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21 November 2019updated 05 Oct 2023 8:31am

Britain’s aid budget is the privatisation scandal nobody is talking about

Handing over chunks of the aid budget to an opaque private company does little to tackle poverty in the global south. 

By Dan Carden

For those who choose to see it, the fallout from a decade of Conservative rule is as clear as day.

A third of British children live in poverty. The country has record levels of food banks, hospitals are at breaking point and whole cities have been shut down by protests against government inaction on climate change. Wilful blindness is now becoming impossible to sustain.

Less noticed is how the Tory government’s neglect at home extends to its failed stewardship of the country’s aid budget overseas.

Aid is first and foremost about reducing global poverty, but it is also about working across borders to assuage hardship for the world’s poorest communities, increasingly traumatised by war, floods and droughts.

Aid is a serious endeavour and its proper management is integral to the role Britain plays in the world – and the fate of the world’s poorest.

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After almost a decade of Tory government, we’ve witnessed a steady diversion of aid spending away from global poverty – a duty enshrined in domestic law, supported by the public and governed by international rules we signed up to.

Billions that were once spent directly by the dedicated department for international development (DfID) have in recent years been redirected to other parts of the state.

CDC Group, a “development finance institution’’, is a private company with one shareholder: DfID. It has received around £2bn of public money since 2016, with more earmarked for the coming two years.

Formerly known as the Commonwealth Development Corporation, the CDC is a hangover of the last years of the British Empire that has been investing in private-sector markets and buying up private equity in the Global South over the past six decades.

The company did not ask for more money and, with £3bn in assets under management in 2016, it didn’t need it. But that same year the government passed legislation to enable a massive public recapitalisation of the bank with up to £6bn in new money, with the possibility of extending this to £12bn, all of which would be taken from the aid budget.

This new capital injection was spearheaded by Priti Patel, the then development secretary who resigned after offering UK ‘aid’ to Israel’s occupying force in the Golan Heights.

Patel used a busted market mantra to justify CDC’s new role: it would, she argued, help the poor by jump-starting developing economies and end poverty through economic growth.

Despite having a poverty reduction mandate, the CDC has struggled to show how it is distinct from any other bank or how its investments significantly impact on poverty reduction. Following a series of reforms brought in under former DFID secretary, Andrew Mitchell, in an attempt to make the company “a development-maximising, not a profit-maximising, enterprise” the company has since had a mandate to seek modest returns on investments averaging 3.5 per cent. Although the company’s latest accounts show a reduced return rate over the last two year, it has an average return rate of 9.2 per cent on its investments since 2012, which have included agribusinesses, fossil fuel exploration, luxury hotels, private hospitals and mines.

Worse still, the CDC relies heavily on tax havens to funnel money in and out of the global south. This makes it impossible to know whether CDC investee companies pay the full taxes that are due, and are especially vital in poor countries.

Climate change hits the global poor the hardest. So how can the CDC be allowed to invest in and sustain a sector that creates problems it should be trying to fix? As aid agency CAFOD points out, it has provided a £29.5m loan for a heavy fuel oil power plant in Guinea, a £19.4m loan for a liquified natural gas terminal in Bangladesh and continues to invest in equity funds supporting carbon infrastructure.

In 2016, the National Audit Office said that this enormous spender of UK aid could not demonstrate how its investments cut poverty. This year, ICAI, Britain’s official aid watchdog, said that it has been “difficult for us to assess its overall impact” on development outcomes.

Handing over chunks of the aid budget to an opaque private company rooted in empire may have worked for Tory party management, but re-capitalising the CDC without overhauling how it invests does nothing to ensure those investments genuinely tackle poverty in the global south.

That is why Labour has a new manifesto pledge: the CDC will undergo a root-and-branch reform, transforming it into a truly impactful green development bank designed to support countries in the Global South to meet climate and development goals.

We will extend the bank’s mandate to work with the public as well as private sectors. All investments will be run by rigorous investment criteria, so that all companies or state organs receiving financial support will have to meet minimum standards on pay, working conditions and union recognition, as well as a commitment to decarbonise their supply chains and meet the climate commitments, agreed to in the Paris Agreement.

There will be no more aid for emissions. No more aid for private health or education. No more aid money on shopping malls or luxury consumer goods. Labour believes that all spenders of aid must be able to demonstrate that they are having tangible impacts on the world’s poorest.

Labour’s commitment to poverty reduction worldwide is a key plank of our vision for an outward-looking nation, proud of its support for poor people, victims of war and climate refugees.

Under Labour’s leadership, Britain’s aid budget will be refocused to support civil society, public services and mutual partnerships. We will do away with paternalistic notions of charity and establish new relationships based on solidarity, human rights and social justice. That’s the real change needed by the UK and the world.

Dan Carden is shadow secretary of state for international development and Labour MP for Liverpool Walton.

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