PARLIAMENTARY DEBATE
Government Overseas Aid Commitment: Private Investment - 9 October 2018 (Commons/Commons Chamber)

(Urgent Question): To ask the Secretary of State for International Development if she will make a statement on her plans to use private investment to make up part of the Government’s commitment to spend 0.7% of gross national income on overseas development aid.

Combined global investment flows into developing nations are currently $1.4 trillion, leaving a funding gap of over $2.5 trillion to deliver the global goals. With 12 years left on those goals, we are currently 80 years adrift on nutrition, 100 years adrift on education and 200 years adrift on ending extreme poverty. If we want to deliver those goals, we have to let others help, including the private sector.

We know that we have had good returns from our investments in developing nations—CDC manages an average annual return in sterling of 7%—so investing in developing nations could offer investors and pension holders a greater return on savings. We have £8 trillion under investment in the City of London. If 1% of that were redirected to Africa, that would lever $110 billion. Compare that with the total aid spend of $50 billion currently going into Africa. I believe that the public would be interested in their savings and pension funds helping this agenda to deliver the global goals. Imagine an app that allowed someone to select which particular goals they wanted their savings or pension fund to help.

We have the tools to do this. At the United Nations General Assembly a few weeks ago, we unveiled the World Benchmarking Alliance, which will grade companies’ performance against the global goals. We have the expertise to do this, in the City of London, in the Department for International Development, with our partners, and also through our world-beating impact investment organisations. We therefore want to explore doing this.

Today, I have announced a national conversation with financial institutions, with savers, with pensioners and with the wider public. We will announce the results at a UK-Africa investment conference next year. This is the only way we will deliver the global goals. Over the past two years, we have also worked with our partners to shift the dial on international aid rules, allowing our aid budget to help the private sector invest in sustainable development more than ever before. I will continue to work with our partners at the Organisation for Economic Co-operation and Development to ensure that the aid rules incentivise donors to lever in private sector investment where it is needed.

In future years, as the amount of funding coming back into our own development financial instruments—publicly owned financial instruments—increases, we should be open to using the profits to count towards the 0.7%. I am exploring the scope to reinvest those funds with the Development Assistance Committee to maximise the value of our investments. We remain committed to 0.7%—it was this Government who introduced it—but as we do so, we should ensure that the British public get a triple return on their generosity and compassion; a stronger personal return to them, a stronger Britain, and a more prosperous and secure world.

I thank you, Mr Speaker, for granting this urgent question and the Secretary of State for being here. This country’s commitment to spend 0.7 % of our national income on overseas aid is a clear expression of how deeply the UK public care about eradicating poverty overseas. The public are therefore right to feel betrayed by the Secretary of State’s speech today, in which she has suggested that global poverty can be utilised as a lucrative investment opportunity. It is deeply concerning to learn of her plans to redefine aid through today’s media reports.

As the rules that govern aid spending are set at an international level by the OECD, can the Secretary of State tell us what precise rules she wants to change? In the absence of any detail, we can only speculate on how she believes these new investments will help the world’s poorest. Her claim that private investment is a win-win is not based on the evidence. We all know that there are both winners and losers from foreign investment in the global south. Her vision will leave the most vulnerable people at the mercy of global markets.

Does the Secretary of State recognise that her approach will mean major development issues that are not considered profitable will no longer get the funding they need? The press report that this private investment will replace public contributions to the UK’s aid budget. Will she confirm whether this is indeed her plan? I think the public deserve to know.

I gave a lengthy speech this morning and there is plenty of detail in there. [Interruption.] It is online, so the hon. Lady can read it.

Let me be very clear about the rule changes we would explore. Currently, when we capitalise an investment instrument, we count it as official development assistance. When we make the investment, we do not. We are very happy with that—we have argued for it—and that is what happens now. In future years, however, once we have capitalised those instruments, we may wish to change the way we do it. [Interruption.] It is not double-counting; it is allowing the returns we make on those investments to be used more flexibly. We are very happy and it suits us at the moment to do this. The issue is that if we then reinvest those funds in development, they do not count towards the 0.7%, and if we take them out, to spend on the NHS or another domestic priority, it counts negatively. What we are arguing for is exploring, at this stage, changing the rules to allow us to do that.

In addition, we have to accept that, even with the combined total of our budget and those of other nations, we will not deliver the global goals unless we let the private sector do more. Currently, the £8 trillion in the City could be put to better use and may actually deliver higher returns for pension funds. They will do a huge amount of good in the developing world.

The hon. Lady asks me for examples. CDC, which I understand she wishes to abolish, is the oldest development financial institution in the world. Last year, it made investments of over £1 billion, which created 735,000 jobs. We need to create 18 million jobs every year until 2035 just to keep up with population growth in Africa, and that is what we need to do to eradicate extreme poverty. If the hon. Lady has a better suggestion on how to raise $2.5 trillion I would be very interested to hear it.

I am here not to make us feel good about spending aid money; I am here to eradicate extreme poverty. We cannot do that without business and we cannot do that without the private sector. Dogma has no place in this debate.

If we are to avoid a growing army of underemployed, desperate and angry young people, we need 600 million new jobs over the next decade. Does the Secretary of State imagine that that can be provided without an enormous mobilisation of private sector investment in the developing world?

My right hon. Friend is right. We are entering into the final decade and the last push towards the global goals. We have to be realistic. If we are going to achieve them, and I want to achieve them, we have to let other people help.

It is disappointing that this has had to be an urgent question and not a statement and that it has been made while the International Development Committee is travelling, which is why I am standing here and not my hon. Friend the Member for Dundee West (Chris Law).

It is also disappointing in terms of the impact of this announcement. For many years, despite everything else going on, there has been cross-party consensus and huge public support for the delivery of the 0.7% target through public funds. The UK is supposed to be a world leader in this area. This kind of back-peddling and backsliding, and finding different ways to leverage the 0.7%, actually risks undermining that global leadership, which I thought was supposed to be a Government priority in the face of Brexit.

Does the Secretary of State accept that meeting the global goals is in our interests of building a safer, more sustainable and secure world? They are not things that just happen elsewhere in poor countries overseas; they are for everybody’s benefit. Why not be more ambitious and use this money to go beyond the 0.7 % target, which is what the Scottish National party proposed in our White Paper on independence? Will she confirm that she is committed to retaining that target in one shape or form? The Government are already double counting money spent to defence, and this is simply more of the same. If there is going to be an app that lets us choose how money is spent, when can I go on to it and choose to have my tax money spent on not Trident but on aid instead?

I thank the hon. Gentleman for those questions, but I think he is a little confused about what the 0.7% is. It is not possible to count private investment towards that figure, so a pension fund down the road cannot count towards that 0.7%, but public funds can. The Development Assistance Committee measures many things, including private sector investment, but the 0.7% is public money.

If a future Government wished to, they could spend more than 0.7%, and we are committed to spend at least that amount of money. They could do so by counting the returns that were made. At the moment, we are spending more than 0.7% because we cannot do anything other than that with these funds—they do not count towards the 0.7%. We need to get the balance right between our commitments in this agenda, which are world leading—we introduced them and we believe in them—and the demands we make of the British taxpayer. If in future years we can meet 0.7% without having to ask the British taxpayer for more money, that is an option we should explore.

As the UK leaves the EU, does my right hon. Friend agree that it remains in our national interest to continue to tackle these global challenges, including migration, humanitarian crisies, peace work and security, but that we also need to maximise the effectiveness of our overseas aid?

My right hon. Friend is right. We have the opportunity to look in future years at what we might do with the £1.5 billion that we channel into the EU. I have set out very clearly that we would like to continue to work with our European partners. If that is done through the EU, we would have to ensure that they do not discriminate against British non-governmental organisations, and I have outlined both before the Select Committee and in my speech today how we would protect British NGOs and their beneficiaries in such circumstances.

Does the Secretary of State stand by the unnamed briefing to newspapers done today on her behalf, which stated that

“when investors step in, the taxpayer can step back”?

Does she think there is any interpretation of such a statement other than that she intends to resile from this country’s honourable commitment to spend 0.7% on development?

I and my staff—both my political staff and my DFID staff—did not brief that. What I can say is that if we can lift people out of poverty, which we need the private sector to do, as they are the ones who can create jobs and close that enormous funding gap on the global goals, I hope that in future years we will be able to spend less money on these things, because there will not be the need. But that lies many years ahead. There will always be a need for humanitarian aid, but we have made huge progress over the past few decades in lifting people out of poverty, and I want us to finish the job in Africa.

I welcome the comments from the Secretary of State on her commitment to the 0.7% target. Will she reassure the House that it remains a mission of this House and this Government to tackle the global challenges of climate change, humanitarian crises and economic development?

I absolutely can. That is why I am saying to the House, to the City and to our fellow donor nations that we have to start levering in others to help us with this agenda. If we really want to develop the global goals—we have been talking about the billions to trillions agenda for a very long time—we need to start delivering on it. Today, I have set out how we will start to do that.

What steps is the Secretary of State taking to allow Parliament properly to scrutinise private investments in developing countries to ensure that they have a positive development impact on poorer countries?

I hope that the hon. Lady will welcome the announcement that was made at the UN General Assembly and that I reiterated in my speech today. For the first time, we have a tool that allows us to see how companies are graded against the delivery of the global goals—to see what they are doing socially and environmentally to ensure that the global goals are met. The benchmarking alliance unveiled at UNGA will be a huge tool not just for Parliaments and investors, but for the public, who, I think, care very much about how their savings and pensions are invested.

My right hon. Friend is surely right to focus on the need to increase private sector investment in developing countries. However big the aid budget is, it will be dwarfed by private sector trade and investment flows, which are essential. Does she agree that aid is particularly important where private sector investment fails—for instance, in the development of new drugs that are essential to beat diseases such as tuberculosis?

I absolutely agree. The more we can help others to lean in and assist with job creation, the more we can do on areas that only we can deal with, particularly health and humanitarian matters.

I am not sure whether this was the Secretary of State’s intention, but most of the press coverage about her speech this morning seemed to suggest that it was a leadership bid. On the subject of CDC—which, as I understand it, lost £73 million last year—can she confirm that she understands the concerns about CDC’s investment in things such as shopping centres, which may not deliver the best bang for our buck in terms of aid?

As I mentioned, CDC has a long history. It has been around for 70 years, and over that time it has done many things. One of my right hon. Friends, a former Secretary of State, got CDC to change how it focused its investments. It is focused now on the poorest countries, and on Africa in particular, which is where the heavy lifting is still to be done. CDC still has some legacy investments in places such as Latin America and so forth, but it is primarily concerned with Africa. We need to dispel some of the myths about investing in such countries. We get good and very competitive returns on those investments, and I urge financial institutions and investors to look at the opportunities that exist in Africa and Asia.

I commend the Secretary of State on her speech today. Can she confirm that she believes, as I do, that it is right and proper for our aid budget to support our national interest?

I set a new, higher spending bar for the Department, because in addition to spending money well, we have a duty to ensure that it could not be spent better. That means ensuring that we are doing the right thing within the development world and doing the best we can with that budget to improve health and education, but we also need to look across to our domestic priorities. If we are as explicit as we can be about the benefits to the British public of what we are doing in aid—for example, research that we have done has led to new treatments that are being used today on our NHS wards—I think the public will be pleased with that.

The global goals seek to end poverty, violence and hunger in all their forms in this country as well as overseas. The figure of 0.7% of gross national income on development assistance should be a floor, not a ceiling. Although I have some sympathy with the accounting issues that the Secretary of State is dealing with in terms of the reinvestment of any profits, I seek a guarantee from her that any investments that we make with that budget—either through the World Bank or the Asia Infrastructure Investment Bank—are climate-neutral and environmentally friendly. I also say to her that not a single pension trustee in the country will invest overseas if they think that their investment is going to displace Government investment.

I thank the hon. Lady for her understanding of the issue of how we account for ODA. I can reassure her: this is the Government who introduced the 0.7%, and I have been an aid worker and believe in aid spending. I think that if we do not spend money on development, we pile costs on to other areas of public spending such as defence. I can also reassure the hon. Lady that the speech that I made today—I urge her to read it, if she has not already done so—makes it clear that we want to do more. Indeed, we must do more, because otherwise we will not deliver the global goals. So I can give the hon. Lady that guarantee. She is absolutely right: the public want to know where their investments are going. They want to know the environmental issues, and they want to know the social issues.

Does my right hon. Friend agree that the aid budget should be used to encourage investment from new sources, which includes helping the British public to invest in companies that will invest in the global goals? Does she agree that in the light of the serious and desperately troubling climate change and global warming issues raised this week, it is more important than ever for us to adopt this funding model, because otherwise we will never address the carbon issues that we face?

My hon. Friend is absolutely right. I think that only one in five high-net-worth individuals invests in ethical businesses, and businesses that will help us to deliver the global goals. We must do more if we are to deliver those goals, and we want to explore how we can help that to happen.

This morning, I searched in vain for any content in the Secretary of State’s leadership bid—I mean, her speech. The only content that I found was the statement that she was going to start a national conversation. Her party has only just successfully lobbied the OECD to change the rules to allow the billions invested in CDC to be counted as aid upfront, and now she says that she wants another change. May I, for the purpose of clarity, ask whether, if the Government have invested £1 in CDC and it recirculates two or three times, she counts that once as £1 from the Treasury, or counts it three, four, five, six times and pats herself on the back while reducing the 0.7%? Will she commit herself to the 0.7% as a floor and not a cap?

Let me reiterate that it is this Government who introduced the 0.7%. [Interruption.] We introduced it, and we have kept it. I am sure that Opposition Members have not read the speech that I made today—if they had, they would know that the thrust of it was about levering more in.

What we are trying to do has nothing to do with some doctrine of the purity of aid, or what we should do with public money. It is about changing people’s lives and about saving lives, and this is about our ability to deliver what is needed for us to do that. Because we are capitalising those investment vehicles, we are currently choosing to deal with ODA in one way. We argued for that, and we have agreement to do that. [Interruption.] What I am saying is that in future years, if we want to do more of this—if we want to make our aid budget more sustainable—we should explore these options now. We should do that in consultation with the people whose money we are spending, the British taxpayers, and in consultation with the organisations that are investing their savings and pensions. Otherwise, folks, we are not going to deliver the global goals, which is what we are here to do.

I congratulate my right hon. Friend on injecting a big, cold dose of common sense and reality into how international aid might best be delivered. The poor, starving child in Africa who lives in a tin shack and whose parents do not have work does not really care whether it is the private sector or the public sector that delivers that aid, but if the involvement of the private sector means that that child is fed, his family housed and his parents employed, then bring it on.

I agree with my hon. Friend and stand ready to receive other advice from the Opposition Benches about how we might close the £2.5 trillion funding gap—the shadow Home Secretary is not allowed to help with the maths. If we can deliver that through private investment, we can deliver the global goals. We must stop this dogma in the aid sector that anything done by the private sector is a bad thing; it is the only way we can actually deliver the goals.

I remain committed to the 0.7% figure, but I have no issue if that is made up of taxpayers’ money and a rate of return from taxpayers’ money, so long as the sum total is 0.7%. But may I ask the Secretary of State for reassurance that decisions will be made not on what gives the greatest investment return, but on what will give the greatest humanitarian outcome?

Absolutely, and businesses are very interested in this agenda. They are interested in seeing how they can embed the global goals into their company reporting; there is huge demand for that, and for advice and support to enable them to do that. The possibilities are truly incredible, and we should support our entrepreneurs and those philanthropists who also want to donate, because they are another part of this issue with the potential that impact investing has. They want to do some good in this world, and we should support them to do that.

The Prime Minister’s cuddly, compassionate Conservative pitch has not even lasted the first day back: not only have we just had a totally unnecessary and gratuitous attack on the shadow Home Secretary from the International Development Secretary, but it is clear from the briefing that her speech this morning was a pitch to the right wing of the Conservative party as part of her leadership ambitions. The pitch is simple: we are going to roll in the private sector and roll back the state. That is what she has announced today, isn’t it?

I will circulate my speech to hon. Members.

Hon. Members must understand that ODA, the 0.7%, cannot be private funds; it can only be public funds—whether money Governments have put in or returns potentially from those funds in those publicly owned investment vehicles. The hon. Gentleman accuses me of playing to the gallery; I am sorry, but I think Opposition Members are doing that. I have not heard an Opposition Member stand up and defend good British business that wants to use its resources to help alleviate and eradicate poverty. We are behind that agenda, and I urge Opposition Members to get with it, too.

As the Secretary of State will know, hundreds of millions of people around the world have been brought out of extreme poverty by global trade and investment, so it is bizarre to hear it attacked today. Does she agree that proper aid policies, teamed up with sustainable investment and good trade, are the very thing that will deliver a vision for the future for many third-world countries, rather than a vision of Venezuela?

I agree with my hon. Friend. We have talked about distant investors and pension funds, but this is also about British entrepreneurs. I had a meeting with an entrepreneur this afternoon; he is a young gentleman who is setting up factories to produce clothing around the world. He is taking women who have been living on the streets and giving them a job, and giving them healthcare, education and childcare. He is doing amazing things. Business can be a huge force for good. We now have tools to monitor what business is doing and what progress businesses are making, and we ought to get behind them and let them help.

I chair the all-party group on Africa, which has been at the forefront of promoting greater good trade and investment links with Africa as being in all our interests. However, that must complement, not replace, our aid commitment. In treating pensions investments as aid, the Secretary of State is sending a signal that our pensioners should be dependent on returns on charitable donations and that trade with Africa is a question of charity. Is she really saying that we will be monitoring these new funding investments through company reporting, rather than making the investment fund managers accountable to this House?

No, I am sorry, but the hon. Lady is confusing two things. There are private funds completely separate from Government, including pension funds and other financial instruments, investing in Africa, and that is what we want them to do—[Interruption.] Well, we do not do enough of it. There is £8 trillion in the City that could be levered to that cause, so we do not do enough of that. The hon. Lady is confusing that with something else—namely, public funds and publicly owned investment vehicles such as CDC, the India Infrastructure Fund and the Private Infrastructure Development Group. Their profits, which are wholly public funds, have the potential to be used for years hence to count towards our aid.

Does my right hon. Friend welcome the fact that, as we leave the EU, we will be able to have additional control over the £1.5 billion within our international aid budget that we currently channel through the EU? Does she think that we could use that money to achieve the global development goals?

We have all sorts of choices ahead of us as we take back control of that money. I have outlined today that I think we should be doing more investment to create the jobs and livelihoods that these nations need to lift themselves out of poverty and to bring a return to the UK, so that we can make the work that we do more sustainable and, if we choose, increase it.

There is a legal duty under the International Development Act 2002 to ensure that aid spending is spent on poverty reduction overseas. There is also a responsibility on investors to maximise returns for their pension holders and shareholders. Those are probably contradictory priorities. Does the Secretary of State recognise that, if she is talking about this investment in terms of aid rather than of investment, she is going to have to change that legislation? Alternatively, is she talking about something entirely different from what we currently understand aid spending to be?

I refer the hon. Gentleman to the answer that I gave a moment ago. These are two different things, and I think many Opposition Members are confusing them. One reason why we are in the 0.7% club is that we do not mark our own homework; someone else does. That should provide some reassurance to people that we are not doing something that we are saying we are.

There is a difference when it comes to what a private company, entirely separate from Government, chooses to do—and what we are trying to encourage them to do: do some good in the world by investing in the developing nations that need investment and get a great return on their investment. There is a separate issue about what we do with public funds, which count towards the ODA spend. We are not talking about using private funds to replace that.

In terms of the Development Assistance Committee rules, we are talking about looking at how we count ODA, and about ensuring that when we get returns back we have more flexibility on what we do with them. We could spend more money on development or we could retain our 0.7% commitment and spend some of those returns on the national health service.

Order. I am grateful to the Secretary of State. I appreciate that it is sometimes convenient, not least within Government Departments, for Ministers to use shorthand, but for the avoidance of doubt and for the benefit of those attending to our proceedings who are not within the curtilage of the Chamber, I should point out that ODA refers not to an unpleasant smell but to overseas development assistance.