is praising her predecessors. Can she explain what has happened since she called for the Department to be scrapped and since she told the Daily Mail this year that most of our aid budget was being “stolen” and “squandered”? Those are her words.

Priti Patel Portrait Priti Patel
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The hon. Gentleman has just heard not only what DFID has done in the past under two outstanding Secretaries of State—my predecessors, my right hon. Friends the Members for Sutton Coldfield (Mr Mitchell) and for Putney—which is a legacy that we will stand by in our manifesto commitments, but—[Interruption.] If the hon. Gentleman wants an answer, he should listen to my response.

I have already said that we will lead on major global programmes to accelerate the development of vaccines and drugs to eliminate many of the world’s diseases. The hon. Gentleman has also heard me respond to the right hon. Member for Leicester East (Keith Vaz) on the question of humanitarian crises and many of the immediate needs to which we are responding. Indeed, the hon. Gentleman will be aware that the very Select Committee of which he is a member is witnessing at first hand how aid is being spent in crisis situations, in refugee camps, and providing opportunities and, frankly, a lifeline to people around the world who are suffering. That is exactly what my Department is doing and what I am doing as Secretary of State, and I am disappointed that the hon. Gentleman—[Interruption.] This is not about briefing the press, and, if I may say so, I think the hon. Gentleman’s remarks do a huge disservice to the international development community. He is sitting there smugly smiling, but it is an international community that comes together—[Interruption.]

Eleanor Laing Portrait Madam Deputy Speaker (Mrs Eleanor Laing)
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Order. The hon. Gentleman knows that he should not make remarks from a sedentary position, but if he is going to make remarks from a sedentary position, he should not use the word “you” because he should not be accusing me of anything.

Priti Patel Portrait Priti Patel
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It is not just in times of crisis that the international development community comes together. My Department is championing economic development and investing in people and human capital. I appreciate that the hon. Gentleman may not like that and may disagree with it, but that is the core purpose of the Department.

Stephen Doughty Portrait Stephen Doughty
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The Secretary of State is making some very strong statements. Of course I do not deride the work of the Department; I think it is doing a fantastic job. She has outlined many of the positive things it is doing and the humanitarian aid it is providing to refugees, but why did she say that most of the Department’s budget was being stolen and squandered, without any justification?

Priti Patel Portrait Priti Patel
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As the hon. Gentleman knows from my appearances at the Select Committee, I have clearly stated that I will drive transparency and accountability in the Department. There have been examples. I am sorry that on an issue as important as not only saving lives but transforming lives and investing in people, he chooses to take such a narrow focus.

Tom Brake Portrait Tom Brake (Carshalton and Wallington) (LD)
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On the subject of the Bill, does the Secretary of State recognise that there are concerns that the CDC is not in fact targeting the poorest countries? Although private sector investment is very welcome, surely it needs to be just as targeted and as effectively monitored as investment in non-governmental organisations and other ways of boosting aid.

Priti Patel Portrait Priti Patel
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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 Portrait Richard Fuller (Bedford) (Con)
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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 Portrait Priti Patel
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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.

Fiona Bruce Portrait Fiona Bruce (Congleton) (Con)
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Does my right hon. Friend agree that with regard to the concerns expressed about the CDC, the gravest relate to the period when the Opposition were in government—for example, the excessive levels of pay to CDC staff? Has the Conservative Government not got a grip of that, and is the CDC not much more efficient following the review in 2012 by the then Secretary of State?

Priti Patel Portrait Priti Patel
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I thank my hon. Friend for her comments and observation. As I outlined at the beginning, the CDC is an established organisation that we should all be proud of. Clearly, there was a period before 2010 when the management of the CDC was, to put it mildly, not doing what it should have been doing. There were concerns about excessive pay and the lack of focus on development outcomes. Since 2010, when DFID led the way forward in working with the CDC, we have seen great progress.

Tom Brake Portrait Tom Brake
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Will the Secretary of State give way?

Priti Patel Portrait Priti Patel
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I must make progress.

As I mentioned earlier, contrary to some of the reports that we have seen in the past week, the future of the CDC will absolutely not come at the expense of DFID’s existing work on humanitarian support, human development and directly tackling what might be called the symptoms of poverty—disease, hunger and preventable suffering.

We all have a deep responsibility to tackle the underlying causes of poverty. That is why successive Governments have rightly focused increasingly on helping countries to grow, lifting the poorest out of poverty forever. That means creating jobs for the world’s poorest people, and driving the structural economic change that will end poverty permanently. To do this, we need to build the broadest possible coalition to fight poverty.

That includes NGOs and civil society organisations from the UK and from developing countries, which do such vital work. DFID’s recent civil society partnership review clearly stated the Government’s desire to work even more collaboratively with them in pursuit of these objectives.

Eliminating poverty also means working in partnership with multilateral agencies such as the Global Fund, with other bilateral development agencies, and directly with Governments in developing countries.

Mark Menzies Portrait Mark Menzies (Fylde) (Con)
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An example of that was the event that I and the Minister of State, Department for International Development, my hon. Friend the Member for Penrith and The Border (Rory Stewart) went to last week with His Royal Highness the ambassador of Saudi Arabia. DFID is working with wealthy donor countries to unlock enormous potential across the middle east. If not for the leadership shown by DFID, some of that work would be undone.

Priti Patel Portrait Priti Patel
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I thank my hon. Friend for his comments. As he knows, a great deal of work is taking place with other Governments, helping them to develop their own capacity for aid, so that they can work more effectively bilaterally and with multilateral agencies. At a time when we see a great deal of conflict in that region, we are working on an agreement with some countries in the Gulf and the middle east on what their own development bodies and agencies can do to support humanitarian relief as a result of crises taking place on their doorstep.

Today I want to explain why CDC is a vital partner in our efforts to end poverty, for it is widely recognised that aid on its own will not eliminate poverty. No country can defeat poverty and leave aid dependency behind without the prospect of a functioning economy, sustainable economic growth, jobs, trade and investment. Development investments via CDC complement our other work and allow us to fight the scourge of poverty on all fronts. In the world today, faltering economic growth and rising young populations have exposed the chronic need for jobs and better opportunities. At present, most developing countries are not growing fast enough or industrialising fast enough to leave poverty behind.

The additional financing needed to achieve the UN sustainable development goals by 2030 is estimated at $2.5 trillion every year, but current investment levels are less than half that. As the UN and many international development banks have made clear, much of this finance will need to come from the private sector. The chair of the OECD’s development assistance committee, Erik Solheim, has stated:

“There is no longer a dispute about the need for private sector involvement in development. The role of DFIs”—

that is, development finance institutions—

“is to connect development aid with private investment, and explore how we can employ market forces in the world’s most challenging places.”

Dr Dirk Willem te Velde, head of the international economic development group at the Overseas Development Institute, writing in the Financial Times yesterday, said:

“Statistical evidence to be published by the Overseas Development Institute soon suggests that a £10bn increase in exposure of DFIs in Africa would raise average incomes and labour productivity by a quarter of a per cent, which is actually slightly above the average impact of aid overall. Most jobs are created by the private sector, and working with the private sector to create jobs is vital for inclusive growth.”

We know that that will be difficult in the poorest, most fragile and conflict-affected states. These are the hardest markets, where businesses will not go on their own because it is perceived as too risky, yet it is in those very places that jobs and economic opportunities are so desperately needed. CDC does exactly that by creating jobs, stimulating growth and supporting local business.

There are currently only a few investors in the world with the skills and risk appetite to create jobs and opportunities in the most difficult frontier markets. CDC is one of those investors. CDC uses its expertise and capital to support over 1,200 businesses in more than 70 developing countries to grow and create jobs. It is a great British success story that has a long history of creating jobs in the developing world.

This is not just about abstract numbers; importantly, it is about investing in people. The life-changing impact of CDC’s investments can be seen in countries such as Sierra Leone, where the UK has supported businesses to get up and running to drive forward the country’s recovery following the devastating Ebola crisis, which killed thousands and damaged the economy. In the words of Henry Macauley, Sierra Leone’s Energy Minister, whom I met just three weeks ago:

“CDC has played an important role in supporting key businesses during the Ebola crisis and continues to do so in Sierra Leone as the economy now recovers. They are an increasingly important investor in the nation’s power sector and I’ve found them to be a great and promising private sector partner.”

The life-changing impact of the CDC’s investment can also be seen through people such as Yvonne, in Uganda. Thanks to a CDC-supported loan, she could buy a vehicle, a scrubbing machine and a vacuum cleaner for her cleaning business and attend training courses. In just 10 years, she had expanded her business from one person to providing jobs for 175 people. It is people such as Yvonne who we should have in our minds as we debate the Bill.

In the past, legitimate concerns were raised about some aspects of the CDC’s performance. That is why, in recent years, the CDC has modernised and transformed its approach. In 2010, DFID undertook a public consultation and an extensive review of the CDC, and began moving the CDC in a new direction, including by bringing in a new board and chair and hiring a new chief executive. Under its new leadership, the CDC has transformed itself. Before 2011, it operated a financial-return-first strategy, with no screening tool to help filter out insufficiently developmental investments.

Keith Vaz Portrait Keith Vaz
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The Secretary of State may have answered this question, or she may be coming on to answer it, but there were concerns about some of the salaries paid to senior officials at the CDC and about the monitoring of administrative costs. Given that we support this organisation, which is moving in the right direction, is she satisfied that there is proper monitoring of that aspect of its work?

Priti Patel Portrait Priti Patel
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That is an important point. Back in 2009, the CDC’s then chief executive was criticised quite extensively for the level of their salary and other pay, which stood at £970,000. The current chief exec’s total remuneration is now limited to a maximum of £300,000, and that is because the remuneration policies have changed dramatically since 2012. It is also important to reflect on the fact not only that pay across the organisation has been reduced by over 40%, but that compensation is no longer benchmarked, as it was prior to the changes in 2012, against the private equity industry. This is not a private equity firm at all. The CDC is now benchmarked against other development finance institutions, and any bonuses are based on the CDC’s development performance and returns, whereas, previously, they were based solely on financial performance. That has now changed.

Priti Patel Portrait Priti Patel
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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 Portrait Richard Fuller
- Hansard - - - Excerpts

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 Portrait Priti Patel
- Hansard - - - Excerpts

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.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

I fully support what my right hon. Friend is saying. This is a progressive, cross-party movement, and this is not a radical piece of legislation. Decisions have not been made to spend the full £6 billion straight away, but if the Department did commit to spend right up to that limit and fund it each year up to 2020, it would still represent only 8% of the Secretary of State’s budget, so 92% of aid would be spent in a more traditional way. This is a progressive move, not a radical change.

Priti Patel Portrait Priti Patel
- Hansard - - - Excerpts

I thank my hon. Friend for his comments. He is absolutely right about the 8% figure. It is also worth pointing out, putting this into context, that total aid spending over the course of this Parliament is likely to be £60 billion.

Some inaccurate reports have suggested that this Bill somehow paves the way for the entire aid budget to be given to the CDC in perpetuity. That is clearly not the case. Increasing the capital limit does not guarantee that we will use our resources in this manner, or commit us to any increases in capital. My priority is to ensure that we achieve maximum value for money with UK aid. The provision of any new capital to the CDC will require a full and detailed business case that will show how further investment will continue to achieve value for money, have a clear development impact for the poorest, and deliver in the UK’s national interests. Furthermore, it is worth noting that because CDC investments generate a return, any additional money we give to the CDC is not spent once and then lost; it contributes to the CDC’s capital, which is continually reinvested now and in future years. Importantly, therefore, it remains an asset that ultimately belongs to the UK taxpayer.

This Bill is fundamentally about people: improving life prospects by helping individuals to find work and earn money, so that they can feed their families, send their children to school and put clothes on their backs; empowering girls and women to determine their own future; and giving people in the poorest and most marginalised places hope, so that they do not feel the pressures to migrate or turn to some of the extreme causes that we see around the world. The CDC is just one part—a relatively small part in the context of overall development spending—of our crucial investment in developing countries. We will continue to invest in our life-saving, life-changing health, education and sanitation programmes, meeting our manifesto commitments. Ultimately, though, this is about jobs, growth and enterprise that will defeat poverty for good. It is right that Britain leads the world to tackle poverty across the world given that we still have more than 1 billion people living on less than a dollar a day. The UK Government are playing a leading role in building a more prosperous world. This Bill is the right thing to do for the poorest people in the world and for British taxpayers, and I commend it to the House.

14:33
Kate Osamor Portrait Kate Osamor (Edmonton) (Lab/Co-op)
- Hansard - - - Excerpts

The vast majority of Members of this House support the UK’s guarantee to spend 0.7% of gross national income on international development. This view is supported by the people of this country, who understand that our aid programme makes a significant contribution to creating peace and economic sustainability around the world and to building a more secure and stable international community. Our aid budget makes a huge difference to the lives of hundreds of thousands of the world’s poorest people. Underpinning the faith that the British people have in our aid programme is the knowledge that the money that is spent in developing countries—taxpayers’ money—is transparent; that the funds are provided for projects that have clear objectives and tangible outcomes; and that the money goes directly to source, with no middlemen, no creaming off the top, and no profiteering from people’s poverty.

We will always welcome any measures that aim to improve the quality of life of those less fortunate than ourselves. This Bill, with the right safeguards, could achieve that. The job of Opposition Members, and of the whole House, is to ensure that some of the previous excesses and failures of the Commonwealth Development Corporation are not repeated. I say that as a friend of the CDC. It was the post-war Labour Government of Clement Attlee who created the forerunner of the CDC. Much of the work of the CDC is vital, and we should of course work to strengthen its ability to support businesses and create jobs around the world.

However, we have a number of serious reservations about this Bill. Since the Government are proposing up to an eightfold increase in the amount it can contribute to the CDC, it is right that we ask questions. Let me begin with executive pay at the CDC. While we would all acknowledge the steps that have been taken to curtail the excesses of the past, what guarantees have the Government received that we will see no repetition of the eye-watering salary hikes that people awarded themselves in the past? It would be fundamentally wrong for the extra money proposed in this Bill to be used to fill the bank accounts of the executives of the CDC instead of going to those who need it the most.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

Does the hon. Lady accept that no one is considering going back to those bad old days? While I do not want this to be a partisan issue, because I think there is a wide degree of consensus, the original deal with the chief executive was signed off by Clare Short, and the new deal, which reduced the salary by a third and placed a cap on the maximum, was signed off by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) when he was Secretary of State. There is no going back to those bad old days; this is about working together on the new framework.

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

I thank the hon. Gentleman for his intervention. I am concerned that we learn from the past. I am not here to pull punches: this is about learning from the past and ensuring that we move forward in the correct, transparent way.

The second question the Government must answer is on the priorities of the CDC. Recent history is not kind to the CDC and the decisions it has made on the allocation of its funds—UK taxpayers’ money. In recent years, the CDC has become a more commercial organisation. In 2004, the CDC created the private equity arm, Actis. In a deal that raised serious concerns on the governance of the corporation, 60% of the equity firm was sold to managers at the CDC at a bargain basement price. In the space of a few years, they had turned the CDC from an aid agency into a cash machine. With the focus turned to maximising profits, mainly for those who worked at the CDC, the traditional areas of financial support that the CDC had focused on for nearly 60 years were being abandoned. Food security through agriculture programmes went, safe and clean water projects were cancelled, and transport and infrastructure projects were abandoned. Poverty reduction—surely key to any development objectives—withered on the vine of self-interest and, I am afraid to say, earning a fast buck.

It is worth comparing the principles and values on which the CDC was founded to achieve its aims with the realities of its present-day operation. In 1998, the CDC spent 50% of its budget on agribusiness in Africa. That investment had two virtues: first, it helped to feed people in those countries, where starvation and hunger were rife; and, secondly, it enabled communities to become more self-sufficient, created jobs, and was a step on the ladder out of poverty. Today, funding for agribusiness has dropped to just 5%.

We see similar patterns in the CDC’s infrastructure programme. For people to live healthy lives, and to enable communities to thrive, not simply survive, we need to help create a solid infrastructure as part of our development priorities. Dirty water and poor sanitation robs the lives of over 300,000 people each year. Infants and young children are especially susceptible to diseases because of their immature immune systems. Their young bodies simply do not have the right immune system to cope with waterborne diseases. According to UNICEF, over 40% of medical facilities in Africa do not have access to clean water. Dirty water and a lack of good sanitation do not just rob people of their lives; they make a country less productive. A recent study estimated that there was a $150 million shortfall for water and sanitation projects in sub-Saharan countries, while the World Health Organisation estimates that we need £535 billion in investment to achieve universal access. I accept that those are huge sums of money, but look at the benefits. It is estimated that every dollar spent on improving water quality and sanitation delivers $4 in increased productivity. With such overwhelming evidence for the health and economic benefits, the case for investing in infrastructure programmes should be beyond doubt.

Jim Cunningham Portrait Mr Jim Cunningham (Coventry South) (Lab)
- Hansard - - - Excerpts

Another dimension, when we are talking about health, is the pharmaceutical industry and the products that it sells to some African countries. Surely, the Government should be looking at this area and trying to make pharmaceuticals a lot cheaper for those countries.

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

I totally agree with my hon. Friend. We need not only to look at the health of poorer people but to make sure that they can access water and sanitation.

It is surprising, if not shocking, that the CDC reduced infrastructure support for water, sanitation and roads from 35% of its budget in 1999 to just 8% a decade later. If the money is no longer going to support agribusiness or infrastructure, where is the CDC spending it? Let us begin by looking at some of its recent investments, such as Xiabu. I do not know about you, Madam Deputy Speaker, but I am partial to a takeaway on a Friday night—so, it seems, is the CDC, because it has provided thousands of dollars to the Chinese fast food chain Xiabu. That may be a good commercial investment, but is it the best use of the CDC’s resources? Can the Secretary of State set out what guarantees she has obtained that the UK’s increased contribution to the CDC will not go towards such projects?

While the Secretary of State is here, I would like to hear from her that the Government will seek assurances that in Africa the CDC will put more emphasis on food security than it puts into funding the building of new shopping malls at present. I have no doubt that the people of Accra are grateful for their brand new shopping mall, but what strategic role it plays in increasing life expectancy in Ghana is a mystery to me.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

The people who were employed in the construction of those shopping malls in Accra—I have seen them recently—would disagree with the suggestion that that has not helped families in Accra and in nearby villages. Less than 1% of the CDC budget has gone on shopping and infrastructure, which provide a lot of jobs. Agriculture, which the hon. Lady talked about earlier, is incredibly important, but it is less important than it used to be in the modern economy in Africa, where there is a greater degree of diversification and urbanisation.

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

I thank the hon. Gentleman for his intervention. I know that he went around Africa in his previous role as a Minister, so he knows a lot about Africa, but there are parts of Ghana where there is no electricity and parts of Ghana where there is no water. Yes, middle-income families may enjoy going to malls, but while many people are living in poverty I do not think that a mall is the best use of CDC resources and money.

The examples that I have given lead me to my third and fourth questions for the Secretary of State. The Government propose to increase funding from £1.5 billion to £6 billion, with the option for the Secretary of State to raise it to £12 billion at a future date. But it seems she is putting the cart before the horse. As yet, the CDC has not published its investment strategy for 2017 to 2021. In the absence of an investment strategy outlining how the additional resources would be spent by the CDC, the Government are essentially proposing that we provide the CDC with a multibillion-pound blank cheque. In 2015, the coalition Government gave the CDC a cash injection of £735 million, and the Secretary of State published the business case for that increased funding at the time. Will the Secretary of State place in the House of Commons Library the full business case for the increase to £6 billion of funding to the CDC? Will she assure the House that if the Government wish to extend that to £12 billion, a business case will be brought to the House?

Keith Vaz Portrait Keith Vaz
- Hansard - - - Excerpts

My hon. Friend was in the House when the Secretary of State gave me a very welcome assurance concerning Yemen, which we appreciate. Does my hon. Friend agree that it is so important that emergency and humanitarian aid should be ring-fenced and that any resources to the CDC—whatever they may be, after the business case has been prepared—should not take money away from that emergency and humanitarian aid, which is important in Yemen and in other parts of the world?

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

I thank my right hon. Friend for his intervention. Yes, humanitarian aid is paramount. In times of crisis, we need to know that that money will be ring-fenced to ensure that those who need it most will be able to get it.

During proceedings on the Bill, we will be setting the Government six questions, which we hope they will be able to address and gain our support. I began my response to the Secretary of State’s opening speech on Second Reading today by setting out the key principle that should guide us on international development funding—transparency. Indeed, the lack of transparency over the CDC’s work has created considerable scepticism about its activities and some of its investments. When spending taxpayers’ money on international development in an age of austerity, it behoves the Government to do all in their power to reassure everyone that their money is being spent properly and effectively. The Secretary of State would alleviate some of the concerns felt by Opposition Members—and, I am sure, in the country at large—if she were to insert a transparency clause into the Bill, which would meet the Government’s stated aim and their commitment to transparency, value for money and tracking development results.

That is particularly important when it comes to the CDC’s use of tax havens for its investments. It is extraordinary that the CDC has routed its investments through tax havens. The CDC and DFID have a moral duty to adopt the highest ethical standards if they are to have moral authority as the UK’s leading development actors. We should not be rewarding tax havens with UK taxpayers’ money, and the Government could and should lever the CDC away from the use of tax havens. Not a penny of the proposed £6 billion should find its way to a tax haven, and the Bill should be explicit in enshrining that principle.

Providing any organisation with £6 billion—and potentially £12 billon—is a significant step, and that is particularly true of an organisation with such a chequered recent past. The House would welcome a clear sense from the Secretary of State of how her Department has evaluated the costs and benefits of providing the CDC with such a significant sum of public money. There is a clear need for the Minister to set out how DFID’s investment plans for CDC have been informed. Has that been achieved by assessing other options for investing these resources. Has it been achieved by comparing their value for money and the potential for development impact?

There are two issues that the Secretary of State should address to demonstrate the Government’s commitment to transparency. At present the CDC is not subject to the scrutiny of the Independent Commission for Aid Impact. That is an anomaly, and it should be rectified immediately. Will the Secretary of State insert into the Bill a provision to enable ICAI to scrutinise and audit the effectiveness of the CDC, particularly given the significant increase in the CDC’s funding proposed in this Bill? Secondly, I would like an assurance from the Government that the CDC will not be sold off or privatised during this Parliament. It would, surely, be wrong for this House to provide billions of pounds of taxpayers’ money, only for the CDC to be handed over to a private equity firm or suchlike company.

When the Colonial Development Corporation was established in 1948, it had bold ambitions. For much of its life, the CDC has achieved those ambitions, first as the Colonial Development Corporation and then as the Commonwealth Development Corporation. Lives have been saved and lives have been improved as a direct result of the CDC. Sadly, the CDC has lost its way in recent years. The ethos and values that drove its inception six decades ago have been lost, sacrificed on the altar of fast-buck economics. We are beginning to see some welcome reforms to the CDC, but history has taught us that we must remain vigilant.

As I set out at the beginning of my speech, the Opposition firmly believe in the principle of aid as a vehicle for improving the life chances of millions of people. The question the Government must answer before they gain our full support for the Bill is: will they provide the assurance and the guarantee to deliver what we all seek, which is a CDC that truly lives up to its mission

“to support the building of businesses throughout Africa and South Asia, to create jobs and make a lasting difference to people’s lives in some of the world’s poorest places”?

To achieve this, the Government must place the right safeguards in the Bill in Committee. If they do, and the Bill achieves the twin objectives of supporting the people who need it the most and of making the funding fully transparent, the Government will have our support.

14:49
Andrew Mitchell Portrait Mr Andrew Mitchell (Sutton Coldfield) (Con)
- Hansard - - - Excerpts

I draw the House’s attention to my outside interests, which are listed in the Register of Members’ Financial Interests.

This is an extremely good Bill, and I hope it will be welcomed in all corners of the House. During my brief remarks, I very much hope to be able to satisfy the hon. Member for Edmonton (Kate Osamor), who leads for the Opposition, on the perfectly fair questions that she posed. The fact that the Government are able to bring the Bill before the House today shows the success of Britain’s development policies in general, and specifically the success of the CDC reforms that we introduced in 2010 and 2011. Today’s Bill is the fruit of those reforms.

It is worth reflecting a little further on the history of the CDC. As has been said, it was founded in 1948. It was the first development finance institution— another British lead—and an early example of Britain’s generosity and of recognising the importance of the private sector and of job creation. The CDC made a huge contribution in the years after the war to agricultural development in the poorest parts of the world with which Britain had a close connection. By 1997, the formula had become a little tired, and the Commonwealth Development Corporation, as it had become, was losing money, which was hardly a good example of private sector entrepreneurialism for poorer countries to emulate.

In 1997, the Blair Government considered privatising the whole CDC. That would have been a huge mistake, since the whole point of the organisation is to complement the private sector, not to compete with it. In the end, the Labour Government privatised the management, while leaving the capital in the public sector. The then Government turned it into a fund of funds: it invested in other people’s funding vehicles, while the private sector did what it is supposed to do, which is focusing on making money.

When I travelled as the shadow International Development spokesman, other countries’ development finance institutions would say to me that the transformation of the CDC after 1997 was a warning to other development finance institutions of what not to do. When I travelled in countries where in the past the CDC had generated enormous good will, people used to say to me, “Whatever happened to the CDC? It has simply disappeared.” Of course, that was right. As the CDC was investing in other people’s funds, it had simply disappeared.

In 2010, the coalition Government said that the CDC, this former great development finance institution, had lost its way. The CDC was under regular attack in the press—particularly in Private Eye—and my judgment, as the Secretary of State, was that the attacks were largely valid. It had been turned from a somewhat sleepy development corporation that was losing money into a city slickers private equity business. It was mostly staffed by the same people, who saw their civil service salaries soar to the exotic levels normally populated by very successful hedge fund managers and private equity investors. The central aim of the coalition was to re-inject the CDC once again with its distinguished development roots without losing the ability to earn a commercial return. Our aspiration on entering government in 2010 was that just as DFID is undoubtedly the leading development ministry in the world, so the CDC should become the envy of all other development finance institutions—the best Government-owned DFI anywhere.

We had three key aims. First, we wanted to regain control of investment expertise by bringing the responsibility for investment back into the CDC. In other words—Labour Members may care to take note—we decided to reverse the Blair Government’s privatisation by bringing the expertise back into the public sector. Secondly, we wanted to broaden the toolkit of financial instruments by which the CDC could achieve this. Thirdly, we wanted to shift the geographical focus of the CDC on to the poorest and most difficult parts of the world—Africa and south Asia. The CDC had previously focused on a loose collection of geographical locations in a very undifferentiated way. Of course, capital in such circumstances naturally gravitates to the areas of lower risk and higher return. That was exactly what we did not want it to do, because for the CDC and development, those are the areas of least value.

It was with dismay that I read in the Financial Times of all newspapers—it has a reputation for outstanding financial journalism, and should therefore know better—a rehash of a past that the CDC has long left behind completely. A moment of research would have shown Financial Times journalists that they were completely out of date. The Financial Times said that

“the government should place the CDC under the same broader level of public scrutiny as DfID.”

The CDC is overseen by DFID, the Treasury, the shareholder executive, the International Development Committee, the Public Accounts Committee and, as yesterday’s report shows, by the NAO. Perhaps in a rather better researched piece, those Financial Times journalists could explain who might be added to this already extensive list.

Contrary to the Financial Times view, the CDC is now well on its way to achieving a reputation as the best DFI in the world. The reforms that we introduced inevitably confronted vested interests, and involved an area of expertise that we did not of course have any right to expect within the civil service. We wanted the CDC to provide both pioneer and patient capital. We wanted pioneer capital because we wanted to show the reach of the private sector at its best in promoting economic activity, jobs, decent working practices, and the provision of key goods and services to the poorest in the most difficult places in the world. We wanted patient capital because it can take a longer view of the financial return and can therefore complement the private sector by adding what is often the key ingredient to the mix—funding that would not otherwise be available to generate jobs, whether in the power sector or in infrastructure—in, once again, the poorest places. All of that had the additional benefit of delivering value for money and a return for the British taxpayer, while having a substantial impact on poverty alleviation.

The Bill is part of the proof that these reforms have worked and that this new approach is succeeding. I do not think it is fanciful to believe that in 50 years’ time, the CDC rather than DFID will be seen as the embodiment of the UK’s strong support and success in helping the world’s poorest and most excluded people. The flow of CDC-type investments made by the developed world in the poor world is now overtaking, in quantum, the level of aid. I believe that the work the CDC is carrying out should command everyone’s support from the far left of the Labour party to the development-sceptic press.

To achieve this position, the CDC has faced the need for and delivered radical change. This would not have been accomplished without the high quality of leadership at the top that has prevailed throughout. We were successful in hiring Diana Noble as the chief executive. Diana Noble will retire next year, and the taxpayer and the development community owe her a great debt of gratitude. She has changed a passive organisation by recruiting outstanding new talent. People tell me that the spirit in the CDC has been transformed. She inherited an organisation of 50 people, a figure that was subsequently reduced to 40 but now stands at approximately 220.

Those extraordinary changes would not have been accomplished, either, without the skills and commitment of Mr Jeremy Sillem, a senior and experienced City financier who served as an adviser to DFID and was subsequently a non-executive director of the CDC while the reforms were implemented, and of Graham Wrigley, who now provides his expertise as the CDC’s chairman. That team, above all, has delivered those changes and deserves the gratitude and thanks of Parliament and the taxpayer. Their personal reward will be the transformation of the lives of very large numbers of extremely poor people.

Our reforms turned the CDC from a one-product business—a fund of funds—into a multi-product one. I am not a golfer, but if I may use a golfing analogy, the CDC was traversing the golf course of international development with only one golf club, that of investing in other people’s funds. We have now equipped it with a full variety of golf clubs, including equity and debt, direct investments, trade finance and infrastructure lending. We have also regained control of the golf swing rather than delegating it to others—I have probably pushed the metaphor as far as I should.

Inevitably, operating in markets such as Afghanistan, Pakistan, Sierra Leone, the Democratic Republic of the Congo and Ethiopia is accompanied by considerable risk. Along with development impact, the CDC considers whether it is truly bringing additional funds that are unavailable elsewhere to each investment. It always seeks to avoid the lurking dangers of corruption that are ever present in development. It is a young business that will not always get it right, but for a young banker starting out in the financial world, as I did in 1979, there are few more exciting places to aspire to work across the financial world than the CDC, whose employees deploy their financial skills in an area where they have the power greatly to elevate the social condition of some of the poorest people in the poorest areas of the world. By the way, salaries have been sharply reduced and are well below what the staff at the CDC would earn in the commercial world.

Mark Field Portrait Mark Field (Cities of London and Westminster) (Con)
- Hansard - - - Excerpts

I am just being slightly mischievous, but will my right hon. Friend confirm that all those interested in a career in the CDC cannot expect to spend too much time on the golf course, either on a Friday afternoon or on any other day of the week?

Eleanor Laing Portrait Madam Deputy Speaker (Mrs Eleanor Laing)
- Hansard - - - Excerpts

Order. Before the right hon. Member for Sutton Coldfield (Mr Mitchell) replies to that intervention, may I just say to him that those of us who do not understand cricket are absolutely delighted to have had a golfing metaphor? It is so much simpler.

Andrew Mitchell Portrait Mr Mitchell
- Hansard - - - Excerpts

I do not play golf, but I assure my right hon. Friend the Member for Cities of London and Westminster (Mark Field) that the staff in the CDC work phenomenally hard, including on Friday afternoons.

There are only a few investors in the world with the skills and risk appetite to undertake such difficult but vital investments, doing the hardest things in the hardest places. In 2014, in response to the Ebola crisis in Sierra Leone, the CDC partnered with Standard Chartered bank to support lending to local businesses and help the country’s economic delivery. In 2013, the CDC made an investment in Feronia, an agricultural production and processing company in the DRC, which is one of the most difficult countries in the world in which to invest. That investment would help people to lift themselves and their families out of poverty and provide much needed support to local agriculture, a sector that the hon. Member for Edmonton quite rightly mentioned. It should never be forgotten that the overwhelming majority of jobs are created by the private sector, not by Government, and having a job—being economically active—is how people all around the world lift themselves out of poverty. Of course, inevitably, not all those investments will succeed.

Since 2011 the CDC has focused its attention intensively on quantifying development impact. For example, this year it invested in a power plant at Virunga park in Matebe that is providing 96 MW of clean energy, creating around 100,000 jobs and boosting economic development. It is the first investment by a DFI in that region of the DRC since the 1980s. In 2015, the CDC invested in the largest independent power producer on the continent, Globeleq Africa, also bringing in Norfund, Norway’s development finance institution. That will add thousands of megawatts of electricity generating capacity over the next 10 years, addressing a massive gap. In my view, the CDC is the only DFI with the vision or appetite to undertake that type of work, including changing the whole strategic direction of the company and replacing the senior team and board.

The Bill ensures that the CDC can receive from the taxpayer the capital injection it will require to carry out the development work with which it is tasked. Many Governments are channelling development funding through DFIs such as the CDC because they use capital injection to address market failure, as the Secretary of State pointed out, and invest funds on a revolving basis in business in developing countries. The extent of the success of the CDC’s development investment means the Bill is required.

In its report published yesterday, the National Audit Office said:

“Through tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model”

with “thorough” governance arrangements. It also said that the CDC’s

“current portfolio of investments reflects the strategy it agreed with the Department in 2012…CDC has met the target for financial performance it agreed with the Department.”

Finally, the report made it clear that the CDC measures its effectiveness through financial return and development impact targets—targets that it has met. Measuring development impact is extremely difficult, partly because it is so long term. But above all it is about job creation. It is likely that the CDC is currently involved in investments that will create more than 1 million jobs. In any event, it is to be congratulated for the steps it has taken to quantify development impact and to be encouraged to go further.

For now, my advice to my successors in the Government is to leave the CDC to grow and deliver on the objectives we have set it and to hold it to account for what it does. However, probably the most anxiety-inducing statement the CDC team ever has to face is, “Government officials are coming round to interfere today in what you are doing.” When we hired the current CEO, Diana Noble, who has done such a brilliant job, I remember promising her that Ministers and officials would set the course for the CDC—as the shareholder properly should—but would then leave her to get on with the job and to deliver. I trust my promise is being honoured.

15:07
Patrick Grady Portrait Patrick Grady (Glasgow North) (SNP)
- Hansard - - - Excerpts

I hope, Madam Deputy Speaker, that before I begin my remarks on the Bill, you and the House will allow me to note that today marks the third anniversary of the Clutha tragedy, when a police helicopter crashed into the Clutha bar in Glasgow, killing 10 people. We remember them and pay tribute to them and to the first responders on the scene that night. We hope that, in due time, families and friends will get the closure they require and the answers they seek through a fatal accident inquiry process.

Eleanor Laing Portrait Madam Deputy Speaker (Mrs Eleanor Laing)
- Hansard - - - Excerpts

Order. I am sure that the whole House joins the hon. Gentleman in remembering those who lost their lives that day, and their families and friends.

Patrick Grady Portrait Patrick Grady
- Hansard - - - Excerpts

Thank you very much, Madam Deputy Speaker.

The Bill is a rare piece of DFID-led legislation—the first in this Parliament, I believe—so I take this opportunity to welcome the new Ministers to the Government Front Bench and the shadow Ministers on the Opposition Front Bench. Lots of Scottish National party spokespeople seem to have been doing that in recent weeks and months, so at least there is consistency from our Benches.

Today’s debate gives us the opportunity to look in detail at the Government’s specific proposals on increasing the funding they can provide to what was the Commonwealth Development Corporation, now more regularly known as CDC Group or the CDC. In doing so, it is worth exploring how the Bill fits into the broader context of the UK’s aid spending and the direction the Secretary of State is setting, and how those fit with the global framework and consensus on poverty reduction.

Aid works. It has saved and transformed countless lives around the world. I have had the privilege of witnessing that with my own eyes in places such as Malawi and Zambia, and of meeting people from all over the world whose lives have been transformed by aid, when they have travelled to Scotland and the rest of the UK to share their testimony.

SNP Members happily give credit to the UK Government for meeting, in recent years and after 40 years of delay, the 0.7% of gross national income target for overseas development assistance spending. Despite the progress made in recent years, the need for aid spending has not gone away. As many analysts and institutions have said, including the International Development Committee, aid flows will need to continue to grow from the billions to the trillions if we are to meet the sustainable development goals—they are also known as the global goals—that have been agreed at the United Nations and if we are to tackle the challenge of climate change. The Secretary of State spoke about market failure. Lord Stern once upon a time described climate change as the biggest market failure of all, and that must be at the forefront of our minds.

I give credit to the Government for their leadership in negotiating and building consensus on the sustainable development goals, but the task is to continue to show leadership as the world works towards meeting them to end poverty and hunger, achieve universal education and gender equality, eliminate preventable disease and empower communities around the world. The first and most important question we must ask of the Bill is how it will help to meet those goals. What assurances can the Government give us that, in their agreements with the CDC and in setting policy direction, the investments that the CDC makes will be geared to the achievement of the global goals?

As a number of hon. Members have said, the Bill is tightly focused, which is perhaps a missed opportunity, because there is a chance to make more explicit in the Bill or the Commonwealth Corporation Act 1999 that poverty reduction is as much a duty of the CDC as it is of the Department for International Development. It is not clear in the Bill how much scope there is for amendments, but who knows how creative hon. Members will be in Committee?

Such a reassurance from the Government would help to make a stronger and clearer case for the role of development finance and for that specific development finance institution. The CDC is rightly proud of being the oldest such institution in the world. As a pioneer, it has had numerous successes, as we have heard, but it has also learned a number hard lessons over the years. To maintain support in the House, it will need to continue to do so. Stories of lavish expenses and inflated salaries, of channelling funds through tax havens, and of investing in luxury hotels and shopping malls, will not inspire confidence among the aid community or the public at large. As we have heard, the National Audit Office yesterday raised a number of concerns about transparency and impact measurement. Despite the progress and reforms of recent years, in 2013 still only 12% of new investments were made in the least developed countries of the world.

Since the Secretary of State’s appointment, she has made great play of seeking value for money for the taxpayer and increasing aid spending transparency. Will she commit to holding the CDC to the same standards as other stakeholders and recipients of DFID funding? She said in her speech that transparency would happen as part of the Bill, but I do not see it in the Bill, so how can we have those transparency guarantees? The right hon. Member for Sutton Coldfield (Mr Mitchell) asked who else could scrutinise the work of the CDC. The hon. Member for Edmonton (Kate Osamor) rightly suggested that the Independent Commission for Aid Impact could continue to have a role. Perhaps that provision should be in the Bill.

Andrew Mitchell Portrait Mr Mitchell
- Hansard - - - Excerpts

The hon. Gentleman is right that ICAI should have a role, which it has because it can follow all official development assistance expenditure. He can rest assured that I should have added ICAI to my list.

Patrick Grady Portrait Patrick Grady
- Hansard - - - Excerpts

I am happy to take that reassurance from the former Secretary of State, but I hope to hear it from current Ministers.

Fiona Bruce Portrait Fiona Bruce
- Hansard - - - Excerpts

As chair of the sub-committee of the International Development Committee that scrutinises the work of ICAI, perhaps our sub-committee could be added to that list.

Patrick Grady Portrait Patrick Grady
- Hansard - - - Excerpts

DFID and the other bodies rightly face considerable scrutiny, which is as it should be, but we must ensure that it is extended and applied equally to all DFID stakeholders and all the resource that is spent. Perhaps there was an opportunity for the Bill to go further and to place statutory duties on the CDC to report on all its spending to the standards set by the international aid transparency initiative. I wonder what creative amendments might appear in that respect.

Let me be clear that I am not objecting in principle to the concept of development finance. There is a role for the private sector to play in stimulating the economies of developing countries and helping people into work—if carefully managed, it can support innovation and diversification. The Secretary of State’s letter to Members in advance of the Bill gave the example of the CDC’s early investment in the African mobile phone operator that eventually became Celtel. The investment was made when the technology was unproven and the market barely existed. I have seen first hand the impact that mobile phone technology makes in improving people’s lives across sub-Saharan Africa. Indeed, I have been a customer and user of Celtel services on many occasions.

The Scottish Government recently launched their own development finance initiative as part of their international development strategy. The Minister for International Development and Europe, Dr Alasdair Allan, announced in October £1 million of Scottish Government funding to help Malawian businesses over a three year period, which will be match-funded by private investors, providing £2 million in total to invest in Malawi. Those investments will be managed by a new Scottish company, the African Lakes Company Ltd, which has been registered as a limited company for that purpose. The African Lakes Corporation was originally established in Glasgow in 1878 to develop trade as an effective way of displacing slavery in Malawi. More than a century on, that mission has been revived with a contemporary view to investing in Malawi’s future. Through their support for that venture, the Scottish Government aim to show that responsible investment can help Malawi and similar countries to reduce dependence on aid, support the growth of existing businesses and create sustainable livelihoods.

The question is therefore less about the principle of development finance and more about how it is managed and how it fits within the overall picture of aid spending. The Scottish Government commitment of £l million over three years represents just under 4% of their annual development fund budget. The figures proposed in the Bill are of a far greater order—the Bill proposes the quadrupling of the funding cap from £1.5 billion to £6 billion, which would take the total amount that DFID can invest to the equivalent of around half the annual aid budget. I take the Secretary of State’s point that that will not necessarily be invested in one go, but if my understanding of the Bill is correct, it could be invested in one go in principle, which is a concern to some of us. The new maximum, which will be decided by statutory instrument, could be £12 billion, which is approximately the total annual aid budget. It is therefore worth asking, as the hon. Member for Edmonton did, where those figures came from and how they were arrived at. Why £6 billion and not £5 billion or £7 billion? Where is the needs analysis behind that figure?

As we heard in Treasury questions today, total aid spending is very likely to fall as a result of a slowing economy. The 0.7% target is by definition a proportion of total GNI. With further economic uncertainty on the horizon, there is no guarantee that the current figures will remain stable, let alone increase. Would it have been more sensible for Ministers to express the funding limits in the Bill as a percentage, or through some kind of formula that relates to the total amount of aid funding, to make investment in the CDC relate more clearly to the total aid budget at any one time? Although making the cap a proportion recognises the importance of development finance, it also recognises that it is only one small tool in a box, as the Secretary of State said.

We have been presented with the Bill, which incidentally was not mentioned in the Queen’s Speech, without seeing the long-promised policy statements in the shape of the bilateral and multilateral aid reviews. We therefore have no real idea exactly how the increase in the investment cap fits with DFID’s broader policy direction and goals. The Secretary of State has said that no disbursements will be made to the CDC without a robust business case. Will she assure us today that such business cases will have poverty reduction and the sustainable development goals, and people rather than profit, at their heart? As I asked earlier, has she given any consideration to the opportunity for building that into the Bill as a statutory duty on the CDC? [Interruption.] If the Secretary of State is not here, I hope that at least one DFID Minister can answer those questions at the end of the debate.

I and many other Members are keen to explore in Committee and other stages the question of how that significant scaling-up of DFID finance to the CDC fits into its broader policy goals and the wider global aid agenda. If satisfactory answers are not forthcoming, and if the Government are not willing to offer the reassurances and amendments we suggest, we reserve the right to oppose the Bill in its entirety on Third Reading.

Greater clarity is urgently needed from DFID and the Government as a whole on the purpose of their aid budget and how they will achieve that purpose. A global consensus framework exists, which this Government, or at least the Government elected in May 2015, helped to negotiate and write in the shape of the sustainable development goals. I said last week in Westminster Hall that, despite what may be read in some of the gutter and right-wing press, there is still public and political consensus in the UK on the importance of aid and the need to tackle global poverty.

The Secretary of State talks increasingly about making aid work in the national interest, but that raises the question: what is the national interest and how is it different from the goal of poverty eradication? Surely meeting the global goals in and of themselves is in the national interest, otherwise there is the implication that previously aid did not work in the national interest or that we have a deeper interest in its effectiveness beyond what the SDGs aim to achieve. If that is the case, what is that interest? What better or more noble purpose is there than the eradication of poverty and disease and the building of peace and equality for all? Surely a global community where everyone’s basic needs are met, where education allows people to thrive and where health and wellbeing contribute to more peaceful societies is by definition in our own interests, as well as the interests of those we are seeking to help.

That is why the goals must be at the heart of the work of the CDC. Ending poverty should not be a happy or convenient by-product of profitable investments; it should be the other way around. If investments that create jobs and provide services that lift people out of poverty go on to make surpluses that can be reinvested in more of the same, all to the good, but it should not be assumed, especially in the context of fragile and developing countries and economies, that generating a return on investment will of itself provide a rising tide that floats all boats. Old-style aid-for-trade and trickle-down investment have left us with a world where we still need a 15-year timetable to meet the global goals, after 15 years working towards their predecessors, the millennium development goals; yet we live in a world of plenty with the knowledge, resources and capacity to meet and exceed all the targets in the goals. What is lacking is the political will. The Government must show they understand that and that their support for the CDC is but one small and proportionate intervention in the struggle for a fairer, more just and more peaceful world.

Every penny that the Government invest in the CDC is a penny not invested in traditional, proven methods of aid delivery, so they have to show why each of those pennies is not better spent on gender empowerment, nutrition, farming, education or any of the other programmes working in partnership, on a non-profit basis, with specialist and grassroots organisations on the ground in developing countries. If they want to maintain the consensus in the House on the use and purpose of aid, the Government must show willingness in the coming stages of the Bill to engage on the points that I and others have raised. I look forward to continuing that debate in the coming days.

15:22
Marcus Fysh Portrait Marcus Fysh (Yeovil) (Con)
- Hansard - - - Excerpts

I draw the House’s attention to my outside interests, among which are some financial interests in developing nations.

The scale of the development problem facing us is largely to do with the projected world population growth over the coming years, so it is right that the CDC focus on Africa and south Asia, as they are key areas of population growth. Twenty African nations are posting fertility rates in excess of five children per woman, and in some that figure is over seven. Africa is predicted to account for 80% of world population growth, quintupling its 1.2 billion population to add around 5 billion to the global population this century, while the number of Africans aged 15 to 24 is expected to nearly double by 2050 to 452 million.

These facts present some of the most outstanding challenges of our time: the impact on global warming, which we heard about earlier; environmental degradation; the impact on biodiversity and access to resources; and the potential consequences of war and migration, all of which can also have a big impact here at home. The only way to meet these immense challenges is to give people opportunities close to where they live, and that is what the CDC is helping to deliver: more job opportunities; better education so that people can take advantage of those opportunities; better health and reproductive care; and the involvement of women in the workforce. We should be helping other people to invest in these sorts of things.

The difference between the CDC and other kinds of aid is that these funds can be used to create businesses that can go on and have their own life and be recycled. Yes, some of the capital can come back to us, for us to reinvest, but, more importantly, these businesses can have a life of their own. If they are doing something well, they will be asked to do it again and again with their own capital, personnel and creativity. If we are to tackle these almost insurmountable challenges, they have to have their own life. The CDC can deliver that potential for scalability into the future and help us to cope with those challenges.

The CDC is also great because it presents an example of good governance and an opportunity for us to lead by example—to inspire entrepreneurs, to build capital and expertise in local markets, and to develop companies and structures capable of stewarding their own capital into the future. This is about building trust in the future in nations where often a pound tomorrow is worth a lot more than a pound in just a few years, because they do not have the necessary confidence in local structures, in the enforceability of contracts or in their politics. If we can build that trust into the future through these methods, we can help to create a virtuous circle that has a great impact.

This investment can also bring us opportunities in terms of commercial information and so on. My right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) made some great points about the way the CDC works and about some of the great people involved with it. This is about creating human connections and using this country’s abilities to help nations develop in a positive way, to break down the barriers to development, to tackle crony capitalism, to reduce regulation, taxes and subsidies and licences, which often favour particular operators, and to enable more rapid growth and greater flexibility in those economies. That will also give stable politics a better chance in these places. I will happily support the Bill, and I commend it to the House.

15:27
Stephen Doughty Portrait Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
- Hansard - - - Excerpts

I have clearly touched a nerve with some of my comments about the Bill, which I am afraid I will not be giving the wholehearted support that some in the House have given it today.

The Government have attempted to portray the Bill as a minor technical matter, which should go through on the nod with minimal scrutiny and to which we should all give a big hurrah. What appears to be a minor technical two-clause Bill, however, is in fact far more significant and controversial. As we have heard, it proposes an immediate quadrupling of the limits on taxpayer funding of the CDC and then suggests a further doubling at the whim of the Secretary of State and without further primary legislation.

Now the CDC expansion, which has been significant from 1999 to the present day, has required only £1.5 billion of taxpayers’ money, a large amount of it in the recapitalisation that took place last year. By stark contrast, the Bill will permit an increase of up to £12 billion over an as yet undefined period, although the explanatory notes make it clear that the Secretary of State intends to

“accelerate CDC’s growth over the current Spending Round”.

That could imply giving three times extra to the CDC— £4.5 billion—in three to four years’ time than it has needed in the last 17 years. According to the explanatory notes, this is justified as a response to an as yet undefined or evidenced

“forecast market demand over CDC’s next strategy cycle and in order for the CDC to play a fuller role in the delivery of the UK’s international development objectives.”

Ministers rarely take powers without the intent to use them fully, and the transfer of powers to use secondary legislation should always be subject to robust scrutiny. I will explore in due course whether I believe this Bill, and the proposed increase for the CDC, meets three key tests. It is not whether it has met its plans as defined in 2012, but whether, first, it has demonstrated enough effectiveness to justify such a huge increase; secondly, whether it ensures an adequate focus on tackling poverty in the poorest countries; and thirdly, whether it acts in a coherent way with respect to the rest of DFID and indeed wider HMG policy.

Let me first suggest my own answer as to why such a huge increase has been proposed, and why now. One of the primary reasons may lie in a little noticed change to the reporting of our aid spending—official development assistance or ODA—last year, which saw the CDC’s contribution to meeting the 0.7% aid target dramatically altered. Until 2015, the investment activities of the CDC could either add to or subtract from our total aid spending. Simply put, we used to look at the net benefit of the CDC to developing countries by subtracting money flowing back to the CDC from the new investments it was making. In fact, this resulted in a positive contribution to our aid spending of £228 million in 2010; £91 million in 2011; £103 million in 2012; £100 million in 2013; and £42 million in 2014.

In 2015, however, there was a significant change. Instead of reporting with the same measure, which incidentally would, according to the House of Commons Library, have resulted in a negative contribution to the aid budget of minus £9 million, DFID changed its reporting so that the capital flow from the UK Government to the CDC is scored as ODA by DFID rather than the CDC scoring its own net disbursements as ODA. Instead of a negative impact on aid last year, the UK reported the capital increase reported to the CDC as aid, which was £450 million—a stark difference. We now looking at the total money DFID puts into the CDC counting as aid, regardless of which country or sector it ends up in, let alone whether it resulted in a net flow of resources to the poorest countries.

Why does this matter and how does it relate to the Bill? It matters because it would allow the Secretary of State to classify the entirety of future capital increases to the CDC as ODA or aid, potentially diverting, and effectively privatising, up to £12 billion of our future aid via the CDC, yet continuing to count it towards the 0.7% target. This is particularly important, given the different focuses and priorities of the CDC. I acknowledge that the differences have narrowed in recent years, and I shall come on to praise the work undertaken by the right hon. Member for Sutton Coldfield (Mr Mitchell) in this area. However, the differences between the CDC and DFID’s objectives, and indeed its stated aims, are still significant, not least over whether our aid is focused on the very poorest countries that most need our support or on higher-income countries where we can more easily achieve quicker and bigger returns on investment. I shall return to this point.

Fiona Bruce Portrait Fiona Bruce
- Hansard - - - Excerpts

The hon. Gentleman suggests that the aims are significantly different, yet 83% of the new CDC investments are in DFID partner countries and 56% of new investments are now in fragile and conflict-affected countries. Is that not in line with DFID’s objectives?

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

As I shall come on to explain more fully, there has been a significant change and there has been a narrowing, but there is still a significant difference. If we look at the bulk of the spending still being in India, we see a significant divergence from DFID’s priorities, as I shall come on to show. We were told that aid to India had ended, but apparently it has not.

This is also significant when coupled with an answer I received to a parliamentary question. I discovered that the amount of aid—ODA—to be spent by Departments other than DFID is set to increase from 18% this year to 26% in 2019. That is over a quarter of our aid spending going through Departments other than DFID. Even if we focus on the lower end of the implied proposal to spend billions extra via the CDC by the end of the spending review—let alone the £12 billion—we could be looking at anywhere from 35% to 45% of the DFID budget being spent, but not by DFID in the traditional sense. If the Secretary of State used her full power and more quickly than expected, it could be even higher. It is particularly ironic that the Secretary of State who promised us greater effectiveness, transparency and accountability in our aid spending appears to be willing to hand over billions of our aid funding to less transparent and less accountable parts of government.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

The hon. Gentleman seems to be implying that aid spent through other Departments is a bad thing. He is shaking his head, which is good, because far from being a bad thing, I would view it as a good thing. If we are helping education institutions in developing countries, we should use the expertise in our Department for Education. If we are looking at tackling local government, it should not be looked at through the DFID lens, but should involve our expertise. The key thing is having the same standards across those Departments and meeting the high quality that DFID deploys.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

I was shaking my head because I agreed with much of what the hon. Gentleman was saying, but my question is about the volume—the amount—and the fact that it is increasing so rapidly. It is well known that many other Departments have looked enviously at DFID’s budget and have attempted to take parts of its cash for many years. My questions are these. Is the aid being spent effectively; is it being used in accordance with the correct principles; and is it coherent across Government policy? As the hon. Gentleman will know, there are some fantastic examples of joint units involving the Foreign Office and DFID, but over a quarter of our aid budget is being spent on a massive increase, and that is a big issue.

Andrew Mitchell Portrait Mr Mitchell
- Hansard - - - Excerpts

Surely the hon. Gentleman can be reassured by the fact that the Government have a double commitment, applying not just to the 0.7% but to the way in which it is spent under strict rules. Of course, any money that is spent by another Department is subject to the full investigation and rigour of the Independent Commission for Aid Impact, which is a very important part of the equation. All ODA expenditure is subject to review and analysis by the development watchdog.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

It is indeed. I am a member of the ICAI sub-committee, and I hope that we will look into these matters in due course, as, I understand, will the National Audit Office. That scrutiny is very important.

Madeleine Moon Portrait Mrs Madeleine Moon (Bridgend) (Lab)
- Hansard - - - Excerpts

I have seen the NAO’s report, and what concerns me is the fact that it states:

“It remains a significant challenge for CDC to demonstrate its ultimate objective of creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places. Given the Department’s plans to invest further in CDC, a clearer picture of actual development impact would help to demonstrate…value for money”.

Is that not the central problem? Does it not lie at the heart of the Bill?

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Absolutely. I shall return shortly to what the NAO report actually said, as opposed to the slightly glossed-over version that we heard from the Secretary of State.

Fiona Bruce Portrait Fiona Bruce
- Hansard - - - Excerpts

The hon. Gentleman is a member of the International Development Committee. He will therefore be aware that the Committee has committed itself to scrutinising ODA whichever Department it is spent through and that the Secretary of State has confirmed that we should have full authority, and her backing, to do so. If he had attended the ICAI sub-committee meeting last week, he would have seen that, for the first time, we had before us a witness from another Department who was scrutinising its spending of ODA.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Indeed. I apologise for not being present at that meeting, but, as you will know, Madam Deputy Speaker, I had other commitments at the time. Obviously, the hon. Lady cannot attend all the meetings of all the groups in the House at any time either; she and I are both busy people. I hope that the Committees will investigate those matters, not least because of the volumes that we are talking about, but also because of the lack of transparency when it comes to documentation and the ability to scrutinise CDC’s spending, not least through its use of tax havens.

These dramatic shifts—under the cover of a “minor technical change” that we should all rush through in the House—must always set the alarm bells ringing for those of us who seek to scrutinise the Government and their decisions. I do not want to spend long on this, but we must feel additional alarm when we look at the agenda of the Secretary of State and consider what she has said about the Department being scrapped and about money being “stolen” and squandered. She does not like some of the headlines that have appeared in the Daily Mail. Obviously, she does not like the headlines that have appeared in newspapers such as the Financial Times. However, we are now seeing wild claims and accusations in the right-wing press which are clearly coming from her Department. Indeed, her special adviser has previously called for the 0.7% target to be abandoned, and in 2013 in The Sun described aid as an

“unaccountable, bureaucratic and wasteful industry”.

Why does all this matter to the Bill? I believe that, faced with the legislative and political constraints of the cross-party support for the 0.7% aid target, the Secretary of State has opted for a stealthier route and has chosen to undermine the Department by diverting and reclassifying aid. I appreciate that others may not share my sense of scepticism, so let me now deal with three practical objections to the Bill. The Secretary of State said that she wanted facts, so let us have some.

I should make it clear at the outset that I am not opposed to the existence of a development finance institution of the CDC’s nature, or to its playing its part in our portfolio of international development efforts. Nor, obviously, do I oppose the funding of private sector projects. The development of a vibrant private sector, key infrastructure and the support of new and emerging businesses in the world’s poorest countries should be a key part of any balanced portfolio of development assistance, alongside investments in basic public services such as health, education, water, and support for agricultural improvement to tackle hunger and nutritional challenges.

The Secretary of State likes to give us the impression that she is the only person ever to have realised the importance of private sector development and trade to tackling poverty and promoting economic development, but the fact is that both have been at the heart of DFID’s work since it came into being, under Governments of all political persuasions. Supporting trade is crucial to international development.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

I totally agree with the hon. Gentleman’s point that economic development has been important to DFID, but does he agree with me that successive Governments have been wholly unresponsive to co-ordinated work on economic development, whether we call it prosperity or trade? Successive Governments have not pulled that together and grabbed the opportunity, which could really help to grow continents such as Africa out of poverty. Much more should be done, and this House should be holding the Government and future Governments to account on this, and ask them to do more, not less, with the private sector.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

It is a mixed record. We had a joint DFID-DTI—as I think the Department was called then—Trade Minister, my hon. Friend the Member for Harrow West (Mr Thomas), who did a lot of good work in trying to bring those things together, ensuring investment went to key infrastructure projects, different corridors in Africa and elsewhere, but it is a mixed record and the hon. Gentleman makes an important point.

There are many CDC investments that I and others welcome, which are well run and have delivered poverty-reducing outcomes in the poorest countries. We have heard about some of them today, such as those in Sierra Leone and Uganda. Indeed we were with the National Audit Office earlier today talking about some of the projects it had visited which clearly do justify our investment.

But where is the robust business case for such a large increase of billions of pounds of taxpayer spending? Why has this Bill been published before a CDC investment strategy? In the explanatory notes, the Secretary of State describes forecast market demand as the justification for the Bill. However, she has not explained this at all there; neither has she done so today, and nor did she in answer to a parliamentary question I put to her. I asked her to explain this concept of forecast market demand, but instead of an assessment that might justify this spending of up to £12 billion of taxpayers’ money, I was given some classic development waffle, such as:

“As set out in the UN’s Global Goals, urgent action is needed to mobilise”.

The answer did not go into any level of detail that we would expect on the spending of such a considerable sum of money.

Let me also be clear that, as Members may have gathered earlier, I am also critical of a whole series of actions and policies at the CDC that I am sorry to say occurred under the previous Labour Government; the sell-off of Actis was mentioned, and there was also excessive remuneration, and massive investments made in markets that already attracted foreign investors—which incidentally is still going on. These are just some of the issues that should have inspired tougher intervention. To give credit where it is due, many of the actions that the right hon. Member for Sutton Coldfield (Mr Mitchell) took in agreeing that new strategy took us away from some of the mistakes made in the past, but my question is whether they have gone far enough in justifying such a huge increase in the funding.

We should look at what the NAO said. Yesterday’s report noted:

“Our previous scrutiny of the Department’s oversight of CDC led to important, positive changes.”

It points to improvements in financial performance, organisation and prospective—let us return to that issue in a moment—development impact, as well as the clamping down on executive remuneration. The NAO also agrees that the strategy set by the Department in 2012 has been met.

However, as my hon. Friend the Member for Bridgend (Mrs Moon) pointed out, the question for the House today is not merely whether the CDC has made improvements on a previous record deeply mired in controversy, or whether it is now adhering to the strategy set for it—which we can argue was right or wrong—in 2012; the question before us is whether a good enough case has been made that the CDC is performing so well and so effectively that it should receive that volume of increase in funding versus other potential outlets for that development spending.

It is common sense that asking any institution, let alone one with a history of recent problems, to take on a significant increase in its funding over a short space of time may lead to less optimal outcomes and, at worst, failure. Were we proposing an additional £12 billion for those dangerous campaigning NGOs or the dastardly World Bank, or worse still the EU development funds, I have no doubt that the Government Benches would be crewed by the anti-aid brigade warning of the risk of our aid being “stolen” or squandered. But because it is for a more obscure part of our development finance architecture and has the words “private equity” and “private sector” associated with it, we seem to be willing to accept a lower level of assuredness.

Flick Drummond Portrait Mrs Flick Drummond (Portsmouth South) (Con)
- Hansard - - - Excerpts

Did the hon. Gentleman also read the bit of the report that says:

“Through tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model”,

and DFID’s

“governance arrangements of CDC are thorough”?

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

I did; I have read the whole report. It also states:

“It remains a significant challenge for CDC to demonstrate its ultimate objective of creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places.”

It goes on to make other serious criticisms. On reporting impact, the NAO says:

“Changes in reporting development impact over the last four years have made it difficult for CDC and the Department to set out a consistent picture of what has been achieved.”

It criticises the CDC’s failure to deliver on the evaluation contract, which was a key part of the business case for the last recapitalisation involving more than £700 million. It criticises the CDC’s claim to have created 1 million jobs, stating that

“in 2015 it reported that more than one million direct and indirect jobs had been created…CDC does not attribute these jobs directly to the investment it makes in the company. Since 2012 it has been considering how to measure job quality but has not yet established an overall methodology to do so…its progress has been slow”.

Worryingly, the NAO warned that

“recruitment and retention challenges remain a significant risk to CDC’s operations.”

That is crucial for an organisation planning a massive financial expansion.

The CDC has indeed clamped down on excessive pay, although the CEO still takes home more than £300,000 a year, which is significantly more than the Prime Minister. However, the NAO also reports that

“the Department and CDC will shortly be negotiating a new remuneration framework”.

Could we expect salaries to go back up? Particularly worrying, one would think, for a Secretary of State who thinks that most of our aid is being “stolen” or squandered is some of the NAO commentary on the CDC’s efforts to tackle fraud and corruption. The NAO tells us that the CDC has

“only recently established systems to consolidate records of all the allegations it receives…This made it harder for it to provide comprehensive reporting to the Department. ”

The NAO report states that DFID’s own internal audit team concluded that the figure of just four allegations of fraud and corruption at the CDC in the entire period from 2009 to 2016 was “surprisingly low”. At the very least, the CDC is worthy of the same level of robust scrutiny and criticism that is levelled at other development funding outlets.

Fiona Bruce Portrait Fiona Bruce
- Hansard - - - Excerpts

The hon. Gentleman asks where the business case is. Has he seen the letter of 23 November from the Secretary of State? In it, she says:

“No new capital to CDC would be released without a business case subject to full Ministerial scrutiny and approval and the agreement of CDC’s board.”

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

That might be reassuring to the hon. Lady, but it does not reassure me, not least because the CDC has not even let the evaluation contract that was a key part of the last business case.

Let me turn to the disjoint between DFID’s priority countries and those in which the CDC operates. That disjoint is likely to grow even larger with such a significant uplift in funding. Even with the refocus in 2012, the list of 63 countries in which the CDC is allowed to invest is significantly larger than the approximately 35 countries on which DFID normally focuses its efforts. The list includes many countries to which DFID has ended its bilateral funding. The CDC can invest in India, South Africa—albeit with caveats—the luxury Indian ocean islands of the Seychelles, the Maldives and Mauritius, and many countries across north Africa including Egypt. Despite their problems and challenges, those countries would not normally be regarded as among the poorest in the world.

According to the House of Commons Library, the CDC spends more in gross aid and official development assistance than DFID does in certain—often middle income—countries and regions, including some rather odd examples such as Algeria, Costa Rica, Mauritius, Morocco, South Africa and Thailand, as well as the more expected locations such as Cameroon, Niger and Côte d’Ivoire. Even if we discount the pre-2012 legacy investments in Latin America, the CDC is still investing the largest amounts in higher-income countries, according to data released to me in another parliamentary question.

At the top of the CDC investment list are India, which has received £760.5 million since 2009, South Africa with £194 million and, oddly, Egypt with £53.6 million. If we include the pre-2012 legacy investments, we find even more odd examples. India, South Africa—with caveats, as I said—and Egypt remain on the list of eligible countries for CDC investments, which is rather remarkable, given the fact that the last three Conservative Secretaries of State have made a huge meal of the fact that aid to India was ending. I find this strange. I took a long time to be convinced of the need to end our aid programme in India. There is clearly severe poverty in a whole series of Indian states. It is odd that a lion’s share of the CDC’s investments continue to go into a country that is not exactly the kind of frontier place for investment that the Secretary of State was talking about earlier. Is she really saying that India struggles to attract private investment capital and that we should be there at the forefront of those giving aid? I would find that hard to believe.

The House of Commons Library has found that the share of new investments in the poorest least-developed countries increased, but from just 4% to 12%, and the increase was from less than 1% to just 4% in the lower-income countries. The lion’s share of the CDC’s investments remained in the lower middle-income countries. The CDC’s own annual report for 2015 admits that its top four highest country exposures are India with 23%; China with 14%; Nigeria with 7%; and South Africa with 6%. It also tells us that just 6% of its investment goes into agriculture and just 6% into education. Bizarrely, those are not far ahead of real estate and mineral extraction. Focus has clearly improved, but the easiest and quickest returns for the CDC remain in certain sectors that are far removed from traditional, vital development impacts and in huge markets such as India and South Africa, not the world’s poorest countries. If the Secretary of State’s agenda is all about building a bilateral trading relationship with India in the post-Brexit environment and if we need to push our aid that way to sweeten deals, we should come clean about that. Many people feel that things are headed that way. Funds are not going towards the Department’s original development objectives.

Why does the CDC require such a potentially massive capital injection of taxpayers’ money when it managed perfectly well without one until last year? It recycles 100% of its profits and has total net assets of £4 billion, which rose by 16% in the last year, and an investment portfolio of £3 billion. Why does it need additional money in such large volumes?

Turning to tax havens and coherence, the Chancellor told us in last week’s autumn statement that the Government are committed to tackling tax evasion, avoidance and aggressive tax planning, and today the Business Secretary told us all about Government plans to crack down on corporate governance. The Government have repeatedly claimed that they have attempted to crack down on tax havens—not least in the aftermath of the Panama papers. Yet we find the CDC’s investment vehicles in those very papers. No less than 11 CDC subsidiaries are located in the Cayman Islands, 40 in Mauritius, and five in the Channel Islands. Oxfam points that three quarters of CDC investments in 2013 were routed through jurisdictions that feature in the top 20 of the Tax Justice Network’s financial secrecy index. Christian Aid has also been critical of the CDC, stating that it

“has been shown to be a heavy user of secretive tax havens, which serve both to obscure what is really going on with its investments and can also reduce the amount of tax its investee companies pay in poor countries”.

Even if Ministers, the International Development Committee or others wanted to scrutinise properly what is going on, the lack of transparency and detail provided by the CDC and the fancy shell companies make it incredibly difficult.

Our wider development and sustainability policies might also be incoherent. Many CDC projects are clearly coherent with DFID objectives and the sustainable development goals. We heard about electricity in Uganda and other excellent examples of investment in micro-finance, so there are clearly many high-quality projects, but there are some odd inconsistencies. The CDC apparently invests £29.2 million in GEMS Education Africa, the website of which describes a network of private fee-paying schools and education providers in “leafy, residential” locations that charge anything from around 582,000 to 1,287,000 Kenyan shillings a year—up to £10,000. The CDC also holds a 22.8% share in Rainbow Children’s Medicare Private Ltd, a fee-paying private hospital group in India that the NAO visited as part of its inquiry, saying that the investment was apparently in the whole company and not even focused on improving access for the poorest, for example. The former Secretary of State, the right hon. Member for Sutton Coldfield (Mr Mitchell), mentioned Feronia Inc. in which the CDC has invested £15.1 million. The main boast on its website is of replanting 13,000 hectares of palm oil, a commodity which is linked to deforestation, habitat degradation and climate change.

Without being able to get more detail from the CDC’s documents, it is difficult to know where the money is going and what it is being used for, but those are odd examples of spending going towards wonderful development objectives. The CDC continues to operate free from day-to-day policy guidance and intervention from Ministers. Oxfam points out that the CDC was assessed as poor in the aid transparency index in 2012, but there have been few improvements since then. All who support the cause of international development and poverty eradication face a tough task in justifying that spending to the public—however small a proportion of overall Government spending it remains. I am sorry to say that the task is not helped in any way by the misleading spin put out weekly in tabloid newspapers by the current Secretary of State, which was not a hallmark of her Conservative or Labour predecessors.

I am normally able to make a case for our development spending by appealing to moral duty and our national interest, not least when it comes to dealing with countries of conflict or instability, or with the huge migration flows we see. I am heartened by those among the younger generations who care about the prospects of our fellow humans around the world. I recently visited Moorland Primary School, in one of the more deprived areas of my constituency, where children told me that they wanted me to speak to Ministers to get more money provided for education in the poorest countries and to ensure that children are able to go to school and that they have healthcare and clean water. I will struggle to explain to those children why the Secretary of State wants to spend billions of our taxes handing money to what is, in effect, a privatised firm that does not need this amount of money; that gives large portions of it to countries that do not need it; that pays its chief executive officer more than £300,000 a year; and that invests through tax havens. It has some laudable aims, but it is not proving its effectiveness.

In conclusion, the Bill massively increases that funding to CDC and it fails three crucial tests. The first of those is the effectiveness test; the NAO assessment simply does not provide the evidence needed to back up such a huge increase in funding—has CDC even requested it? Secondly, it fails the poverty-focus test, as CDC remains massively focused on higher-income countries and high-return sectors, rather than on those that we should be pushing our efforts into. Thirdly, it fails the coherence test, given the continued use of tax havens and projects that simply do not sit comfortably with our wider development objectives. In its current form, this is a bad Bill. That does not mean that I do not support the continuation of the CDC and that I do not recognise that much of its work is good, but this level of increase is a stealthy way of diverting money away from our work in DFID, alongside the diversion to other Departments. We ought to scrutinise the Bill very carefully in Committee.

15:56
James Duddridge Portrait James Duddridge (Rochford and Southend East) (Con)
- Hansard - - - Excerpts

I suspect I am going to have the privilege of serving on the Committee with the hon. Member for Cardiff South and Penarth (Stephen Doughty). I will not go into this at the same length as he did, but he should beware: we are both supporters of DFID and of the 0.7% budget, but our enemies out there will use his comments and his narrative to criticise the fundamentals we believe in. I do not want to stand in the way of proper scrutiny, but hon. Members on both sides of the House should be very careful about the tone of the language we use, because we do now have consensus going forward.

I draw attention to my entry in the Register of Members’ Financial Interests and say from the outset that I am incredibly proud of our 0.7% commitment and of the work that the CDC does. I would find it strange to find any Conservative MP standing to support the work of Clement Attlee and Clare Short in one sentence, let alone one debate, but we do stand united in this work, despite the blips over the years, many of which my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) has resolved or has at least been able to point in the right direction.

My experience of the CDC has been substantive over time. I was a young banker in a small place called Nhlangano, one of the poorest places in Swaziland. It was CDC investment in the Shiselweni Forestry Company, my main client, that really generated wealth for that area. It put food on the table for the thousands of citizens and the hundreds of other clients that I had as a banker in that country. Over the years, Swaziland has been helped by 16 different CDC projects. The one for which I was the banker has now moved on—it is profitable and continuing, but not under a CDC auspice—but the CDC is still in the forestry sector in Pigg’s Peak, Swaziland.

In the Ivory Coast, I was interested in delving into a francophone country, looking beyond the Commonwealth, to see what we were doing in developing middle-income countries that can provide inspiration and trade throughout the geography of west Africa. Although I did not have any clients from the the CDC, I used to work for Banque Atlantique Côte d’Ivoire, now part of the Atlantic Bank Group, in which the CDC has invested. The small bank I was a member of had only about 30 employees. I am not sure exactly what has happened subsequently, but during that investment period that small bank has become much larger, with banks in Benin, Niger, Burkina Faso, Mali, Togo, Senegal and Cameroon. Those countries—a real mix of countries—are hard for British development aid to reach, but are a really good example of where the CDC can assist.

I wish to mention, as other colleagues have, the great work of Diana Noble, who took on the job at a difficult time and who has transformed the organisation and led a very strong team. I wish her well in her future beyond the CDC.

To those who work at the CDC, I say thank you, because in many ways they are between a rock and a hard place. People involved in African private equity feel that those at the CDC are putting development before profit and are not earning lots of money. The non-governmental organisations think that they are putting profit before development. In truth, they are in a sweet spot in the middle, and they do exactly what Clement Attlee wanted: to do good without losing money. In many ways, this is the gift that keeps on giving. Comparison has been made between a pound that goes into traditional aid and a pound that goes into the CDC. The main difference is that the pound that goes into aid is spent immediately, which is very positive, but the pound that goes into the CDC is retained—it is an investment that grows, whether that is by the 7.8% that we have seen over the past five years, or by a slightly more modest investment target of 3%, which focuses more on the development aspect.

As a former banker, I am perhaps the only Member in the House who can get thoroughly excited about compound interest, but, over time, this is a growing pool of money. There are those who will wonder why we are talking about £1.5 billion, when the assets of the CDC are nearly £3.9 billion. That shows the power of investment—of retaining the money. It is the gift that keeps on giving.

I, too, have looked at the investment in palm oil in the Democratic Republic of the Congo, where 9,000 workers are employed. I have dealt with places such as the DRC and Burundi—other colleagues have interacted with them—and they are horrendously difficult places in which to work. They are also politically difficult for the UK Government, but the CDC, through its intermediaries, provides inspiration in those places.

The CDC also actively targets countries that are low on the World Bank’s ease of doing business index, of which I am a great advocate, as a way of proving that business can be conducted more effectively if one can speed up the ease of doing business.

Celtel has been mentioned. Indorama in Nigeria is fantastic. Like Sir Paul Collier, I very much believe that the real benefits and advantages of economic development in Nigeria will come through Port Harcourt and not through the oil industry.

This is, to reiterate a point I made in an intervention, a progressive Bill. I do not share the concerns of the hon. Member for Cardiff South and Penarth that it is a Machiavellian way of diverting money. A business case will come. I do not believe that the Secretary of State will bring forward a business case to spend the full £6 billion over the course of this Parliament. Even if she does, it will still only be 8% of the overall DFID budget for those years. Obviously, the £12 billion of investment is compounded over time. It should not be compared with the slightly larger figure, which is our annual investment in the budget. We need to be careful that our enemies do not take advantage of our criticisms and use the similarity of the figures to make it look like there has been a sea-change on this Bill. If this Bill was about taking money from the poor and making money for the sake of it in India and South Africa, I would not support it.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

I will not take the intervention, because I want to conclude.

I strongly support the CDC. It is the right move and it is a progressive move. I hope that Members from both sides of the House will agree to have a proper debate in Committee and to support the Bill on Third Reading to start to grow Africa in particular but also Asia out of poverty.

16:05
Alan Brown Portrait Alan Brown (Kilmarnock and Loudoun) (SNP)
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It is a pleasure to follow the hon. Member for Rochford and Southend East (James Duddridge). The hon. Gentleman was very robust in saying that the CDC is a gift that keeps on giving, as the aid keeps getting recirculated, but I would gently suggest that if it was as simple as that we would not need international aid at all, because we could just have that gift keeping on giving. It is quite clear that we still need international aid and we need to protect international aid budgets.

It is clear that there is consensus across the House that the principle of the CDC is a good one; a not-for-profit private sector company that encourages growth and additional investment in developing countries is very welcome. We have heard that it has stimulated growth and investment with varying degrees of success over a long period of time. We have also heard that it is not infallible; it has had issues and is starting to address them in a welcome way. Yesterday’s National Audit Office report shows that there are still further issues to address, so I agree we need a robust debate in Committee to try to pick up on them.

We have heard about salaries, and excessive salaries have clearly hit the news in the past. Yesterday’s report welcomes progress on reducing average annual salary costs from a high of £154,000 in 2009 to £90,000 in 2015. That is still quite a decent average salary; I think most people could live off that. The report acknowledges that the CDC has expressed concern about staff attrition and difficulties in recruitment as a consequence of lower salaries, but the report also notes that the staff attrition rate has plateaued at about half of its peak in 2012. I also note that salaries have increased again year on year from 2013. That suggests that a balance has been reached between staff attrition and salaries, but we need to watch that salary levels do not keep on increasing year on year. As we have heard elsewhere, £300,000 for a chief executive is a good salary. It is higher than that of the Prime Minister or of the Secretary of State for International Development. That chief executive’s salary has exceeded £300,000 for two years running now.

Andrew Mitchell Portrait Mr Mitchell
- Hansard - - - Excerpts

Although £300,000 is a large salary, will the hon. Gentleman at least accept that in coming to take this job Diana Noble took a massive salary reduction? He should bear that in mind when considering these salaries.

Alan Brown Portrait Alan Brown
- Hansard - - - Excerpts

I note the right hon. Gentleman’s comments and, yes, if she took a massive reduction in salary that is clearly welcome, and the overall salaries have reduced, which sets a marker for the future if Diana Noble chooses to move on. At least there is a lower salary peg, and she has led the way with that. I accept that, but we need to recognise that it is a substantial salary. That cannot be forgotten.

The NAO report also states that there is now a greater focus on investing in poorer countries rather than markets that already attract foreign investors. That is welcome, but according to a Library paper investment in the poorest countries has increased from 4% to only 12%, with 4% of investment in the next income tier countries. Investment in the upper middle income countries exceeds the combined total of 16% in the lower two tiers. More work needs to be done and a measurable target should be put in place to encourage investment in the lowest income countries.

The NAO report also confirms that, as regards its financial performance, the CDC’s annual return on its portfolio ranges from 4% to 18% against a target of 3.5%. Normally, when a target is massively exceeded that suggests that it is too low or, as seems to be the case here, the returns are too high. If the returns are too high, either more money is being returned from the countries that have been invested in than is necessary or not enough marginal projects are being invested in. That needs to be considered. I accept that some of the historical returns are due to legacy projects that were invested in and had much higher returns because of the hedge fund system, so I hope that that will continue to be addressed and that we will see lower returns and the right investment in projects.

Although the NAO report says that there is a robust cost basis and that the CDC is in a good place to go forward, as has been mentioned by some hon. Members, what stands out is the need for better assessment and reporting of outcomes and the planned impact of investment. A more accurate assessment of the jobs created is required, as well as

“a clearer picture of actual development impact”.

That is crucial. To this end, it is clear that the NAO recommendations on performance targets and an evaluation contract must be implemented as soon as possible.

The NAO believes that the absence of a measure of additionality is a flaw, as additionality is a core principle of the investment strategy. That needs to be remedied. The Department should consider making it mandatory for the CDC to report on the four indicators outlined in paragraph 2.23 of the NAO report, which correlate to the CDC business case.

As has been mentioned, several organisations have expressed concern about the CDC’s tax transparency. “Transparency” is a buzzword that has been used by both the Prime Minister and the Secretary of State. If the CDC does not lead by example, it does not encourage other investors to avoid the use of tax havens. Worse still, the use of tax havens reduces the tax take of developing countries, preventing their Governments from generating additional revenue that they could invest in capital schemes, services or revenue support schemes. As long as the CDC has a model whereby it re-invests profit, it cannot adopt the “profit at any cost” ethos of the worst of the private sector. That becomes self-defeating, and smaller returns resulting from paying its full tax dues should not be a matter for debate.

It is clear that the use of tax havens takes away from the sustainability of developing countries. It is some five years on since the International Development Committee advised that transparency is essential for the public to hold the CDC to account. At present, the CDC is still some way off best practice and the transparency that the Government aspire to. The CDC scored “poor” in the 2012 aid transparency index, so for the Government to commit huge amounts of extra funding before improvements are made is not consistent with the Secretary of State’s stated aim of improving transparency across the aid budget. Aid cannot work in the national interest if three quarters of the CDC’s investments are routed through jurisdictions that feature in the top 20 of the Tax Justice Network’s financial secrecy index. That cannot be in the long-term national interest.

Oxfam has highlighted this issue, as well as other concerns about transparency, suitable investment and the use of tax havens. In addition, Christian Aid, which is a member of the ACT Alliance, a global coalition of more than 130 Churches and organisations engaged in humanitarian assistance, has called for an end to the use of tax havens. It is clear that the practice must be ended.

The founding principles of the CDC are good. Some of its working needs to be fine-tuned, and it is important that this happens before any more Government money is funnelled in. It needs to be explained what share of the overall aid budget this increase constitutes and what other types of aid might be reduced to make way for this investment. As others have asked, why have the Government introduced this Bill before publication of the CDC’s investment strategy for 2017-21? I note that the autumn statement last week shows a net decrease in overseas development assistance of some £80 million next year and a further £210 million the following year. It is crucial, therefore, that an arm’s-length company is not funded at the expense of other required aid. As the NAO report states,

“It remains a significant challenge for CDC to demonstrate its ultimate objective of creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places.”

We must not forget that. We need put in place everything that is necessary to allow that to happen.

16:13
Mark Field Portrait Mark Field (Cities of London and Westminster) (Con)
- Hansard - - - Excerpts

Although this is a relatively straightforward Bill, which I had hoped would have the support of all Members of the House, it is worth examining some aspects of the strategic background to our DFID commitments.

I associate myself wholeheartedly with the wise and experienced words of my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and my hon. Friend the Member for Rochford and Southend East (James Duddridge) when they touched on the transformation of the CDC’s work over the past half-decade or so. I must confess that I did not recognise some of the rather more jaundiced views of its work, as set out in the rather long contribution from the hon. Member for Cardiff South and Penarth (Stephen Doughty).

Fiona Bruce Portrait Fiona Bruce
- Hansard - - - Excerpts

Does my right hon. Friend agree that the selective quoting of the NAO report by the hon. Member for Cardiff South and Penarth, who is no longer in his place, did not do justice to its conclusion that, overall, DFID’s grip on the CDC is strong and that the CDC has made radical improvements since the NAO’s last report in 2008?

Mark Field Portrait Mark Field
- Hansard - - - Excerpts

I agree with everything my hon. Friend has to say.

I am glad that the Secretary of State is now back in her place, and I wholeheartedly support her somewhat expansive approach, which has been criticised in certain quarters during the debate. She appears determined to ensure that the UK utilises all its assets, including the DFID budget, to secure an optimal deal for the nation, not just as we extricate ourselves from the EU, but in the years to come.

That must mean extending DFID’s reach beyond the traditional aid referred to in the debate to broader development and infrastructure and to things such as security, but also to community sustainability and resilience across the globe. That change is long overdue, and I should like briefly to set out some of the somewhat negative ways in which DFID’s culture has developed since the Department was established in 1997, which I sincerely trust the Bill will help to address.

DFID was originally seen as a key component of an ethical foreign policy, centralising in a single Department overseas aid moneys that were previously in the budgets of the Ministry of Defence and the Foreign Office. The result was that those major Departments of State were left at that time with little or no financial autonomy on key international projects—regrettably, in my view.

Instead, a new culture of programming took hold in DFID, which managed out what was seen as inappropriate spending that could cause presentational problems for the Government of the day. Cautious mandarins became more risk averse, and DFID project money was routinely awarded to known international bodies, such as the World Bank or UNICEF, rather than to smaller, nimbler UK organisations and businesses.

That ensured that the Government would not be seen to be promoting corporate Britain abroad under the cloak of humanitarian assistance, but it also left those recognised brands to deal with any fallout, should questions be raised about the success of particular programmes. Indeed, the very respectability of those organisations tended to mute any testing questioning about the effectiveness and impact of what has become an ever-larger amount of British aid money. That shift, I fear, went hand in hand with the emergence of increasingly professional bidders, who learned to speak the language of DFID programmers to win contracts.

Too often, the result has been ponderous, expensive and wasteful programming, and I know that that culture is very much in the sights of the Secretary of State, who wants to eradicate it. In part, DFID programmers have often been overloaded with cash, which has been increasingly bundled off to the international bodies I mentioned. I am therefore absolutely delighted that the Bill increases the scope for money to be used by domestic bodies that are within the Government’s control and able to enact the Government’s priorities in the new world rapidly unfolding before us.

My right hon. Friend the Member for Sutton Coldfield laid out the way in which the CDC rightly operates. There is rightly oversight from not just the Government but a range of Select Committees, but we ultimately leave the organisation to get on and do the job that it is best able to achieve.

We need, above all, to ensure that DFID is not as process driven as it has perhaps been in the past, which has reduced our agility in this field and risked the benchmark for the success of our development aid being simply the amount spent, rather than the added value delivered, as has been referred to. That does not make our ongoing 0.7% commitment to overseas aid wrong—some of my right hon. and hon. Friends would probably disagree with that—and I am absolutely supportive of it, as is my hon. Friend the Member for Rochford and Southend East. Indeed, the case for extending Britain’s reach in this field grows stronger every day as we are confronted domestically with problems whose roots start many thousands of miles away.

I do, though, question whether, particularly as we leave the EU, large parts of DFID’s budget should not now be made available to the Foreign Office, the Ministry of Defence or the Department for International Trade, all of which should, necessarily and rightly, come under some scrutiny and oversight from DFID, but there should, none the less, be that sense of joined-up co-operation within the Government. That would enable and authorise those on the ground, whether in overseas embassies, military bases, or part and parcel of our intelligence services, to spend sensibly, carefully and locally against agreed objectives rather than within the rather ham-fisted DFID programming process.

Lord Swire Portrait Sir Hugo Swire (East Devon) (Con)
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I am listening very carefully to my right hon. Friend and agree with everything he has said so far. Does he agree that there are still some savings to be made by bringing all those agents and representatives of Her Majesty’s Government abroad under one umbrella? Too often we see competing officials from the different Departments who, to save money, should all come under the umbrella of, probably, the Foreign and Commonwealth Office.

Mark Field Portrait Mark Field
- Hansard - - - Excerpts

You can take the boy out of the Foreign Office but obviously, when it comes down to it, you can’t take the Foreign Office out of the boy. I suspect that this will be a live debate going forward. I know that my right hon. Friend feels very strongly about such matters.

Andrew Mitchell Portrait Mr Mitchell
- Hansard - - - Excerpts

My right hon. Friend is quite right to slap down the former Foreign Office Minister, my right hon. Friend the Member for East Devon (Sir Hugo Swire), on his implied suggestion that we should go back rather than forwards and put DFID under the Foreign Office: that is basically what he was saying. We have long ago said that that is the wrong way to proceed. Let me point out that there are already pooled funds of the type that he describes. In my day at DFID—I have every reason to believe that this continues—whenever there was eligible funding under the ODA rules that the Ministry of Defence or the Foreign Office wanted to spend, they would always have access to those funds. The huge amount of DFID money that goes through the Foreign Office now bears testament to that.

Mark Field Portrait Mark Field
- Hansard - - - Excerpts

I would like to think that I am much too diplomatic to slap anyone down, although he knows where we are all coming from.

Lord Swire Portrait Sir Hugo Swire
- Hansard - - - Excerpts

Just to clarify this, I am not sure that my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) was correct in saying what I was proposing. I was certainly not suggesting that the Department should come back within the Foreign Office. I was merely saying that I saw huge synergies to be achieved overseas where we have representatives from many Departments, including the Ministry of Defence, DFID and the former Department of Energy and Climate Change and that we should look towards making greater savings so that we can spend the money where it is needed.

Mark Field Portrait Mark Field
- Hansard - - - Excerpts

I am sure that my right hon. Friend the Member for Sutton Coldfield was not wilfully misleading anyone on these matters. I am going to be slapped down myself by the Whips if I am not careful, because I need to make a little progress.

I hope that in further empowering the CDC, which, as has been pointed out, is 100% owned by Her Majesty’s Government, we are now making way for a more cross-departmental approach, with the DIT and indeed the FCO able to access CDC funds for projects within the key Commonwealth states, particularly in Africa and South Asia.

In this very dangerous and uncertain world, the importance of integrating our foreign aid with military, diplomatic and trade commitments cannot be overstated. To prevent crime, to curb new waves of immigration and to stop the spread of disease, our efforts can be made more effective by concentrating on the source of an issue. Hunger relief and health programmes may of course be laudable in their own right, but British people want urgently to understand how DFID money benefits them personally, and so there will no doubt be widespread support for more money being channelled through bodies such as the CDC rather than—dare I say it?—virtually unaccountable international organisations that have previously received millions of pounds in UK aid. We should also, as a matter of course, communicate how strengthening our ties with developing countries will be of huge benefit in terms of our trade, energy and security interests in this post-Brexit era. By moving away from a situation where too much of DFID’s budget and powers has been placed in the hands of international non-governmental organisations, I firmly believe that we will be able better to fulfil many more of our nation’s broader strategic interests.

16:24
Tommy Sheppard Portrait Tommy Sheppard (Edinburgh East) (SNP)
- Hansard - - - Excerpts

It is a pleasure to follow the right hon. Member for Cities of London and Westminster (Mark Field). It is quite pleasant to be in the Chamber listening to the debate, because even though we appear to have differences over tactics and policies, there does seem to be some agreement on the overall objectives that we are trying to achieve, and I very much welcome that.

As far as I can recall this is, as my hon. Friend the Member for Glasgow North (Patrick Grady) said, the first opportunity we have had in this Parliament to discuss the wider strategic direction of the Department. I welcome the fact that the Government have achieved the 0.7% target. I commend them for doing so and providing an example to the rest of the world, particularly to our partner nations, to encourage them to do better with their aid budgets. Now that the Secretary of State is back in her place, I congratulate her and welcome her conversion to supporting her Department’s aims, rather than continuing with her previous attitude.

I was first exposed to the idea of international development as a kid at school in the late ’60s and early ’70s, when my mum was an enthusiastic participant in Christian Aid Week. I remember her spending a lot of time trying to raise money for Christian Aid to support projects in southern and eastern Africa. That was a long time ago, when I was very young, but I thought it was remarkable that, despite the fact that many people in my community lived in straitened circumstances, there was a common decency—people understood that there were always others who were worse off and that they had a common humanitarian responsibility to make some effort to assist, no matter how small.

Even in those days, there were critics of aid—of Christian Aid, Oxfam and all the others—who took a less selfless and more parsimonious attitude. Their criticism was twofold. They questioned whether the aid was actually going to the people in the destination countries who needed it most, and there was a continual suggestion that the people working in aid and organising the efforts were lining their own pockets.

Many of our NGOs—Christian Aid, Oxfam and others—have had to work for the last 40 years under the veil of those accusations. They make quite sure that they can counter those accusations and demonstrate that they are directly involved in projects in the countries that need it and that they work with the people in those countries to achieve sustainable development. They have also had to make public details of their organisation and cut their administrative costs to the core, so that they can demonstrate that they are delivering the maximum number of pennies per pound for the purposes for which that money was given.

I commend all those NGOs for doing so, but here is the problem with the CDC that we need to address. This does not apply to the majority of the projects in which the CDC is engaged, and it is not the CDC’s objective, but in quite a few cases, and not just occasional instances, public money—taxpayers’ money—has been used for purposes that people such as my mum would have difficulty comprehending. How can we justify, for example, the use of $3.5 million to support the development of a gated community in El Salvador for the super-rich? How can we justify the development in Nairobi of the Garden City Village and the shopping malls—$24 million, in that instance? How can we justify the development in Mauritius of the ocean village, with apartments costing a minimum of half a million dollars? It is difficult to hold those examples up and say that we are doing the right thing.

We need to make sure that that does not happen again. I have had arguments with people who justify such projects on the basis of the trickle-down theory. They say, “It may be a five-star hotel in an area of desperate deprivation, but look at the jobs that are being created.” Anyone who seriously thinks that an investment of $20 million or $30 million to create 50 low-paid service jobs in a hotel is an efficient use of aid money needs to re-examine their priorities. Let us assume that we do not have to engage with that neo-con argument.

I am not simply talking about things not being achieved; the situation is worse than that. By spending money on such projects and making mistakes with them, we may replicate and ingrain some of the structural problems that prevent us from raising the lot of the mass of the population in the first place. We need to be absolutely clear that such projects should not be some sort of international welfare scheme for capitalism, where we allow people to get super-rich while the poorest stay where they are or, in relative terms, possibly become even worse off.

In that context, I want to mention the whole question of salaries and remuneration within the CDC. This is not to criticise or castigate any individual in any way, but I thought the Secretary of State did well to keep a straight face earlier in the debate when she talked about the chief executive’s salary being reduced to just £300,000 per year. Most people would question whether it is right that someone leading an organisation whose ostensible role is to combat global poverty should get that level of reward in that job. I accept that part of the game is to play the private equity markets and to try to lever in funds, and we need to let people play such games. However, I welcome the education from the right hon. Member for Sutton Coldfield (Mr Mitchell), who described the renationalisation of a part of government that was privatised under the Blair Administration. That was right because, while these people are engaged in private equity schemes and trying to play capitalism at its highest level, they should remain public servants. Their ethos and their remuneration—how they are rewarded—should be as part of the Government operation that is working for such people on behalf of this Parliament. They should not be cut loose and allowed to pretend that they can operate like private bankers. I very much hope that we can have a solid look at the level of remuneration that operates in the CDC.

As my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown) has mentioned, yesterday’s National Audit Office report says a number of things. I was struck by the fact that it says—the right hon. Member for Sutton Coldfield remarked that people working in the organisation looked over their shoulder with some apprehension when the Department’s officers came to call—there is a need to clarify that the Department should not be involved in individual project decisions and should distance itself. I agree: you do not own a dog and then bark yourself. If we are to hire people to do the job, particularly where it entails taking risks, we should let them get on and do it. I accept that, but the corollary is that we need to be much more hands-on in determining the strategy within which they operate and about the objectives that they are trying to achieve with their individual decisions. I therefore think it is probably putting the cart before the horse to have a discussion on this Bill before we have seen the CDC’s strategy for 2017 to 2021, which I presume is in preparation somewhere. Will the Minister tell us in his response whether we will be able to look at the strategy when it comes to the House?

The other point I want to make is about transparency. In 2013, three quarters of all the money going through the CDC’s accounts went to fund projects in the top 20 least transparent countries, where we are trying to improve things. Back when we discussed the Panama papers earlier in the year, the then Prime Minister and Government were very explicit about how we would try to clean up this mess and about how Britain would lead a campaign for financial transparency throughout the world. The absence of such transparency of course creates the conditions for illegality and for corruption in many of the target countries that we are trying to get aid to. I presume that that attitude has not changed and that we are still trying to lead a campaign for financial transparency. I therefore think it is very important, through the realm of the CDC, to make sure that when we try to lever in deals in these countries, we do so in a completely transparent way. We could start by making a commitment that the CDC will pay all the taxes due on projects in the countries in which it operates. We should also make sure that we use whatever pressure we can apply through third parties to advance the campaign for transparency.

That is pretty much all I have to say, except that we still live in a world where we have tremendous challenges and problems of extreme poverty, malnutrition, disease and illiteracy. I accept the need to play international capitalism at its own game and to try to lever in funds—to operate in the way that the CDC has been doing—but the end objectives must always be to make that situation better: eradicating poverty, combating illiteracy, eradicating disease. When we come back to look at the strategy document, we must set ourselves the challenge of making sure that everything the CDC does—every project it gets involved in—can, at the end of the day, be justified by attaining those objectives.

16:34
Flick Drummond Portrait Mrs Flick Drummond (Portsmouth South) (Con)
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It is a pleasure to speak in support of a Bill that will strengthen one of the world’s oldest and most respected development organisations. The Commonwealth Development Corporation has always enjoyed cross-party support and has been an important part of the transition of Britain from colonial power to leader of international development. The Bill is a sign of the focus this Government have given to the CDC and to our overseas development programmes across the board. We can be proud of our commitment to supporting overseas development in all its forms.

As my hon. Friend the Member for Congleton (Fiona Bruce) said, when this Government took office in 2010 the CDC was a byword for strategic confusion and mismanagement. Everyone from the National Audit Office to Private Eye could find something to object to in either its structure or its activities. Thanks to the work of this Government, initiated by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and followed up by his successors, the CDC and the way DFID manages it have evolved and improved. The CDC has radically transformed its approach over the past five years, following new objectives agreed with the UK Government. It targets investment where it is most needed, has the greatest impact for the poorest and delivers value for money for the UK taxpayer.

Many of the fears about the Bill and criticisms of the CDC that have been aired today belong to a different era. Some of my constituents have raised the issue of the amount of money that we spend on foreign aid. It is important that that money is spent wisely and transparently in helping countries to develop economically. A strong country will provide for its citizens, meaning that there will not be the economic migration that we have seen over the past few years.

By channelling money through the CDC, we can clearly see where it is going and where it is working. Although the National Audit Office report published yesterday identified some further room for improvement, it was very positive about the work done by DFID and the CDC, as the Secretary of State laid out. I am pleased that Members recognise the great improvements made since the 2008 NAO report and the criticisms of the CDC made by Select Committees in the 2005 Parliament.

I will focus on the reality of the CDC, the future of its work and the potential we will create with the passing of the Bill. The long-term aim of overseas development policy is to build economies and societies like our own—educated, free, and politically and economically stable. The philosophy behind the CDC has always been the same: give someone a fish and we feed them today; teach them to fish and they will eat for a lifetime. In particular, investing in women, where much of our aid is targeted, is investment in a generation, as every mother puts money towards educating their children.

The CDC currently invests in more than 1,200 businesses in more than 70 countries. Those investments supported more than 1 million jobs in Africa and Asia in 2015, almost 25,000 of which were created directly last year. As my hon. Friend the Member for Yeovil (Marcus Fysh) said, there is a virtuous circle of investment, job creation, tax revenue generation for the host Government, creation of sustainable businesses and reinvestment by the CDC at the end of the cycle.

The CDC has reached the ceiling of current Government backing—the Government’s investment of £735 million last year took it up to the limit of £1.5 billion. Through the reinvestment of past profit, it has built up a bigger portfolio, standing at just under £4 billion. It is therefore clear that the CDC is able to support development and recycle the returns to support further investment. We should not be reluctant to enable the CDC to do more and unlock potential. The NAO is clear that the CDC now has an efficient and economic operating model that is working and has improved its procedures for recording allegations of fraud and corruption.

With the clear investment strategy agreed under this Government, the aim is to make the great majority of new investment directly into businesses. If we want to achieve the global goals for sustainable development by 2030, we need to mobilise the private sector and work together. That helps the CDC in two ways. It allows it to help target its involvement at areas that genuinely meet the remit of supporting businesses that struggle to attract private sector investment. It also helps it to meet one of the goals set out in yesterday’s NAO report, namely better tracking of the success rate of the CDC’s investments. The CDC now concentrates on the poorest countries in Africa and Asia, where business finds it hard to attract stable and responsible investment from the private sector. It is right that the development finance institutions lead the way in those countries, and we should not be shy about it.

We invest more in aid overall than our European partners and invest less through development finance institutions. The CDC estimates the investment gap of unmet demand for capital investment in Africa to be more than $100 billion. If we want to bring jobs and growth to the poor, we must help them to help themselves. This simple and, I hope uncontroversial Bill does that. It is not an approval or a commitment to give the CDC access to £6 billion immediately, but to give it when there is a strong, robust, accountable and transparent business case that will provide the best value that aid can provide. I hope the House supports the Bill.

16:40
Richard Fuller Portrait Richard Fuller (Bedford) (Con)
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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.

16:48
Fiona Bruce Portrait Fiona Bruce (Congleton) (Con)
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On behalf of other members of the Select Committee, I inform the House that many of them are abroad on a visit to the middle east but would have spoken in the debate had they been here. It would be wrong for me to indicate how they would have spoken or whether, like me, they support the Bill, but I will put on the record one or two comments previously made by members of the Committee. As long ago as 2011, my hon. Friend the Member for Stafford (Jeremy Lefroy) said in a debate on the CDC:

“It is extremely important that the Government should continue to support CDC.”—[Official Report, 14 July 2011; Vol. 531, c. 169WH.]

An IDC report on jobs and livelihood in the last Parliament stated:

“We are encouraged that CDC has followed our recommendations and has refocused on job creation.”

A final Select Committee example is a recent report on the sustainable development goals, which stated:

“The Government must ensure that the work it carries out to encourage private sector investment, through CDC…is focused on developing and fragile states”.

It went on to mention

“a positive impact on the achievement of the SDGs”,

which the CDC had the potential to achieve. It was interesting to note that in response the Government stated:

“CDC’s mandate is aligned with achievement of the Goals”.

Before I touch on a few of my prepared remarks, I would like to deal with some of comments made by another member of our Select Committee, the hon. Member for Cardiff South and Penarth (Stephen Doughty). He mentioned his concerns about the effectiveness, the poverty focus and the coherence of the CDC’s work, and I would like to respond to these.

The hon. Gentleman said that there should be more emphasis on health and education. However, the CDC’s development impact is amplified by the billions of pounds in local taxes that are generated by the companies it invests in. These help to support the public services such as health and education in developing countries. Over the past three years alone, these companies have generated over £7 billion-worth of local tax revenue. It is important to remember the impact that these taxes can have on those kinds of essential services.

The hon. Gentleman spoke about coherence, and he and others have mentioned transparency, but DFID works very closely with the CDC to ensure that it is at the forefront of global standards of transparency in development impact. Information about all the CDC’s investments is available on a comprehensive database on its website, with details of the name and location of every investment in the portfolio. I am sure that further information would be made available if members of the Select Committee requested it. If DFID is working, as we know it is, with the CDC on a new results framework, this will result in an even better capture of the broader impact of investments on development—even beyond job creation and tax revenue generated.

Finally, the hon. Gentleman raised his concerns about investment by the CDC in a private, fee-paying hospital in India, stating that this might be at odds with DFID’s general approach towards the expenditure of UK aid. However, I clearly remember the Select Committee visiting a private, fee-paying school in Africa not so long ago, and Committee members agreed that DFID’s support for that school was, in fact, well spent, particularly when there was no other option for children in that area to obtain an education. I believe these issues need to be looked at in context, and I am not so sure that support for this hospital is so out of line with DFID’s general approach.

Stephen Doughty Portrait Stephen Doughty
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The hon. Lady raises the issue of private fee-paying education and health. The issue is about where we focus our efforts. Does she not accept that if we continue to support the expansion of private healthcare and education as opposed to supporting public systems that enable free access to healthcare and education, we will effectively supplant countries’ ability to provide national healthcare and education systems that support all their citizens, including the poorest?

Fiona Bruce Portrait Fiona Bruce
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As with so many of these cases, it is not an either/or. It is often both when the need is clearly there and the money can be well spent.

I shall move on to my few prepared remarks about the Bill. I absolutely support the Bill and speak in favour of it. It is essential to look at how to support capital investment in countries where there is a paucity of it. A 2014 report from the UN Conference on Trade and Development calculated a £2.5 trillion annual investment gap in key sustainable development sectors, so the CDC has a very important role to play. It is important to remember that the Bill will allow DFID and the British people, as the CDC’s motto states, “to do good without losing money” on an even greater scale than hitherto. I cannot believe that anyone, even aid sceptics, could really object to that.

The NAO report, published yesterday, chronicles the many positive steps that the CDC has taken and the many improvements that it has made. We have heard many references to the report. It says that through

“tighter cost control, strengthened corporate governance and closer alignment with the Department’s objectives, CDC now has an efficient and economic operating model.”

This morning I spoke to NAO officers who had produced the report over eight months and had visited many projects, including some in Africa. They said that DFID now had a really good grip on the CDC’s work, that there were good lines of communication between the CDC and DFID, and that DIFD’s in-country know-how was being utilised, while it was rightly not interfering in day-to-day management. They identified several cases of CDC investments in areas where the private sector would not have initially dared to go, but three years later private sector money had come in. Indeed, in several instances they saw the results of what they described as “catalytic” investments. They said of the 13 or 14 funds they had inspected in Africa that, with one exception, they were “transformational”. I think that we have a really positive report on which to act.

Of course, there are views about previous investments, but I think it encouraging that 98% of investments are now in Africa and south-east Asia and 82% are in one of the seven priority sectors identified in DFID’s key objectives, which were devised in 2012, following the excellent review conducted by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell).

Without further ado, I shall end my speech, although there is much more that I would like to say in praise of the CDC.

16:56
Imran Hussain Portrait Imran Hussain (Bradford East) (Lab)
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It is a pleasure to follow so many distinguished speakers in all parts of the House. I thank them all for their contributions.

Let me begin by paying tribute, like many others, to the right hon. Member for Sutton Coldfield (Mr Mitchell), the former Secretary of State for International Development, for the good work that he has done. He gave us an eloquent history lesson, explaining how the CDC began. I accept much of what he said, but I think the whole House is united in accepting that his important reviews of the CDC back in 2011, and the strategies and policies that developed as a result, have left the CDC in a better place than it was in four years ago.

The hon. Member for Glasgow North (Patrick Grady) rightly reinforced the House’s commitment to the 0.7% target. He also made an important point, which has not been made enough today, about the implications for our strategic development goals. He welcomed the National Audit Office report, as do I, but urged caution in respect of its findings on transparency and the impact of monitoring, about which I shall say more later. He rightly pointed out that we are still awaiting the important multilateral and bilateral aid reports. However, the Secretary of State has assured me that they will be published on Thursday, and I am grateful for that speedy response.

I think the whole House agrees that my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) is a passionate advocate, and he demonstrated that again today. He made some very important points about the sheer level of funding, another issue about which I shall say more later. He also drew attention to three boxes that needed to be ticked. I agree with him that the case has yet to be made.

The hon. Member for Edinburgh East (Tommy Sheppard), as always, made a passionate speech in his own style. He made an important point about the strategy and policy investment that was not forthcoming, and, like many Members, suggested that we were virtually putting the cart before the horse.

We on this side of the House want to reaffirm our commitment to poverty alleviation, which should be at the centre of DFID’s work. We recognise that the development of businesses around the world has a strong role to play in international development, through building economies by improving infrastructure and helping to put money into people’s pockets at the end of a hard day’s work, which is one of the surest ways of alleviating poverty. We also recognise that it has a strong role to play in the achievement of the eighth sustainable development goal: promoting economic growth, productive employment and decent work. It is therefore right that during the passage of the Bill we scrutinise both the Bill itself and what it will do, or will not do, for developing countries and the ability of the CDC to deliver for them.

Despite the Bill’s small size, it will have huge ramifications for the developing world and the UK’s development agenda. As previously outlined by my hon. Friend the shadow Secretary of State, we have several important points that we would like to see addressed.

The first is the worrying concern about the sheer size of the increase in assistance that DFID will be able to give to the CDC. In 2015, the previous International Development Secretary committed an additional £0.7 billion of funding to the CDC, but the Bill seeks to dwarf that by a large measure, by increasing the assistance to £6 billion. Moreover, the Secretary of State seeks the power to increase the limit to £12 billion through a statutory instrument, creating unease on the Opposition Benches that the Secretary of State will easily be able to extend the limit by £6 billion just through an SI, a move we believe to be wrong in principle.

We acknowledge that the assistance limit may have been reached—a substantial limit that has stood for just as substantial a period of time—but increasing assistance to this level has the potential to result in a considerable movement of ODA spending away from DFID in the traditional sense. That is particularly troubling given that the answer provided to my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) stated that 25% of ODA will be spent outside DFID and that the Secretary of State repeatedly states an intention to move DFID’s focus towards trade over traditional aid and development. If the Government want to move so much of DFID funding through the CDC, we need assurances that it is not a mechanism through which they can effectively privatise development, placing more money in the hands of investment funds whose main focus at the end of the day is not poverty but profit, while at the same time moving it out of the hands of development NGOs.

This takes us on to the next issue that we have raised today: for what purpose does the CDC require further assistance? After all, the current £1.5 billion assistance limit has stood a strong test of time and the CDC’s business model sees it largely self-financing, with healthy profits reinvested in projects. Therefore, if we are to support this Bill throughout its passage, we need to see updated documents provided and published by the CDC—namely, a new strategy for 2017 onwards, alongside a new investment policy for the next five years, both of which must set out what the CDC intends to do with such massive assistance being made available to it. Essentially, we must avoid a situation in which we would be putting the cart before the horse by granting funding assistance before actually seeing what purpose it will be used for.

Another area of concern raised is the scrutiny and oversight of the CDC’s development impact. On this issue, we note the findings of yesterday’s NAO report. The accuracy of the CDC’s self-assessment through its development grid and its declaration of the development impact of its investments cannot be guaranteed, because it assesses their prospective impact rather than the actual impact. Consequently, the CDC might believe that it is having a positive impact, but the actual impact could be very different. If DFID wants to increase its assistance to the CDC, it must carry out full, frequent and regular assessments of the development impact, beyond the CDC’s own measuring criteria.

We on this side of the House have raised concerns over the use of tax havens by the CDC, and our concerns are well founded. In 2013, £180 million of the £375 million given to investment funds by the CDC went to funds domiciled in notorious tax havens such as the Cayman Islands, Guernsey and Jersey. That is almost 50%. This use of tax havens denies tax revenue to developing countries, avoids capital gains tax and deepens existing governance and corruption issues in developing countries. This is happening despite the Prime Minister’s recent announcement of a crackdown on the use of offshore tax havens in the wake of the BHS scandal, and it is exactly the opposite of the kind of work that the CDC has a duty to carry out.

We have outlined our substantial and genuine concerns about the Bill, and we hope that the Government will give us a genuine response to those concerns and to the six questions that the shadow Secretary of State set out earlier. We look forward to hearing their response. We will not oppose the Bill’s Second Reading this afternoon, but if we do not receive adequate assurances or see positive steps being taken by the Government to address our concerns, we reserve the right to withhold our support for the Bill on Third Reading. Facilitating economic growth is of course important in the developing world, but development should always be the focus, and we on this side of the House will work to ensure that it remains so.

17:07
Rory Stewart Portrait The Minister of State, Department for International Development (Rory Stewart)
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I want to say a great thank you to all the hon. and right hon. Members who have taken part in the debate. I particularly praise the tone set by the hon. Member for Edinburgh East (Tommy Sheppard) and the way in which he picked up on the good atmosphere in the Chamber. I also pay tribute to the tone set by the shadow Secretary of State, the hon. Member for Edmonton (Kate Osamor) and by the shadow Minister, the hon. Member for Bradford East (Imran Hussain), and to the constructive way in which they have approached this short but quite technical piece of legislation.

Four major types of concern seem to have been raised today, and I will try to deal with them briefly, with the aim of stopping at exactly 5.20 pm. Those questions were as follows. Why are we focusing on private sector-led economic development? How do we balance the private and public inclusion in that development? Why are we using development finance institutions and, in particular, what quantity of money are we putting into them? Why are we specifically putting money into the CDC? That last question relates to concerns that have been expressed about the governance and transparency of the CDC. I shall try to deal with those four types of challenge in turn.

The first is a general concern about the weight that we place on the private sector’s role in economic development in general. That concern was expressed by a number of people today, particularly Members on the Opposition Benches. The shadow Secretary of State used the word “profiteering”, and the hon. Member for Edinburgh East talked about international capitalism. The right hon. Member for Leicester East (Keith Vaz) spoke of distracting our attention away from humanitarian concerns, and the hon. Member for Glasgow North (Patrick Grady) was worried that some of the investments might be made at the cost of other potential investments. The hon. Member for Kilmarnock and Loudoun (Alan Brown) emphasised the fact that aid is needed as well, and the hon. Member for Cardiff South and Penarth (Stephen Doughty) emphasised the importance of health and education.

The way in which to deal with these generic concerns about the role played by the private sector in economic development—and with all the matters in the general portfolio of the Department for International Development —is to state that what we are talking about today is just a part, not the whole, of what DFID does. Economic development is absolutely vital—I will come on to that—but it is currently less than 20% of the Department’s overall portfolio. The shadow Secretary of State quite rightly raised water and sanitation as important elements of our Department’s strategy—they are—but they are not primarily delivered through development finance institutions. The £204 million that we spent in 2015-16 came from other parts of the Department’s budget. As for the humanitarian concerns mentioned by the right hon. Member for Leicester East, the £2 billion that we are spending over this period on Syria alone comes from other parts of the departmental budget.

However, as pointed out by the hon. Member for Yeovil (Marcus Fysh), poverty alleviation cannot happen without economic growth, and that relies on the private sector. It relies on the private sector for jobs, for Government revenues and for the services that the sector provides. It is not a zero-sum game. The hon. Member for Glasgow North issued a challenge when he talked about investments coming at the cost of others, but it is not that kind of zero-sum game. To take a specific example, we were criticised by one Member for some of our investments in electricity, as opposed to other forms of infrastructure, as though that was somehow at the expense of other developmental objectives. However, that electricity not only delivers jobs through the business side, but allows us to deliver our objectives in health and education. We cannot have a decent education service and get children into school if there is no electricity and they have to go 10 miles to pick up firewood. We cannot deliver decent healthcare in Africa unless there is refrigeration for immunisation drugs and unless we have the electric lighting that allows doctors to perform surgery in the clinics.

We are delivering on the STGs, particularly goals 7 and 8 on energy and economic growth. Ellen Johnson Sirleaf, who is both a distinguished international civil servant and a President of an African state, has said that poverty in Africa cannot be eliminated without private sector growth. That also reflects the demands of Africans themselves. I was taken by the statements of my hon. Friend the Member for Bedford (Richard Fuller) about mutual respect. Recent surveys conducted in sub-Saharan Africa show that sub-Saharan Africans identify energy and jobs as two of their top three priorities at a level of 80% or 90%. We should respect their wisdom and desires when we talk about the kind of development investments that we make.

The next question is how to balance the roles of the public and private sectors in delivering development. I do not want to talk about this too much, but it is clear that there are serious constraints on the public sector’s ability to deliver all forms of commercial activity, partly because it often lacks the skills to ensure that those things happen. It lacks the skills to understand the market dynamics, the logistics, the productivity and the efficiency. We have all seen well-intentioned charitable and Government development projects attempt to set up businesses that have not worked. However, as Opposition Members have pointed out, the private sector cannot do it on its own—there are clear market failures. Returning to electricity in Africa as a good example, the private sector has clearly failed. If the private sector had been able to do things on its own, we would not be in a position where only 6 GW of power generating capacity has been built in Africa over the past decade. In China, 8 GW of capacity is built every one to two months.

That brings us to the question why we are putting money into DFIs, which was the particular challenge of the shadow Minister. The shadow Minister and the hon. Members for Glasgow North, for Cardiff South and Penarth and for Edinburgh East focused on the quantity of investment. The response is that I am afraid that some people still confuse stock and flow—in other words, the annual overseas development spend and the creation of a capital fund. The second response is that it is an option, not a commitment. What we are doing is raising the ceiling for what CDC, through rigorous business cases, can request; we are not imposing this on CDC. Over a five-year period, even if the maximum were drawn down, we would be talking about 8% of the total anticipated ODA spend, which is smaller than the amount I calculate the Scottish Government appear to be putting into a similar instrument in proportional terms.

There have been challenges on strategy. The strategy will be produced in line with departmental practice at the end of this year, but this Bill is enabling legislation, so we are putting the horse before the cart. We need the enabling legislation in place—we need the ceilings to be lifted—before we can look at individual business cases that wish to draw down on that money.

That brings us to the overall question why use DFIs at all, and I wish to pay a huge tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who provided perhaps the most powerful explanation of why we go into these mechanisms in the first place. The answer of course is that they bring together the very best of the private sector and the very best of the public sector. They provide the discipline of the private sector in insisting on returns that produce sustainable enterprises and sustainable revenues; and they provide freedom from political interference and they provide leverage. To respond to my hon. Friend the Member for Bedford, let me say that they also allow us, as my hon. Friend the Member for Portsmouth South (Mrs Drummond) pointed out, to draw in other forms of capital behind. Some £4 billion of investment from the CDC has drawn an extra £26 billion into our investments in Asia and Africa. In addition, this approach provides good value for money for the taxpayer.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

The Minister is talking about the capital that this approach has brought in, but that has not always been in areas where capital has not been available—I think of places such as India. Given that he is about to publish the bilateral aid strategy, will he consider forcing the CDC to look more closely at the lower-income countries in Africa and elsewhere that need the investment the most?

Rory Stewart Portrait Rory Stewart
- Hansard - - - Excerpts

I am trying to move towards my 5.20 pm conclusion, but let me deal with that quickly. As I was saying—and this partly answers the point—we are combining the best of the private sector incentives with the best of the public sector, because we are exactly able to prioritise maximising development impact. That is where our development impact grid, which, with respect, the hon. Gentleman is not providing enough focus on, answers his question. Members on both sides of the House should be aware that that grid targets explicitly countries with the lowest GDP per capita, countries where investment capital is not available and countries where the business environment is worse—that is the Y axis of the grid. On the X axis of the grid, we have sectors in which the maximum employment is generated. Every business case since 2012 has been assessed exactly against those criteria, which is why, as my right hon. Friend the Member for Sutton Coldfield has pointed out, many of the criticisms made today—the idea that somehow the CDC has lost its way—are not appropriate for the CDC of 2106; they are appropriate for the CDC of 2012 or 2010.

Let me deal with a few of the objections. An investment in Guatemala was mentioned, but all investments in Latin America stopped in 2012. An investment in Xiabu Xiabu in China was mentioned, but all investments in China were stopped in 2012. The issue of pay was raised, but, as has been pointed out again and again, the pay of the chief executive has been reduced by two thirds, to a third of its predecessor. Tax havens were mentioned, but we no longer, in any way, ever invest for reasons of tax or secrecy; we invest only to find secure bases for investment and to pool other forms of capital. All our investment goes simply into locations that meet the highest OECD transparency standards. On development impact, our DFID chief economist, Stefan Dercon, has worked with some of the most distinguished academics in the world, from Harvard and elsewhere, to create exactly the kind of impact that people are pushing for.

That is why right hon. and hon. Members should support this Bill. It is not only because of the history of the CDC, to which the shadow Secretary of State paid such good tribute to in her opening remarks: its experience of 70 years; the culture it has developed; the extraordinary brand that the institution has in Africa and south Asia; and the focus that my right hon. Friend has brought to this institution since 2010—its rigour and its narrowness of focus, which makes it very unusual among DFIs. It is one of the only DFIs in the world to be spending so much in conflict-affected states. It is accountable directly to DFID, which owns 100% of its shares. The examples of its performance today can be seen in the DRC; in places such as Burundi, where off-grid power would not be built without the CDC; and in its investment in energy through Global in Africa.

In conclusion, we should take pride in this institution; it is a very great British institution. In its historic evolution it has gone from a past where it was dominated in the 1950s by ex-military officers interested in building rafts and going into jungles to its current leadership under Diana Noble, a chief executive who exemplifies much of the best in development thinking and some of most progressive intuition in the British Government. She ensures that we are delivering in Pakistan gender-based programming that affects workers’ rights and that we have an institution that is today highly relevant and that faces and solves some of the greatest development challenges in this century.

Question put and agreed to.

Bill accordingly read a Second time.

Commonwealth Development Corporation Bill: Programme

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Commonwealth Development Corporation Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 8 December 2016.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on Consideration.

(5) Any proceedings in legislative grand committee and proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion four hours after the commencement of proceedings on Consideration.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Andrew Griffiths.)

Question agreed to.

Commonwealth Development Corporation Bill: Money

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Commonwealth Development Corporation Bill, it is expedient to authorise:

(1) any increase in payments out of the National Loans Fund or money provided by Parliament resulting from provisions of the Act—

(a) increasing the limit in section 15(1) of the Commonwealth Development Corporation Act 1999 to £6,000 million; and

(b) conferring power to increase that limit to an amount not exceeding £12,000 million;

(2) any increase attributable to those provisions in the extinguishing of liabilities in respect of guarantees under the Commonwealth Development Corporation Act 1999; and

(3) any increase attributable to those provisions in payments into the National Loans Fund or the Consolidated Fund.—(Andrew Griffiths.)

Question agreed to.

Commonwealth Development Corporation Bill (First sitting)

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

(7 years, 7 months ago)

Public Bill Committees
Read Full debate Commonwealth Development Corporation Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 6 December 2016 - (6 Dec 2016)
The Committee consisted of the following Members:
Chairs: Joan Ryan, †Mr Gary Streeter
Boswell, Philip (Coatbridge, Chryston and Bellshill) (SNP)
† Bruce, Fiona (Congleton) (Con)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Duddridge, James (Rochford and Southend East) (Con)
† Elmore, Chris (Ogmore) (Lab/Co-op)
† Fuller, Richard (Bedford) (Con)
† Grady, Patrick (Glasgow North) (SNP)
† Graham, Richard (Gloucester) (Con)
† Griffiths, Andrew (Lord Commissioner of Her Majesty's Treasury)
† Hussain, Imran (Bradford East) (Lab)
† Lefroy, Jeremy (Stafford) (Con)
† McGovern, Alison (Wirral South) (Lab)
† Osamor, Kate (Edmonton) (Lab/Co-op)
† Scully, Paul (Sutton and Cheam) (Con)
† Stewart, Rory (Minister of State, Department for International Development)
† Tolhurst, Kelly (Rochester and Strood) (Con)
Colin Lee, Glenn McKee, Committee Clerks
† attended the Committee
Witnesses
Rory Stewart MP OBE, Minister of State, Department for International Development
David Kennedy, Director General for Economic Development, Department for International Development
Diana Noble, Chief Executive Officer, CDC Group
Graham Wrigley, Chairman, CDC Group
Tom McDonald, Director Department for International Development Value for Money, National Audit Office
Terry Caulfield, Value for Money Manager, National Audit Office
Gideon Rabinowitz, Development Finance, Oxfam GB
Sir Paul Collier CBE, Professor of Economics, Blavatnik School of Government, University of Oxford
Saranel Benjamin, International Programmes Director, War on Want
Public Bill Committee
Tuesday 6 December 2016
(Morning)
[Mr Gary Streeter in the Chair]
Commonwealth Development Corporation Bill
09:24
None Portrait The Chair
- Hansard -

This is quite an unusual procedure for those who are not used to it. We are now sitting in public and our proceedings are being broadcast. Before we begin, I have a number of preliminary announcements. Please make sure that mobile phones are switched off or to silent. Tea and coffee are not allowed; please help yourself to water. We will first consider the programme motion. In accordance with my normal practice, we will start with the shadow Secretary of State, and then we will listen to whoever indicates that they wish to speak. We do not need to allocate questions. Is everybody happy with that? Yes? Excellent. We will then consider a motion to enable the reporting of written evidence for publication. In view of the time available, I hope that we can take these matters formally without debate.

Resolved,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 6 December) meet—

(a) at 2.00 pm on Tuesday 6 December;

(b) at 11.30 am on Thursday 8 December;

(2) the Committee shall hear oral evidence in accordance with the following Table:

Date

Time

Witness

Tuesday 6 December

Until no later

than 10.30 am

Department for International

Development; CDC Group plc

Tuesday 6 December

Until no later

than 11.25 am

National Audit Office; War on

Want; Oxfam; Sir Paul Collier,

Blavatnik School of Government,

University of Oxford



(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 1.00 pm on Thursday 8 December.—(Rory Stewart.)

None Portrait The Chair
- Hansard -

I can announce that the deadline for amendments to be considered for line by line Committee sittings has passed. I hope everyone got them in on time.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Rory Stewart.)

Examination of witnesses

Diana Noble, Graham Wrigley, Rory Stewart and David Kennedy gave evidence.

09:28
None Portrait The Chair
- Hansard -

Do any members of the Committee wish to make declarations of interest? No? Good. We will now hear oral evidence from the Minister and from the chair and chief executive of the CDC. Before calling the first member to ask a question, I would like to remind all members that questions should be limited to matters within the scope of the Bill, and we must stick to the timings in the programme motion agreed by the Committee. We have until 10.30 am for this session. Could the witnesses introduce themselves for the record?

Diana Noble: I am Diana Noble and I am the Chief Executive of CDC.

Graham Wrigley: I am Graham Wrigley and I am the chairman of CDC.

Rory Stewart: I am Rory Stewart and I am the Minister of State, Department for International Development.

David Kennedy: I am David Kennedy and I am the director general for economic development at DFID.

Kate Osamor Portrait Kate Osamor (Edmonton) (Lab/Co-op)
- Hansard - - - Excerpts

Good morning. CDC’s operational policy published in March 2014 on the payment of taxes and the use of offshore financial centres dictates that CDC would invest through a jurisdiction that is not successfully participating in the Global Forum only in exceptional cases. What would be the exceptional cases in which it would use these jurisdictions?

Diana Noble: Let me first say that CDC’s use of OFCs has nothing to do with secrecy or reducing tax. We take pride in the payment of corporation tax by our portfolio companies in the countries where we invest— it is one of our development indicators. We use OFCs for two important reasons. One is for legal certainty; the other is to pool capital in neutral places. Let me explain both of those. CDC’s mission is to invest and grow businesses in some of the poorest companies in the world. Unfortunately, many of those places do not have legal systems that allow us to invest with certainty that, if there is a dispute, we will be able to get our money back. Of course, one of our big areas of responsibility is to look after UK taxpayers’ money: that is part of our mandate. So unfortunately, for some places where we invest we have to go through an offshore structure.

The second point is that we have a very important mission to pool capital from other investors to come in alongside us into difficult countries. This is an enormously important role. If we look at CDC’s investments from 2004 until now, we have supported fund of funds that total $30 billion in Africa and south Asia, of which CDC has only provided $5 billion—so that is $25 billion from other investors. Those investors come from lots of different jurisdictions themselves, so the capital does have to be pooled somewhere. Those investors, who are already cautious about the countries in which the investments are being made, have a lower risk tolerance than CDC does, for legal certainty; so they insist on a safe jurisdiction. We, however, do play our role, because we insist that that pooling is done in the best, or the most compliant, of the offshore centres in the OECD register.

Do we think that the situation is ideal? We don’t. We look forward to the day when every country where we invest has a safe legal regulatory system, where we can invest directly in every single country; but that is not the case today. What we have done, though, is encourage an important project that we have been working with DFID on, to examine the possibility of an onshore centre in Africa. That work has led to the Governments of Kenya and Rwanda taking this very seriously. It would be a very long-term project, but we are very keen that it gets progressed over time.

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

Q How many offshore jurisdictions do you currently use?

Diana Noble: It is a short list. We can provide absolute clarity about exactly how many, subsequent to this Committee. On the list are certainly Mauritius, which is well accepted as a place for pooling capital, particularly for Africa and south Asia; Guernsey; and Cayman Islands.

Rory Stewart: I have the list: at the moment, it is Cayman Islands, Guernsey, Jersey, Luxembourg and Mauritius.

None Portrait The Chair
- Hansard -

Kate Osamor—are you happy?

Richard Fuller Portrait Richard Fuller (Bedford) (Con)
- Hansard - - - Excerpts

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—

None Portrait The Chair
- Hansard -

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 Portrait Richard Fuller
- Hansard - - - Excerpts

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 Portrait Richard Fuller
- Hansard - - - Excerpts

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 Portrait Richard Fuller
- Hansard - - - Excerpts

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.

None Portrait The Chair
- Hansard -

Thank you. We will move on. Alison McGovern.

Alison McGovern Portrait Alison McGovern (Wirral South) (Lab)
- Hansard - - - Excerpts

Q I have two questions. The first is for the CDC—I do not mind if you answer, Diana, or if Graham does—and the second is for the Minister.

The first question is on crowding in versus crowding out. What is your measure for additionality? Can you tell me numerically what the test is? How do you know for sure that you are not doing what the private sector would do anyway, and how numerically do you know that projects and funds are meeting that test?

Secondly, the Bill proposes an incredible level of freedom on investing in the CDC. Why is the cap so high? Why are we expressing such a high level of confidence in CDC, as opposed to any other aid mechanism?

Diana Noble: I am happy to take the first question. It is a very important question that has been extremely high on the agenda of the board and the management team over the past five years.

We felt back in 2012 that this had not been taken seriously enough by the CDC pre-2012. We engaged an extremely experienced person—ex IFC—to look at the whole area of additionality for us. He wrote a long report and went to talk to all the other DFIs as well. Our guidance to him was, “We want CDC to have the highest standards of additionality across all the DFIs.” This is a difficult area. He has written a long report and I would be very happy to share it with Committee members.

The report led to some broad principles that say that CDC completely understands that we must play a unique role in every investment that we make. This is not generic across a portfolio; this is a standard that the investment committee applies for each investment that we make. We must be satisfied that our unique role is either that we are bringing capital that another investor will not bring or that we are bringing some unique expertise that is important and will lead to a material improvement that another investor will not bring. We take that incredibly seriously.

The team of CDC has no interest in doing what the private sector will already do. We take real pride in being distinctive and bringing something special to our investing companies.

Alison McGovern Portrait Alison McGovern
- Hansard - - - Excerpts

Q May I briefly follow up on that? You say that either there is not another investor, which is clear, or that we need to bring some unique experience. What does that really mean? That seems to me like a catch-all.

Rory Stewart: The primary measure that has been set by the Department is the development impact grid, which defines what the most difficult countries are in which to invest. It looks at three criteria—GDP per capita, the amount of capital available and the difficulty of doing business. The last two help us from a strategic level to answer your question. I will hand back to Diana.

Diana Noble: You are right. It is at the point of investment that we say we are bringing expertise to a company. That is a forward look. It would typically be environmental and social issues. For example, we worked with an online retailer in India to transform how they thought about their supply chain and to sign them up to the ethical trading initiative, which was the first time that any online retailer in India had done that.

Of course, we are saying that at the point of the investment. We do not know whether it is going to happen. What we have done—again, we are the first DFI to do this—is implement an external objective review of every case, in which we only justify it on this additional expertise, not on capital. We had our first report back that said that in all of those cases—they are a minority—we did in fact actually deliver and in a lot of cases we delivered more than we expected at the time of the investment committee. I agree with you that none of us should be justifying an investment on an expectation that does not happen.

Rory Stewart: The answer to the second question is that over a five-year period we are looking at a ceiling option on the basis of a business case of CDC being able to draw down up to £4.5 billion. That is a very large sum of taxpayers’ money and we need to be very responsible about it. It is also worth putting that in context. The overall annual expenditure is estimated at £12 billion. To put that £1 billion in context, in a single year we would typically put something in the region of £5 billion into multilateral institutions. To illustrate that what we are putting into CDC is not out of proportion to other comparable investments, the type of funding we produced for the World Bank over the last three-year period was £3.3 billion. We are about to do another replenishment, but it is of that order.

Why are we putting it into CDC? Well, there are a couple of reasons. One is that we believe CDC is a very effective vehicle for delivering jobs and economic development in some of the hardest places in the world. The second thing, contextually, is that there is a difficult issue, to which we can return, of comparing a stock with a flow—in other words, comparing what will be a capital fund for CDC with the annual expenditure of the Department—but even at 8% we are likely to be significantly lower than the amount of money that Germany or France, for example, put into their equivalents.

None Portrait The Chair
- Hansard -

A quick follow-up.

Alison McGovern Portrait Alison McGovern
- Hansard - - - Excerpts

Q Minister, you mentioned the index that is designed to drive investment to the poorest parts of the world, yet we have heard about investment in online retail in India. My understanding was that the Government’s policy is to move investment away from middle income countries, or countries towards the middle income range, such as India. How can the two approaches fit together? It makes no sense.

Rory Stewart: In the grid, we break India down by state and target the poorest states. There is a transition in India. You are absolutely right that the Government have decided to move away from traditional development grants and into technical assistance and the kind of financing that CDC would produce. We do two things in an Indian context: we target the poorest states and, specifically on the question of the online retailer, we are able to do things in India that we might not be able to do in some of the more testing, difficult markets. With that particular online retailer we are also able to focus on driving up labour standards and making sure that skills and worker safety are protected. It is worth bearing it in mind that India, despite all its very strong economic performance, still has some of the very poorest areas in the world. Enormous numbers of people are on less than $2 a day, and many are on less than $1 a day.

Patrick Grady Portrait Patrick Grady (Glasgow North) (SNP)
- Hansard - - - Excerpts

Q I would like to probe a little more on the specifics of the hard figures in the Bill—the £6 billion and the ultimate cap of £12 billion. Where do those numbers come from? What was the needs assessment that these are about the amounts of money that the Department feels CDC needs? Was there dialogue between the Department and CDC to reach those amounts? Why go for such hard figures, rather than some kind of proportional formula? Is there any indication of a timescale in which these amounts might eventually be reached?

Rory Stewart: It is a question of setting a ceiling. We welcome this, but it is quite unusual in the Department’s spending to have to go through primary legislation in order to make a financial allocation. I mentioned to Ms McGovern that, in a three-year period, we would allocate, say, £3.3 billion to the World Bank. We do not do that through primary legislation. This Bill attempts to give the Department the ability to do what we do with the rest of our budget, which is to make decisions on the basis of ministerial decisions, accountability to Parliament and strategic decision making. Specifically in relation to CDC, we would like the ability, should a business case emerge, to give it more money without having to come back to Parliament with primary legislation every time we wished to do so.

Where was the figure arrived at? Well, the figure was arrived at after a discussion with CDC about the maximum possible amount it could realistically require over the period, which takes into account its staff resources, the demand in the developing world and its past spend. If you look at CDC’s last round, it put about £1.2 billion through in a year, of which £735 million was a recapitalisation from the Government.

Looking forward over the next five years—2016 to 2021—this would allow them to draw down something of the order of £1 billion a year. In effect, it is only £4.5 billion because of that £6 billion they already have £1.5 billion. On the next bit of what they take in the future, if I’m honest with the Committee, my preference would have been to say, for the reasons and principles I laid out in relation to our other spend—our investment to the World Bank—that Ministers could come back through secondary legislation. A statutory instrument is how I just did a £350 million addition to the World Bank. I think you were on that Committee, Mr Grady. That would be the process we would hope to do with CDC.

My preference would have been to just give Ministers the power to go to a Statutory Instrument Committee to ask for that money, but the Clerks of the House advised us that it would be better to set a financial limit to that power, so we chose for the period 2021 to 2026 the same amount we chose for 2016 to 2021. That is how that figure is arrived at.

Imran Hussain Portrait Imran Hussain (Bradford East) (Lab)
- Hansard - - - Excerpts

Q Just to build on the point made by Mr Grady in his question to the Minister, I listened to the answer, but in the absence of a business case strategy or investment policy I am finding it difficult to understand how we can arrive at those specific figures because there is nothing to suggest how that money will be spent.

Secondly, does CDC have the capacity, given the totality of its lifetime spend of £1.5 billion? Such a massive increase would be an issue. Another question, probably to the Minister, is around the point made earlier by Ms McGovern and the areas where we have availability of private sector financing. Is there any idea of where the new strategy or investment policy will go with that? I take on board the example used—India. I accept that India has pockets of poverty, but in comparison private sector financing is more readily available perhaps than for other target areas.

Rory Stewart: Those are three very good questions around the business case, capacity and private sector financing. I will take them one by one.

The idea of this proposal—the primary legislation—is to provide an indicative ceiling around which a business case can be organised. Within the Department, we would expect to produce a business case and to have some sense of what money would be available. Currently, there would be no money available so it would not be possible at the moment for anyone to write, as the Department would hope, the forward strategy for future investment or produce a business case, which we hope to do in the summer of next year because Parliament would not have given us permission to give any more money to CDC.

Bluntly, if the Committee decided not to pass this legislation, CDC would have to start reducing staff and we would have to scale down significantly the future programme of investments because there would simply be no money legally available to CDC and there would be no purpose in producing a business case in the summer for future investment because that money has already been allocated. So we believe it is important to get your permission in principle for a seemly amount that we could give CDC should a business case be produced to meet it. That brings me to the second question.

I will hand over to Graham and Diane in a second, but I am absolutely certain that the board of CDC and its chief executive will not request the money from us if they do not feel they have the capacity to spend it and if market demand does not exist for that expenditure. They are under a strong obligation to their board to make sure they take this money responsibly, so even in a case in which DFID does its business through consultation with CDC and we decided, for the sake of argument, that a reasonable sum of money going forward over a five-year period was, let us say, £3 billion—I chose £3 billion because the £4.5 billion is a ceiling and we are not saying we will take that. That is what this business case is about. So let’s say it was £3 billion. They would then effectively be able to draw down on a promissory note, effectively. The Department would be saying, “You can draw down that money over a five-year period.” CDC would then have to come up with individual proposals—“Here is a solar programme in Burundi that we think is worth investing in”—and draw down the money from us. I do not want to speak for CDC, but it would certainly not be drawing down money if it did not feel that it had the resources to spend it responsibly.

That brings me to the third question of private sector financing and to Ms McGovern’s question. We are absolutely clear that we do not want to be in the business of crowding out private sector finance. One of the really good criticisms made of CDC in the National Audit Office report, the Public Accounts Committee report and the ICDC report was that it was doing exactly that, for example by making investments in coastal China. We stopped those things from 2012 onwards. The investments that we are now talking about in India are in places such as Bihar or the poorest bits of Uttar Pradesh, where the business environment is very difficult and very little capital is going in. We are also making sure that the grid is followed absolutely with every investment, so that we are not falling into that trap.

Graham Wrigley: This very important question is about how CDC and the shareholder respond to what we think is the very clear need for long-term, patient, impact-driven and additional capital in low-income countries, and about how we do that in a responsible and thoughtful way. We fully understand that this will be a very significant step in CDC’s history, but from our perspective, having worked on this for the last five years, this is evolution, rather than revolution as it might look from the outside.

Let me explain why. If we go back to 2012, when an entirely new mandate was created, a new team was empowered to go off and explore and see what would happen. At that time, the projections showed that if things went well, more capital would be required. That is precisely what happened, and it led to the recapitalisation in 2015. As the Minister has just said, we structured that recapitalisation such that the money could be drawn down if and when there was the market demand. Indeed, it was only this week that the first promissory note for that recapitalisation was called.

Going into the next five years, the team has now been established. It was 40 people back in 2012; we are now at 220. The commitment rates have gone up. We believe that the market need in our markets is growing, and for the last year we have also been working with the Department on a series of potential new programmes focused on high risk and on unlocking new forms of development impact.

The quantum and timing of any capital given to CDC will depend on two things: first, the shareholder making its decision about how CDC stacks up against other opportunities—the opportunity cost was debated in Parliament last week; and secondly, the view from CDC. As chair of CDC, I feel deeply responsible for making sure that any capital that we call is allocated for the purpose of development impact, and that our teams can execute that responsibly. That is the context for where we are now and for the Bill. We see this as a long-term discussion about the shareholding of CDC. CDC has to perform it for the purpose of development impact, which I promise you is what drives everybody who works in CDC.

Rory Stewart: Just to confirm, Graham, am I right that you are formally saying to the Committee that you would not draw down this money if you did not feel that you could spend it responsibly and have the resources to do that?

Graham Wrigley: No, we would not do that.

None Portrait The Chair
- Hansard -

That well known Labour Member, James Duddridge.

James Duddridge Portrait James Duddridge (Rochford and Southend East) (Con)
- Hansard - - - Excerpts

Q Thank you, Mr Streeter. I should have taken the opportunity to draw the Committee’s attention to my entry in the Register of Members’ Financial Interests; my apologies that I did not do so earlier.

I have two questions, Minister. First, going back to the cap, I wonder whether the Bill is future-proof. I think that we will pass the Bill—it will become an Act—there will be successful drawdown up to 2020 and 2025, and quite possibly at that point you will have to come back to the House to ask for more money. Can you go into a little more detail as to why the Clerks did not advise that? Recently, we have had the multilateral and bilateral review, and that does not get anywhere near the same scrutiny as this relatively, proportionately, smaller amount of money.

Rory Stewart: I think the argument from the Clerks is that Parliament does not like the idea of granting blank cheques, and I can completely understand why you would want to bring us back. Again, this was simply an attempt to get an in-principle agreement that in changing the way in which the CDC was funded, we would move to secondary legislation, but I can completely understand why you would want to put a cap on that, and we have accepted that; we are happy to take that.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

Q This is my second question. As I said, I think that the Bill will be passed, but if it is not and we accept as a Committee the need to put more money into economic development and jobs, what capacity would DFID have to spend the same volume of money? Is there an alternative? During Second Reading, there was a lot of talk about the opportunity cost of giving this money to the CDC. What else could DFID do with the money?

Rory Stewart: The key thing is that this is within our economic development portfolio, which is less than 20% of our spend, so it is about moving money from, essentially, David Kennedy’s part of the Department—within different programmes in his part of the Department. The intention is not to move large sums of money from our humanitarian activity, health activity or education activity. It is a different modality for economic development.

What alternatives might we have were you as a Committee to decide not to approve this legislation? We could, for example, give more money, through the World Bank, to the IFC. We could use a different form of DFI, which was not the CDC, and the World Bank could theoretically spend that money. That would not require primary legislation; it would require my going to you with a statutory instrument in the normal way we give money. Alternatively, we could spend the money, as we have done in the past, on technical assistance. That is a normal part of economic development activity. There are also various forms of livelihood programming that we have done in parts of the world. However, we believe that the CDC is a really good institution; we think that it is in many ways better than the other development finance institutions that we could look at as alternatives if you did not wish to go with the CDC. That is why we strongly suggest that we put the money into the CDC.

James Duddridge Portrait James Duddridge
- Hansard - - - Excerpts

That makes an awful lot of sense.

Richard Graham Portrait Richard Graham (Gloucester) (Con)
- Hansard - - - Excerpts

Q Over the years since the inception of the Commonwealth Development Corporation in 1948, the Government’s approach to it has fluctuated considerably. In the 1980s it was doing, on a smaller scale, broadly what Graham and Diana are now doing—direct investment—but then there was pressure to separate out and effectively privatise the private equity or venture capital element of it. With 0.7% of GNI going to DFID, you can take a longer, more strategic approach to the CDC, but the effective tensions, potential tensions, between ODA objectives, taxpayer return on equity and pursuing aid goals but not investing in things that might be done by the private sector otherwise, remain and arguably will be more in the public eye as the CDC expands. How will you balance those, and what is the longer-term strategy, in your view, for the future of the CDC?

Rory Stewart: It is a very good question. You are absolutely right: since 1948, the CDC has been through changes. I think that is because it was a very bold and imaginative move by the Attlee Government. It was a very unusual thing at the time; indeed, it was the first DFI. And from the moment that they were invented, DFIs have had to tread a thin line between two quite different things: a private sector modality—a desire to generate a commercial return—and a public developmental objective. A lot of the shifts you mention are about the pendulum swinging back and forth between these two types of objective.

Looking at the history of CDC, there have been times, in the 1980s for example, when CDC made a lot of very bold, risky investments in high development impact and lost money. It did not succeed in making money. There have been other times, under other leaderships—and this was true in the period criticised by the NAO, in the 2000s—when they went to the other extreme. We had a situation in which, during that period, CDC managed to generate £1.5 billion of profit—profit for the UK taxpayer, profit that is put back into the CDC and reinvested, but they were very high rates of return, largely achieved through the fund of funds strategy.

Now, we are using this piece of primary legislation, this discussion of the Committee and also the UK aid strategy and the CDC strategy being undertaken at the end of this year, to provide a much tighter definition of the key characteristics that take us forward. That is, philosophically, that the DFIs work when you get that balance right. The balance is right where the private sector element gives you the commercial discipline to make sure the investments you are making are genuinely sustainable, that they are going to keep those jobs and deliver revenue to the Government and value for money for the taxpayer. However, that has to be balanced with the public objective, which is the ability to make very patient long-term investment, to take a certain degree of risk and to pursue developmental impact. That is why we have put out this grid where, on the X axis and Y axis, we measure with every single investment how much capital is available, how hard the business environment is, how low the GDP capture is on both axes and whether the sector is likely to create jobs. That is also why we brought in Harvard University last year to review this and why we are now going through a 15-year longitudinal study to try and establish this.

I think we are getting better at this, but your warning, Mr Graham, is a good one and everything we are doing in our strategy, our metrics and our measurement is to ensure that we are not back in a world where this pendulum is swinging back and forwards all the while.

None Portrait The Chair
- Hansard -

Just before Mr Graham comes in again, five other colleagues have caught my eye and we must finish this session at 10.30 am, so we are going to have to speed up a little bit.

Richard Graham Portrait Richard Graham
- Hansard - - - Excerpts

Q May I follow up very briefly on three specific points? First, if having private sector expertise in CDC helps it focus on the commercial return element, sustainable investments and so on, which I totally accept, would a partial flotation at some stage not both achieve Richard Fuller’s earlier point—I think it was Richard Fuller who mentioned it—on bringing private money into the CDC, that is, the Government acting as a catalyst to bring money with it, on the one hand, while on the other, assure those people in the private sector that it was not the Government competing against them?

The Centre for Global Development called for the CDC to

“do as much as possible to demonstrate that it’s investing in projects that create jobs and growth which would not otherwise happen.”

Is that an impossible ask?

The last point is on the geographic eligibility. At the moment, you can invest in 63 countries, which is considerably more than the Commonwealth. What about Palestine or the middle east?

Rory Stewart: Okay, here we go.

None Portrait The Chair
- Hansard -

As briefly as you can, please.

Rory Stewart: Those were three very complicated questions, but I will try to deal with them very quickly. No. 1, the reason why a partial flotation would be difficult is that the returns we generate are deliberately low. We are only at about 3% return because we want to have a developmental impact. It would also have a significant impact on our governance arrangements, as we are currently a 100% shareholder.

The second question—is it an impossible ask? No, we do not feel it is an impossible ask. It is tough, but if you look at our investments in solar power around Burundi and CAR, that is a really good example of something that is extremely unlikely to have been done by a normal commercial investor. These are high-risk investments, generating a relatively low return. We are only able to do it because we are a DFI with that patient long-term investment policy.

The third question? I am so sorry, Mr Graham.

Richard Graham Portrait Richard Graham
- Hansard - - - Excerpts

Q Sixty-three countries at the moment. What about Palestine, for example?

Rory Stewart: This very interesting discussion has gone back and forth. As you are aware, the International Development Committee asked CDC to look strongly at investment to deal with the crisis around Syria and at what we can do to help bring stability to the middle east, for example. At the same time, other members of the IDC tabled amendments to the Bill that would not only take us out of middle-income countries in the middle east but would restrict investment to the countries with which DFID has bilateral programmes. My gut instinct is that that is an issue not for primary legislation but for Departments to address through their strategy in response to a changing world.

Stephen Doughty Portrait Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
- Hansard - - - Excerpts

Q I apologise for my late arrival. I was hosting a general from the British Army. Minister, I want to ask a very specific question about where these figures come from. I want to probe you further on them. You answered a written question from me yesterday—for Hansard, it is 55702—and said that the only capital requests that you received from CDC were for the £735 million. You said that you have not had any others. Can you be clear about whether CDC has requested capital increases to you beyond the £735 million?

Rory Stewart: The process is threefold. We will seek permission from Parliament to be able to recapitalise CDC. We want to know whether you are prepared to allow us to give any more money to CDC—£1, £10, £1 billion or £6 billion. We are looking for the option to give it more money. Then we will produce the five-year forward strategy for CDC, which will come together at the end of the year. Then we will produce a business case in the summer to lay out what we believe, in consultation with CDC, its likely requirements are in order to prepare our promissory notes. The final stage is that CDC will make a request on the basis of the projects it has. That is exactly what we have done with the £735 million.

We have discussed the ceiling that we are proposing to you in detail with Graham and Diana. At this early stage, they believe it is a reasonable maximum limit for the amount that they could conceivably need between 2016 and 2021.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Q Who came up with the figure? Was it Ministers or CDC?

Rory Stewart: We did. Our Department came up with the figure.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Q Okay. May I ask you a separate question? A minute ago, you said that CDC’s support to India is targeted at the poorest states, but you told me yesterday in a written parliamentary answer—55689—that the majority of new disbursements are still going to the richer states in India. In fact, the top disbursement is to Maharashtra, which is where Mumbai is located. You told me that 42%—that is only this year; it has been going up steadily—goes to the poorest, but the majority goes to the richest. Can you explain why that is, and do you want to clarify what you said earlier?

Rory Stewart: My understanding of what is happening there is that every business case in India needs to be scored against our development impact grid. To achieve the score that we are looking for—I believe it is a 2.3 score, and we are generally crossing 3.0—we have to reconcile on the X and Y axes the number of jobs that would be created through the investment. In other words, we focus on the sector, then on GDP per capita, which is broken down by state, then on the difficulty of investment, and then on the amount of available capital. Any investments, even in the wealthier states in India, will have gone through that grid.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Q But the majority is not going to the poorest states. Is that correct?

Rory Stewart: Let me hand over to Diana on this.

Diana Noble: Can I explain our strategy? In a lot of cases, when you want to help poor countries, it is better to back businesses that exist elsewhere and encourage them to expand into those countries. Therefore, a lot of our investment is about the vision that we can create through these investments.

Let me illustrate that with a quick example. Last year, we invested in a mid-size Indian bank—RBL. The vision was to help it expand its business into rural areas, to the rural poor and into poorer states. That is, as I am sure you know, a big priority for the Modi Government. CDC did not just provide capital to RBL; we also helped it with expanding financial literacy training to 25,000 really poor women in Madhya Pradesh to explain to them how they can benefit from savings accounts and bank accounts. There are already results from that. RBL now has 1.9 million new customers in the rural and poorer areas. We are evaluating that by doing a random sample of loans to understand how that translates into new jobs as well. That is a really good example of our having a partnership with a high-quality operator, going to poorer places, helping them and sharing the results.

Rory Stewart: I did not answer your question directly. The answer at the moment is that, from our portfolio, 42% of the investment in India goes into the poorer states. The rest—the remaining 58%—does not go into the poorer states, but into states where we believe the business will benefit the people in India who are in need. Many of those investments are intended to be regional investments, so we may invest in a bank, for example, that is not located in one of the poorer states, in order to benefit ultimately the people in the poorer states.

The best way to evaluate such decisions is by looking at the individual investment and giving us an opportunity to discuss with you the individual company in which we have invested, so that we can discuss our theory of change. It is difficult to decide whether to make a regional investment to help the poorer states or whether to go straight to the poorer states. I think we should be accountable and talk to you about those individual investments so that we can explain why we have a theory of change and investment in a particular company.

None Portrait The Chair
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We need to move on.

Fiona Bruce Portrait Fiona Bruce (Congleton) (Con)
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Q I would like to ask Diana about job creation. You say that one of CDC’s key strategic aims is to achieve development impact focused on job creation. How do you measure jobs that are created directly and indirectly? Last week, the National Audit Office said in its report that progress on measuring job quality has been slow. How are you working on that? How are you measuring productivity, quality of jobs and income levels?

Diana Noble: As you rightly point out, we focus on jobs because we believe a job is the first and the best step out of poverty. I think everyone on the Committee understands the difference that a job makes to someone in a poor country: to them and to their family. When we talk to workers it is clear that they also use the income particularly to educate their children, so it has a benefit for future generations. How do we measure job creation? This is something that we take very seriously. Two years ago, in partnership with some academics, we put in place a way to measure job creation across the whole of the Africa and south Asia portfolio.

We are the first DFI to collect data from all our portfolio companies. We do not just collect headcount data; we also collect revenues, supply chain, purchases, work and wages as well. The academic uses that to calculate not just the direct job creation but the indirect job creation. As you can imagine, some of our priority sectors, such as financial inclusion and particularly infrastructure and power, have a far greater job impact beyond the direct jobs. So we have now published the methodology on our website. We are going to go through a peer review process because we want it to become one of the industry standards. We have shown the data from that for two years now. We can start to compare and contrast it. It shows that the portfolio has created over 1 million jobs in the past two years. That is a number we take immense pride in.

You also rightly talked about job quality, because it is not just about volume. Quality has lots of different elements to it. What all of us sitting in this room might consider a good job is not necessarily so with the lens that you should use in the countries where we invest.

On job quality, before we make an investment, our fantastic environmental and social team go and sit down with the company and do due diligence on them. They say, “Are you up to standard, particularly in the areas of health and safety?” If they are not at the right standard, an action plan is agreed with management and put in place.

The second thing we do is collect data across the portfolio on fatalities and serious accidents. We have been doing that since 2008. We have very rich data now and have been able to combine that and give training back to portfolio companies and fund managers about the areas that lead to fatalities and serious accidents. We think that gives huge added value to our portfolio.

We are going further than that. We are collecting information on lost time injury frequency, particularly for manufacturing and construction—places where workers are potentially put at harm. We are looking at staff retention for some of our larger investments, because we are advised that it has a big correlation with job quality. We are doing an evaluation in Bangladesh at the moment—everyone on the Committee will be aware of the issues in garment factories there—to try to understand what workers really want out of their jobs, so that we can build that in. There is a big element of learning. We are on a journey, and there is still a long way to go.

Jeremy Lefroy Portrait Jeremy Lefroy (Stafford) (Con)
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The question I wanted to ask has been asked, Mr Streeter.

None Portrait The Chair
- Hansard -

So we move on to Patrick Grady.

Patrick Grady Portrait Patrick Grady
- Hansard - - - Excerpts

Q I want to press you a little bit more on some of the policy and decision making and the opportunities we have with the Bill. ODA has a clear definition, and the various international development Acts put in place a duty to achieve poverty reduction, but is that sufficient for CDC, as was? We have heard about these business cases and impact grids. All these are policy-level decisions. The 1999 Act does not mention poverty, impact or international development. So, why not take the opportunity with this legislation to do what some of the amendments are attempting to do, which is to make it clear that CDC would have a statutory duty to meet those objectives or, at the very least, to put some of these processes into the legislation? Would that not help to reduce the risk of backsliding, returning to the days of excesses and concerns—which, I accept, are in the past?

Rory Stewart: Mr Grady, broadly speaking we are in sympathy. We are very clear that we expect all investments made by this Department to aim at poverty alleviation and, to relate to one of your amendments, to reinforce the sustainable development goals. The particular space that CDC operates within is our economic development space. We believe that the correct way to respond effectively to a changing world, to allow Ministers and elected Governments to put their policies through, is through the process we have of setting strategy and governance. One thing I was pleased with in the NAO report was the praise it brought forward for our governance. Any money we give to CDC has to follow that test. That is the fundamental test applied, whether we are giving money to CDC, IFC or a UN agency, or whether it is any of the £5 billion a year of multilateral spending. The way in which we control it is through not primary legislation but Government strategy documents.

Graham Wrigley: May I add, from the CDC perspective, that we have developed some organisational principles and pillars that we have shared with the shareholder? They cover the following things. The first is that our purpose is development. That is why everybody at CDC is there—Diana, me and everybody else. Secondly, we are the world’s oldest DFI, set up by Clement Attlee, supported by both major parties over the decades and 100% owned by the UK shareholder. We are very proud of that fact.

We have to balance—a question was asked earlier about this—development impact and financial return. That creates perpetual paranoia about whether we get the right balance. We see our goal as meeting the needs, and Diane will give you an example of that in a sec—

None Portrait The Chair
- Hansard -

She might not. We will draw things to a close now with two more quick questions.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

Q Some new research by the House of Commons Library suggests that CDC’s new investments, as a proportion, to Africa are actually falling over the past few years, with a majority going to south Asia, largely to India. Are you satisfied with that, given the poverty focus that is supposed to exist?

Rory Stewart: These are all really good questions. Fundamentally, things will change year on year. We would expect that with an investment strategy, because these guys have to make very difficult decisions. The NAO has been very clear that it does not want DFID Ministers micromanaging or interfering in the individual business decisions of CDC. I hope you would agree with that: if we were in the business of signing off on every single investment CDC makes, it would become a political arm of the Government, where we could be directing it to how it invests.

We set the overall strategy and framework; we have taken CDC out of places like China and given it the freedom to invest in south Asia and Africa. We have agreed a development grid; we are conducting a lot of research on how that happens, but I think it is perfectly reasonable that over a period more investment one year might go into south Asia than Africa. I think the way that we deal with that is through the next strategy that we produce, continuing this process of tightening accountability, but I do not think it is appropriate for me to start vetoing individual investment decisions by the board.

Alison McGovern Portrait Alison McGovern
- Hansard - - - Excerpts

Q In this session, Minister, you said that you do not yet have CDC’s strategy, which we knew. We have discussed the fact that there was not much clarity about investments in India and whether or not they were going to the poorest states. You have explained that you are expecting CDC to increase the risk of the investments it makes at the same time as you are radically increasing the amount of capital available to it. So just for clarity, which do you believe to be CDC’s greatest priority? Is it the reduction of poverty; or is it return on investment, so that the CDC has continuity of capital?

Rory Stewart: The priority of CDC has to be to do good without losing money. The point is not to lose money while doing good, so we are focused on jobs and economic development without losing money. That is the guiding principle that CDC follows in everything it does.

Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

It’s not poverty—

None Portrait The Chair
- Hansard -

Final question.

Rory Stewart: I am sorry; there was a strange comment coming from Mr Doughty who, when he is not texting, throws things from the chair. We believe very strongly that economic development and job creation are absolutely core activities in the elimination of poverty. The distinction that Mr Doughty is trying to draw between economic development, job creation and poverty alleviation is extremely unorthodox and it is not one that the chief economist of our Department, or indeed any of the officials of our Department, would accept.

Imran Hussain Portrait Imran Hussain
- Hansard - - - Excerpts

Q I have a final question for the Minister. While the CDC has made some progress since 2011, as I have said in the Chamber, does he at least accept that there is room for improvement around a greater focus on poverty alleviation, around greater overview and scrutiny and avoiding tax havens and so on?

Rory Stewart: Yes, we need to continually improve. One reason why this debate is useful, and why the primary legislation is useful, is to shine a light on all this stuff. None of us is at all complacent. These things are very difficult. The DFI is the leader in the world, we believe, in terms of trying to measure things that are very difficult to measure—how to treat job creation and economic development in some of the toughest environments in the world. We can keep improving and you are absolutely right that those things you have mentioned are exactly the kinds of things that our new strategy will attempt to improve, including, for example, caps on the amount of investment that goes to India.

None Portrait The Chair
- Hansard -

Thank you for getting that all done within time. We thank our expert witnesses and the Minister.

Examination of Witnesses

Sir Paul Collier, Tom McDonald, Terry Caulfield, Saranel Benjamin and Gideon Rabinowitz gave evidence.

10:30
Stephen Doughty Portrait Stephen Doughty
- Hansard - - - Excerpts

On a point of order, Mr Streeter. May I clarify something? The Minister made a comment a moment ago about me allegedly texting. I have actually been checking his written answers on my phone, which allows me to check the parliamentary system.

None Portrait The Chair
- Hansard -

That is perfectly in order. Thank you for clarifying that.

Greetings to our second panel. We are going to hear evidence from the National Audit Office, War on Want, Oxfam and Sir Paul Collier. Would you please give your names for the record?

Sir Paul Collier: I am Sir Paul Collier. I am professor of economics and public policy at Oxford University.

Tom McDonald: I am Tom McDonald. I am the National Audit Office director responsible for value for money audits of the Department for International Development.

Terry Caulfield: I am Terry Caulfield. I am an audit manager at the National Audit Office, responsible for our work on the Department for International Development.

None Portrait The Chair
- Hansard -

Terry, you may need to speak up a little bit. We did not quite hear all of that. It is fine for now, but I mention it for future reference.

Saranel Benjamin: I am Saranel Benjamin. I am the international programmes director for War on Want.

Gideon Rabinowitz: I am Gideon Rabinowitz. I manage Oxfam GB’s work on development finance.

None Portrait The Chair
- Hansard -

Thank you.

Kate Osamor Portrait Kate Osamor
- Hansard - - - Excerpts

Q Thank you, panel. This question is for all panel members. Do you feel that CDC is sufficiently focused on poverty eradication in line with DFID’s outcomes?

Sir Paul Collier: In a word, yes. I have been working on Africa for 40 years and it has been frustrating, because Africa is still poor. This year, per capita GDP in Africa is falling. We have a quiet crisis of trying to rekindle African growth. There is no secret about what rekindling growth and getting out of poverty means: it means raising the productivity of ordinary people and we know how to do that. Raising the productivity of ordinary people is what proper firms do. They perform a miracle of productivity every day by bringing ordinary people together at scale and specialisation, and making them dramatically more productive than they would be as isolated individuals. Africa is desperately short of proper firms, and the public interest in getting proper firms to go to Africa is enormous. That is the underlying rationale for CDC, and that is what it is doing.

CDC went through a very poor patch with this fund of funds idea, which was a crazy idea. It now has really expert management. What CDC is doing, and what DFID is doing to support it, is absolutely standard. This is what International Development Association money, which is the collective, concessional money given by the world’s rich countries to the World Bank, is being devoted to. The transfer to the International Finance Corporation—[Interruption.] I will shut up.

None Portrait The Chair
- Hansard -

Thank you, Sir Paul. Let us hear from Oxfam and War on Want.

Gideon Rabinowitz: Thank you for having us on this panel; we appreciate it. Oxfam recognises the importance of investing in economic development and the private sector as a fundamental part of our development efforts. Economic development needs to be a core part of what DFID and the British Government do with regard to aid. Our concern is to make sure that any aid funds that are invested in those causes really support the right types of jobs, growth and investment that reach the very poorest. The international community agreed at the UN that all development effort should be focused on reaching those left behind. That needs to be the prism through which we see this. Given that prism, we recognise that the reforms agreed in 2011 to CDC were a really important step forward. They focus CDC more on the poorest countries and strengthen its focus on looking at development impact and its investment standards, but we also think that that is the start of a journey that CDC needs to go on in the coming years to ensure that it is focused not only on DFID’s mission of development and poverty reduction, but on the international development community’s focus on leaving no one behind.

We want to note a number of areas where we think CDC can do more. The first point relates to its focus on the least developed countries. Only 12% of CDC’s investments currently go to the least developed countries—the most economically and socially vulnerable countries as measured by a comprehensive index by the UN. We have some questions about whether the sector focus is right. Agriculture, where the majority of the world’s poor make their livelihoods, accounts for only 5% of CDC’s investments at present. A decade and a half ago that figure was one third. There needs to be a re-engagement in sectors such as agriculture.

None Portrait The Chair
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I am sure that those points will come out in further questions; this is becoming a bit of a statement.

Gideon Rabinowitz: I will be very brief. The final point is that, whatever new resourcing authority is given to the Government through the Bill, we want it to leverage a continued focus on ratcheting up CDC’s development performance on those issues.

Saranel Benjamin: War on Want’s position is that we believe that UK taxpayers’ money should not be given to private funds that are going to be investing in projects, because that is basically getting returns on poverty—off the backs of the poor. It makes us very uncomfortable that UK taxpayers’ money is being used for that purpose. However, as we heard from the first panel this morning, the percentage of projects in which CDC is investing in Africa has reduced significantly. We were talking about agriculture; we have moved away from projects that were supporting small-scale farmers to those supporting large-scale agribusiness. That is causing displacement of people whose lands are being taken away and it is also creating a loss of livelihoods. I wonder how that goes together with the whole question of poverty eradication, when we are actually perpetuating it. I will come back to that later and maybe talk about a case study that we are looking at.

Stephen Doughty Portrait Stephen Doughty
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Q I have a question to the National Audit Office. You have visited a number of CDC projects as part of your review, and you obviously saw some very positive examples in CDC’s portfolio. I think we discussed one in Sierra Leone, but you also visited a number of those in India—I believe it was Terry who visited those projects. Could you say a little bit about the projects that you visited, particularly with regard to the investment in healthcare? I know that CDC is investing in a lot of private healthcare in India, but not necessarily specifically in stuff that benefits poorer people—it is more a kind of general investment.

Terry Caulfield: Yes, we visited two healthcare facilities in Bangalore in India. One of them was perhaps more intended for middle-income families and one was more down the lower end. We came away with the feeling that they were doing a range of things. At the lower end, they were trying to provide maternity facilities for families who would not otherwise have access to them, perhaps for financial or educational reasons or because of other hurdles that they might have had to get over. In that particular case, they were looking to expand the facility in that location and then use that to expand further out. Against the backdrop of an understanding of how access to Indian healthcare works, they were coming in at a number of different levels. There is a diversity there.

Stephen Doughty Portrait Stephen Doughty
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Q You make a big point about the issue of prospective development impact and whether CDC can prove its impact. Were you concerned when you heard the earlier panel talking about investments in richer places that theoretically will lead to jobs for poorer people, as people perhaps move to cities and take advantage? Do you think that is a bit too hazy? Can you explain a bit more about where you felt the CDC could be doing better to demonstrate impact?

Tom McDonald: One of the things that struck me from the projects that I visited in Uganda and Kenya was the need for a portfolio approach. Some of the projects clearly will have more of a development impact, and some will clearly do better financially. Some of them are harder to measure than others, particularly if the investment is through a fund or an intermediary.

In the report we say that, despite Parliament having expressed some concerns in 2008 and 2009 about how CDC measures impact, CDC has still been a little slow to put together a comprehensive picture of the approach it would expect to take, together with DFID, to provide Parliament and the taxpayer with a good view of what impact looks like. I should say that we are not suggesting that there is some simple way of doing that. Measuring all the different indirect and direct effects of the investments is complicated. For example, to answer your question directly, there was a commitment in 2012 to put together a measure of what quality of employment would look like. It has not made much progress on that. It has plans in place to try to evaluate some of its major investments and to improve the impact reporting, but for us, it is about the pace and comprehensiveness of that reporting.

James Duddridge Portrait James Duddridge
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Q May I ask Sir Paul Collier a question in relation to the amount of capital that CDC has? There seems to be a view that CDC can absorb about £1 billion a year. Given your work on urbanisation and the vast amount of infrastructure investment that is needed, do you think that CDC could be challenged to spend much more on an annual basis or to ramp up to that point? That relates in particular to funding the urbanisation that Africa needs to attract the companies that you referred to earlier.

Sir Paul Collier: Africa is going through a rapid and very necessary urbanisation. Africa’s future is urban, but not all cities are environments in which ordinary people can be productive. You can have a mega-slum. At the moment in Dar es Salaam, the modal enterprise has one worker: scale zero, productivity zero, specialisation zero—doomed. Cities need to become platforms where proper firms can function. They need energy supplies and decent connectivity. That is what the infrastructure is there to do, basically: energy and connectivity. That is expensive.

Stephen Doughty Portrait Stephen Doughty
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Q CDC could spend £1 billion just in Dar es Salaam.

Sir Paul Collier: CDC needs to scale up and scale up fast. I am hesitant about tying it in knots trying to get precise measures for this and precautionary measures for that, when the reality is that there are no techniques out there. Everyone is trying to build better measures. The International Finance Corporation has just hired for the first time a chief economist at vice-president level, designed to do that. People are trying to develop techniques, but it is difficult. To my mind, CDC’s priority, now that it has got sound, motivated management, needs to be to scale up. The task ahead for Africa is to get both the infrastructure and the private firms in before it is too late.

James Duddridge Portrait James Duddridge
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Q Should not we be encouraging it to give more than £1 billion a year?

Sir Paul Collier: Yes, of course. The future of aid is to get decent firms to go to places where they will not make much money until there are lots more of them.

Alison McGovern Portrait Alison McGovern
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Q Very briefly, obviously there is a massive need for capital in Africa, and the question is how we should spend UK taxpayers’ money. I would like to come back to you, Tom. As we heard in the previous session, we are asking CDC to take increased risks with quite a lot of increased capital, but we do not yet have its strategy. Do you think that that approach is probably the wrong way round?

Tom McDonald: There is a cart-and-horse problem here, is there not? One of the things that we saw in the 2015 recapitalisation business case was that the Department did go through a thorough process of assessing, in collaboration with CDC, the art of the possible. There are good foundations on which the Department can build.

One of our worries, which we set out in the report, is that CDC has to be comfortable that it can absorb this money in two ways. One is internally: does it have the capacity to grow, still be agile and make decisions in the way it has done in the past? That is its internal operating model, if you like. The other is whether it has access to all the opportunities for investment. Now that it is again in the business of direct investment, that requires a lot more effort from the teams that are putting together these deals. There needs to be a discussion between the two bodies over the remainder of the spending review period, or the Parliament, about whether DFID is clear about what it wants from CDC, where it wants CDC to operate, and the principles on which it wants it to work. From CDC’s perspective, can it cope with the volume of money and can it, in good faith, invest all that in a portfolio of deals that will still allow it to meet its targets?

Gideon Rabinowitz: I have a very quick point to follow up on that. As well as our mission to tackle the injustice of poverty around the world, we are very keen in our work and our engagement with the development community to push for adequate public scrutiny and trust in the work that the British Government and institutions such as CDC do. We think that needs to be central to this debate, so these are really good issues that we are discussing. The absence of this investment strategy is making it a little difficult to get a fuller perspective. There is clearly a dynamic situation around CDC. I have looked at the business case for the last capitalisation last year, which said,

“CDC has previously determined that given investment needs, it could productively deploy up to £1bn of additional capital.”

We heard from this morning’s witnesses that that situation seems to have changed. An additional point was made in the business case that, of the £735 million that DFID allocated to CDC last year, it would need to go beyond that only in 2019. It is a very fluid situation, and the lack of clarity over that investment strategy and how the situation on the ground with CDC is changing poses challenges. It is important to get that clarity.

Richard Graham Portrait Richard Graham
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Q A very quick question for you, Tom—probably a one-word answer. If I got you right earlier, you were calling for a more effective measurement of the quality of jobs generated by CDC. Do we have such a measurement in the UK?

Tom McDonald: A one-word answer would be no.

Richard Graham Portrait Richard Graham
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Q Thank you. Saranel, it is clear that you would not want to see any money going from the taxpayer to CDC that would mean either selling it or closing it down, or possibly both. How would that help DFID achieve its goals of supporting businesses and jobs in the developing world?

Saranel Benjamin: I think we differ in how we see development. However, the fact that CDC is operating without a strategy begs the question of what it is prioritising. Why would one prioritise private education or schools, or private healthcare, in countries where the majority of people are not getting access to that? How does that justify the better use of UK taxpayers’ money? I think the question was raised earlier about whether we are choosing poverty reduction or profit-making.

Richard Graham Portrait Richard Graham
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Q Okay. So you are against specific investments that have been, or might be, made. Are you against investment in businesses full stop?

Saranel Benjamin: I am against using business to conduct development in the global south.

Richard Graham Portrait Richard Graham
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Q So you do not believe that creating jobs through business is a constructive way of meeting development aims?

Saranel Benjamin: I don’t think that that is the only thing that should be done in terms of development, but from CDC’s point of view, that seems to be not just about job creation, but about supporting projects that have absolutely nothing to do with poverty reduction. I cannot see how supporting top-level real estate in Kenya, for example, is about poverty reduction.

Patrick Grady Portrait Patrick Grady
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Q I just want to ask any panel member who might want to reflect on the levels of transparency in CDC and the opportunities for parliamentary scrutiny. I particularly want to ask the reps from War on Want and Oxfam how their transparency in reporting requirements from DFID have changed in recent years and whether they have any views on how they should apply to CDC.

Gideon Rabinowitz: Oxfam is a signatory to the international aid transparency initiative, which is the comprehensive aid transparency framework that is applied across the development community. The initiative was started and promoted by the UK Government, who have obviously played an important leveraging role in promoting transparency across the world.

We are ambitious implementers of IRT and in our dialogue with DFID right now, we are being encouraged to look at how we can apply those standards and the standards introduced by the initiative further down our supply chain with our local partners. It will be a challenge, but one that we shall pursue head on. Throughout the chain of delivery partners we work with, we will look at ways we can address those standards.

One of the questions we think it would be really useful for the Committee to think about is, how—whatever is agreed through the legislation—can we help to ratchet up the level of transparency of CDC? It has made progress, but the last time it was assessed against IRT standards, it scored “poor”. We have not seen a fundamental change in the level of information that is currently reporting, so it has some catching up to do. We hope this legislation can help.

Saranel Benjamin: That is a really good question, because while listening to everybody talking, I was thinking that when we have to apply to DFID for funding, there is absolutely no way we would get funding if we just went and said, “Can I have £500,000 and I will give you the strategy later?” That would never happen for the development sector.

James Duddridge Portrait James Duddridge
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Q You are not owned by DFID. It is not like for like at all, is it?

Saranel Benjamin: No, but it is still the use of taxpayers’ money, which DFID—

James Duddridge Portrait James Duddridge
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It is a ridiculous comment.

Saranel Benjamin: No, DFID subjects the development sector to a number of processes involving deep scrutiny of all our work. It does not do that with CDC. The fact is that a case study such as Feronia, for example, can exist. Either CDC can say that it did not know that it was happening or DFID can say that it did not know that it was happening. It seems to me that there is a lack of oversight.

Fiona Bruce Portrait Fiona Bruce
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Q Can I ask Terry and Tom about value for money? How should CDC be scrutinised by the various bodies that will scrutinise it, assuming it gets this increased money—DFID, Parliament, the International Development Select Committee, ICAI and the Sub-Committee on the Select Committee, which I chair, which scrutinises ICAI? In view of the increased funding, how can we ensure that we scrutinise value for money effectively? What measurements should we be using?

Tom McDonald: That is a very good question. The first duty is with DFID as the shareholder. What we have seen of the reforms that have been put in place since 2012 is an increased volume of reporting from CDC back to the Department, characterised by a no-surprises policy. CDC is very clear that if it is thinking of undertaking something new or innovative it will consult with DFID first. Similarly, it will have quarterly shareholder meetings and with the shareholder produces a significant volume of information. These are all improvements from the previous regime that Members have talked about before and they help to mitigate the risk that CDC at some point in the future might engage in some of the poor behaviour that we saw previously.

That is the first line of defence in terms of scrutiny. Who else might do that? We will clearly continue to have an interest. We have been writing reports on CDC for at least 20 years. Obviously, it is up to Parliament how else it wishes to do that. The difficulty, as with other aspects of DFID’s spending, is following the money. We have this problem with multilateral expenditure. When DFID makes a payment to a CDC or a multilateral body, it is quite for us as the auditors to track that money through to the eventual point of impact. We have to be creative about it and find ways of doing that. It is not straightforward.

Fiona Bruce Portrait Fiona Bruce
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Q I am probing a little, if I may. You say that it is up to us how we do it, but you have just spent eight months looking at CDC day in and day out. I am seeking to glean the benefit of that detailed insight when the Independent Commission for Aid Impact and our Sub-Committee, which scrutinises it, looks at the issue. What should we be focusing on? Where should we be asking questions?

Tom McDonald: If you look at our value for money conclusion, we essentially divided it between, on one hand, the economy and efficiency with which CDC was being run and with which DFID was overseeing it, and the effectiveness of CDC. Looking at the first two e’s, we concluded that DFID’s oversight of CDC has improved considerably, and that CDC’s operating model is now pretty economic and efficient. It is a pretty good way for CDC to organise itself and spend the money that DFID has allocated to it.

On the subject of effectiveness, which we discussed at the beginning, this is clearly not an easy thing, but we still think there is more to do. There is more on which DFID could press CDC, and there is perhaps more on which Parliament could press both DFID and CDC to give a better picture of what CDC itself says is its ultimate objective: changing people’s lives, not just creating jobs.

Imran Hussain Portrait Imran Hussain
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Q Just a further question to Ms Benjamin from War on Want, to follow up from colleagues. I am slightly lost. Are you saying that you are principally against the development finance institution model—that would considerably weaken where I thought you were coming from—or are you concentrating on specific instances where you think the money was not spent well and most efficiently to target poverty alleviation? You gave the example of the Republic of the Congo. Can you elaborate on that and be more specific about where you are heading? I am slightly confused about where you are going with it.

Saranel Benjamin: As I said, we come from very different development backgrounds. For War on Want, a charity that works with partners in the global south, it is not about creating jobs; that is our approach. We are about supporting grassroots communities and organisations to allow them to envision the change that they want to see in their own countries. For me, when I see a private firm like CDC investing or looking for opportunities, I see it looking for an entry point for the UK to make a profit in the global south. For me, that is what it looks like. Given the use of tax havens, those countries are not really benefiting from what is being invested in those countries.

Again, look at the quality of jobs being created. Feronia in the DRC is one example. Workers are being paid less than $2 a day. Are you telling me that that is poverty reduction? Is that job creation? There is a dispute about the land on which Feronia operates; it is a 100-year-old land struggle. The largest investor in Feronia is CDC, which holds 67% of the investments owned in Feronia. The land dispute has been going on for a number of years, and communities have been displaced off that land. CDC claims that it is all legitimate, but it refuses to make the lease agreements or concessions publicly available. We have requested them from CDC, and have yet to have an acknowledgment that the email was received.

None Portrait The Chair
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Are you happy with that answer, Imran?

Rory Stewart Portrait Rory Stewart
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Q Very quickly, for Tom McDonald and Sir Paul Collier, Saranel has just said that CDC exists for the UK to make a profit in the global south, and the countries are not really benefiting from those investments. Do you agree with that?

Tom McDonald: We did not assess the whole portfolio, in terms of the impact that it was having. We have to rely to some extent on the prospective assessment of impact that CDC is now doing on a regularised basis for all its investments. I honestly cannot give a yes or no answer as to the impact on the south.

Rory Stewart Portrait Rory Stewart
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Q Do you agree that the prime purpose of CDC is for the British Government to make a profit in the global south, and that our investments are not benefiting the people in those countries, which is Saranel’s claim?

Tom McDonald: From what we saw when we visited the projects in east Africa and India, there is a clear desire to benefit the people of those countries, as well as for CDC to achieve its own targets.

Rory Stewart Portrait Rory Stewart
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Sir Paul?

Sir Paul Collier: It is not worth entertaining, I am afraid.

None Portrait The Chair
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Well, just answer the question, if you will.

Sir Paul Collier: I am sorry. It is self-evident that the path out of poverty involves business. It is also self-evident that not enough modern business is going to these very poor countries. So it is a very strong public interest to use public money to try and encourage firms to go to areas where they are needed but where they will not make much money. That is the rationale for the whole of the development finance institution enterprises. Clearly, CDC is controlled by DFID; DFID is controlled by Parliament; and the objective of getting people out of poverty runs right through both organisations.

Rory Stewart Portrait Rory Stewart
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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 Portrait Richard Fuller
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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 Portrait Richard Fuller
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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 Portrait Richard Fuller
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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 Portrait Richard Fuller
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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 Portrait Richard Fuller
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Q If you had a concern about it, would you have looked at it?

Tom McDonald: [Pause.] I suppose—

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

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

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

None Portrait The Chair
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I don’t think that is fair.

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

None Portrait The Chair
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Was that your last question?

Richard Fuller Portrait Richard Fuller
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It is, Mr Streeter.