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General Committees

Debated on Wednesday 5 July 2023

Delegated Legislation Committee

Draft Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023

The Committee consisted of the following Members:

Chair: Esther McVey

† Blomfield, Paul (Sheffield Central) (Lab)

† Bonnar, Steven (Coatbridge, Chryston and Bellshill) (SNP)

† Byrne, Liam (Birmingham, Hodge Hill) (Lab)

† Creasy, Stella (Walthamstow) (Lab/Co-op)

† Crosbie, Virginia (Ynys Môn) (Con)

† Davies, Gareth (Exchequer Secretary to the Treasury)

† Drummond, Mrs Flick (Meon Valley) (Con)

† Howell, Paul (Sedgefield) (Con)

† Jones, Mr David (Clwyd West) (Con)

† Knight, Sir Greg (East Yorkshire) (Con)

† Malthouse, Kit (North West Hampshire) (Con)

† Moore, Robbie (Keighley) (Con)

† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)

† Stephenson, Andrew (Lord Commissioner of His Majestys Treasury)

Timpson, Edward (Eddisbury) (Con)

† Twist, Liz (Blaydon) (Lab)

† Whitley, Mick (Birkenhead) (Lab)

Stella-Maria Gabriel, Committee Clerk

† attended the Committee

Sixth Delegated Legislation Committee

Wednesday 5 July 2023

[Esther McVey in the Chair]

Draft Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023

I beg to move,

That the Committee has considered the draft Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023.

It is a great pleasure to see you in the Chair, Ms McVey. I thank right hon. and hon. Members for attending. This daft statutory instrument will enable trading standards to exercise their investigative powers fully to check compliance with the Tobacco Products (Traceability and Security Features) Regulations 2019.

Smoking is the single leading cause of preventable death and disease in the UK, accounting for approximately 76,000 deaths each year. Half of all smokers will die as a result of smoking-related illnesses. It is estimated that smoking costs the NHS in England alone £2.6 billion per year. The Government are committed to addressing the harms of tobacco. In April, the Department of Health and Social Care announced a package of measures intended to cut smoking rates, including expanding access to new treatments, rolling out a national incentive scheme to help pregnant women quit, and using a new approach to health warnings.

Alongside that approach, His Majesty’s Revenue and Customs has a role to play, first, in charging duty on tobacco products to deter smoking and to raise revenue to cover the cost to the NHS. Theory and evidence alike show that high duty rates reduce the affordability of tobacco products and so support the Government’s public health objective to reduce smoking prevalence. Meanwhile, revenues from tobacco duty were approximately £10 billion in 2022-23.

HMRC has another key role in tackling the illicit market. One of the main challenges to dealing with smoking prevalence, aside from the addictive nature of nicotine, is the illegal trade in tobacco products, which increases both the affordability and the health risks for smokers. The evasion of tobacco duty also has significant negative impacts on the economy, public health, legitimate businesses and overall public safety. It cheats the Exchequer of revenues and blunts the effectiveness of tobacco duty as a tool for reducing smoking.

The tobacco track and trace system introduced in 2019 helps to prevent the illegal trade in tobacco products by making it more difficult for smugglers and counterfeiters to operate.

May I refer the Minister to the explanatory memorandum, which his office has kindly produced? Paragraph 7.6 states:

“The provisions in the Tobacco Products Duty Act 1979 provide powers to make regulations to issue penalties of up to £10,000; to seize product involved in a contravention of applicable law and to exclude retailers from the TT&T registration system, therefore restricting their ability to buy duty paid tobacco for retail purposes.”

Is there, or will there be, a right of appeal should there be mitigating circumstances in a particular case? For example, if a rogue employee brought in the contraband, but the owner of the corner store were not aware, it would seem very unfair to prevent that store from being able to sell legitimate cigarettes in future.

My right hon. Friend makes an important point and he is right to seek clarification. My understanding is that, yes, it is right that people may appeal. All penalties are subject to review. There is a process of appeal to HMRC should that circumstance that he describes happen.

As I was pointing out, the 2019 track and trace system provides a way to verify the authenticity of tobacco products and ensures that they have legally procured distribution. The tobacco products are tracked from the point of manufacture to the point of retail, and at all stages in between. Failure to comply with the requirements of the tobacco track and trace regulations in the UK may result in an issue of financial penalties, the seizure of tobacco products found at non-compliant premises, and the exclusion of retailers from the TT&T registration system.

These sanctions are part of a Government commitment to introduce new anti-evasion measures. In 2019, our election manifesto contained a pledge to consolidate and introduce new anti-evasion measures. The measures I have outlined today achieve that. This statutory instrument will bolster the Government’s efforts to tackle the illicit tobacco market and reduce tobacco duty fraud. I therefore commend the order to the House.

It is a pleasure to serve under your chairship, Ms McVey, and to be with Committee members. As the Minister set out eloquently, this instrument amends the Consumer Rights Act 2015 to allow trading standards to exercise its powers fully under the Tobacco Products (Traceability and Security Features) (Amendment) Regulations 2023, statutory instrument 2023/606.

His Majesty’s official Opposition share the Government’s desire to crack down on the organised crime gangs that dominate the illegal market in tobacco products. This illicit trade is partly the product of the cost of living crisis, which is forcing people to seek out savings and driving them into the arms of counterfeiters, smugglers and pedlars of stolen goods. It is also partly a product of high duty rates on cigarettes and other tobacco products. However, those duties have had a positive impact by reducing the number of people who start smoking, and increasing the numbers seeking to cut down and quit. Alongside high-level policy such as the smoking ban introduced by Labour in the Health Act 2006, those duties play a part in reducing the harms caused by tobacco and can be a useful tool in the promotion of public health.

We want stiffer penalties for those who seek to avoid paying such duties, and commensurate powers for trading standards to tackle those who procure, supply, distribute illicit tobacco and profit from the illegal trade. We will not oppose the measure, but I have some helpful questions for the Minister to address, and perhaps take up with officials.

First, the measure has its genesis in the 2020 spring Budget, and a consultation was launched in December that year, so why has it taken until July 2023 for this instrument to come before the Committee? Either this measure is urgent and necessary, or it is not, so why the delay? The Minister may have further information about the background.

Secondly, the Minister refers to the £1 million made available in the 2020 Budget for trading standards’ anti-illicit tobacco projects. The Committee will forgive my cynicism, but I am always wary of Ministers brandishing suspiciously round figures. How was the figure of £1 million arrived at, and does the Minister believe it an adequate budget to tackle a vast, violent and invisible network of smugglers, robbers and street-level distributors?

I can help the Minister a little by sharing the view of the Chartered Trading Standards Institute. It says that there are half as many trading standards officers in local government as there were a decade ago. I am sure the Minister is aware of that. It reports that 2,500 highly skilled trading standards professionals have been lost. Do we have the men and women to do the job?

Finally, what measures are in place to review and assess the efficiency of this policy—for example, the level of fines? The Minister knows that for organised crime, fines are often viewed as a business expense. Far from being punitive, they are priced in, as vast potential profits are to be made. It is often the small fry who get caught and fined, while the crime bosses get away with it. What processes are there to review and assess the instrument that the Committee is being asked to sign off?

We will not vote against the measures, but I hope that the Minister finds my questions helpful and that he will answer them in the same constructive spirit in which they were asked.

It is always a pleasure to see you in command, Ms McVey.

This is a seemingly innocuous and small slip of paper, but I want to raise a number of issues about which the Committee needs to be aware. First, anybody who is familiar with schedule 5 of the Consumer Rights Act 2015 will know that the implications of entering trading standards into the schedule can and will be profound. The schedule contains some draconian powers—powers that are now to be bestowed on trading standards—which have caused alarm pretty much ever since Gordon Brown amalgamated Customs and Excise with the Inland Revenue.

As a scholar of Daphne du Maurier, Ms McVey, you will know that the excise men, as they used to be known, have historically, since 300 or 400 years ago, had significant powers to deal with smuggling. With that came a culture in the then Customs and Excise of a slightly brutal approach towards their customer base. They were well used to smashing their way into warehouses without a warrant and could demand all sorts of documentation without any cause for suspicion. I am afraid that the amalgamation of Customs and Excise with the Revenue meant that that culture, which was a little bit like Japanese knotweed, infected the whole of what is now HMRC, to the extent that we do not now see a professional organisation that sits down with other professionals in the accountancy or legal profession and decides what is due. Instead, we see more of a brutal, demanding and aggressive organisation.

Unfortunately, through the schedule, the powers have been spread to other organisations, such as district councils and the Competition and Markets Authority, and we are now giving those powers to trading standards. For example, schedule 5 includes the power for an enforcement or investigation organisation to enter premises without a warrant. There is no requirement to go to a judge and offer any evidence as to why the organisation needs to enter those premises; it can just enter. The only restriction is that those premises, as I try to remind myself from the Act, cannot be wholly or largely residential, but I am not sure who makes that decision.

As my right hon. Friend the Member for East Yorkshire said, an awful lot of corner shop owners will be affected by this legislation, many of whom live above the shop, as my great-grandparents did in Harrogate. The question of who decides whether that premise—that corner shop—is largely or wholly residential will be an interesting one for the enforcement authorities to consider. I can see situations where they may well smash their way into a corner shop and there is a perfectly innocent family sleeping upstairs who will be traumatised by their entry. This is a draconian set of powers.

Similarly, there is the ability to demand documentation without any suspicion or recourse to law whatsoever. Much of it can be suspicionless, as far as I can tell from the Act. I ask colleagues to be under no illusion: this seemingly innocuous bit of paper is actually conferring significant powers on trading standards and we should not underestimate that.

Could not the concerns that my right hon. Friend raises be addressed by the Government in the guidance they will issue in due course?

They certainly could be. This bit of legislation will go through today and I hope the Government will take those things into account. The explanatory memorandum states that respondents to the consultation were in favour, but I am not sure about the wider group. For example, I would be interested to know the view of the Association of Convenience Stores on the wider acquisition of the powers and the fact that they are being given to trading standards. My right hon. Friend is quite right; that could be addressed in the guidance. As I say, I want nobody to be under any illusions about what we are doing here.

Secondly, while this is an attack on the sale of illicit tobacco at the front end, I would be interested to know what the Minister is doing at the most vulnerable point for the smuggling of illicit tobacco: the border. We are seeing large amounts of illicit tobacco coming through the post, for example. It is mailed in packages from overseas through fast parcel delivery, often through the Royal Mail warehouse at Langley, near Heathrow.

I do not know whether colleagues know this, but that warehouse takes in 100% of overseas mail coming by Royal Mail route, and the ability to scan parcels quickly there is very restricted. We have never invested in proper parcel scanning at that facility, and those who would smuggle these goods—which, of course, can now be bought online and shipped from overseas—recognise the weakness in that route. I would love to see some of the £10 billion we are raising from tobacco every year invested in enforcement at the border, rather than it all being hived off to subsidise other activity. If we were really serious about stopping this trade, we would concentrate on the most vulnerable point, which is this funnel at the border where we could detect a lot of it.

Thirdly, this is yet another step in the phoney war against smoking that is taking place in this country. We never take what strikes me as the brave step of doing something imaginative to phase out smoking. We nip, we tuck, we chisel away, and we try to scratch the surface. We make life difficult for often marginal businesses such as corner shops, which are almost regulated out of existence now—they all have to have sliding doors in front of cigarettes and cannot display them in certain places—and yet we are not brave enough to do what other countries have done, which is to progressively raise the age at which people can buy cigarettes.

If we did that year after year, in time, only the over-60s or over-70s would be able to buy cigarettes, and we would have effectively phased them out in a generation. I do not understand why successive Governments have not been brave enough to do that, given the appalling statistics that the Minister mentioned. I speak as somebody who lost two grandparents and my grandmother’s twin sister to smoking-related cancer; both twins died of smoking-related cancer. I have seen the effects for myself, and I wish we could be braver about it and do something sensible, rather than running this phoney skirmish war that drags in so many innocent, struggling businesses.

The final point I want to raise is about the impact on local government. As the hon. Member for Erith and Thamesmead said, trading standards is not what it was. It is hard enough for consumers to get the attention of trading standards on anything these days. All our postbags will have been filled with letters from people who are frustrated by the fact that trading standards is not addressing their issue.

The explanatory memorandum says that there will be no impact on local government, stating:

“There is no, or no significant, impact on the public sector.”

If this measure is going to be effective, and if we are going to have all these inspections and regulation, surely this must fall within the additional burdens doctrine. Greater capacity must be given to trading standards to deal with this issue. If not, what part of its work is going to give? Where will the activity come from that the Minister now expects to be expended on illegal tobacco? We cannot just expect trading standards to expend ever more activity for the same number of heads and bodies and hours worked. If the Government really want this to be effective—and I have to say, I have my doubts—where will the extra capacity come from?

It is nice to see you in the Chair this morning, Ms McVey. We in the Scottish National party support this amendment to schedule 5 to the Consumer Rights Act 2015, as set out in the instrument. Speaking more broadly, we want to ensure that the protections that UK consumers became used to under EU law are not watered down in any way, as this Government seem intent on doing. That is why we in the SNP have tabled an amendment to the Digital Markets, Competition and Consumers Bill that would ensure with respect to a customer’s right to redress that consumer protection was not reduced from the level provided by the Consumer Protection from Unfair Trading Regulations 2008.

It is a pleasure belatedly to serve under your chairmanship for the first time, Ms McVey. I am possibly going to shock the Committee in many ways by saying that I agree with much of what the right hon. Member for North West Hampshire has said. He and I might come from different ends of the political spectrum, but we share an interest in local regulation and in doing that in a proportionate fashion, because we have seen at first hand what happens when it does not work.

I am possibly the only person here who served on the Committee that considered the Consumer Rights Act 2015, in that halcyon era in which we in this place were looking at good regulation, rather than having no regulation at all. I want to ask the Minister a set of questions that follow up what the right hon. Gentleman was talking about, and I agree with him that there was a good reason for not including trading standards on the list of bodies that were to have powers under that legislation.

At the time, we felt that the powers were quite strong, and we recognised that the comparator bodies—the others that had the powers, such as the Competition and Markets Authority and the Financial Conduct Authority—were about whole markets. This statutory instrument is very much about a local power and local trading standards. Indeed, it now looks as though trading standards will have stronger powers than local police forces to do searches.

There might be good reasons for that owing to the nature of the trade that trading standards is trying to tackle, and I want to come to that subject, but the Minister did not say anything about, for example, what has been done to monitor the use of the powers over the past eight years. Will he say what we know about when there have been raids, what happened and how the use of the powers is monitored? The difference between market-wide powers and locally applied powers could be very strong.

The next point I want to follow up is the capacity of trading standards to make good on this measure. It is one thing to confer powers, but quite another to have the people to implement them. We know that spending on trading standards fell by 52% between 2009 and 2019. In some areas of the country, there are no trading standards officers at all. Liverpool Council, for example, no longer has a trading standards department because something had to give considering how little money the Government have given the council to run services.

Most local authorities have just one qualified trading standards officer, but if we are to give people stronger powers than the police, we want them to be qualified people who understand the remit and understand why they are being given the powers. Again, I ask the Minister to say something about whether additional funding is going to be given. If this measure generates the impact that we want it to generate in tackling the illegal cigarette trade, revenue will be raised that could go into trading standards.

My colleagues in trading standards do a fantastic job trying to tackle the crimes that, after all, are the crimes that most of our constituents come to us about most of the time, and they would want to see more investment in trading standards. A £16 billion cut in the core revenues of trading standards means that there will not be the officers to use these powers, and certainly not officers trained to use the powers sensitively, unless there is investment.

There is a final point on which I would like to hear more from the Minister, which is the trade we are trying to tackle. We know that 21% of cigarettes sold in the UK are illicit. This is an international trade—gangs, funding and all sorts of criminal activities in our communities. Putting trading standards officers on the frontline of tackling that trade is a bold move owing to the nature of the people with whom they might be interacting. What conversations has the Minister had with the National Crime Agency?

There is an unproven statement that much of the trade is organised crime, but I know from my time at the Home Office that this is a low-margin business. I am not convinced that the volume is coming through via organised crime; I think it is coming through in fast parcels—small packages from overseas. That is why I am so keen to see some kind of intervention at the border, and I worry slightly that the more we talk about organised crime and gangs, the more the effort gets put in that direction, whereas a huge volume is coming through orders on the internet.

We were so close to having unanimity in this place about the nature of the challenge. I think it is both. The right hon. Gentleman says that there are small packages—I was going to ask the Minister to say a bit more about what conversations he has had with Border Force—but the Lords Justice and Home Affairs Committee investigation into the matter set out that international gangs were involved. One German-Russian gang made £50 million over several years by importing cigarettes into the UK.

We are therefore potentially asking trading standards officers to interact with very serious and dangerous people, and it is important that this House does not ask trading standards to be the blue line in our local communities. If we are to ask trading standards officers to take on this serious trade—packages might be one piece of investigation work—to enter properties and to take on organised crime, they need support. Will the Minister say more about the conversations that he has had with the National Crime Agency or Border Force about how to keep trading standards officers safe? Everybody agrees that we want to tackle this trade and everybody wants more investment in trading standards. We will all support the draft order, but I hope that the Minister understands that those of us who wrote the original legislation have some concerns about what we are asking of a service that has been stripped bare over the last 13 years.

Many excellent points have been raised, and I will do my best to address as many of them as possible.

First, the Labour party spokesperson, the hon. Member for Erith and Thamesmead, asked about the timing of the measure. One of the reasons for the timing of the measure is that the track and trace system that was implemented in 2019 needed time to bed in. We wanted it to get working. It was only in 2020 that we started the consultation on sanctions, and, now that the track and trace system is in place, we are in a position to execute on that.

The hon. Lady asked about the £1 million grant, which was to launch Operation CeCe. The money was provided in the 2020 Budget, and it has resulted in £7 million of illicit tobacco products coming off the streets of the UK. It has been a tremendous success, and we have now committed to extending the operation to 2025 with additional funding of £800,000.

The hon. Lady asked about resourcing, which was a common theme in the contributions of my right hon. Friend the Member for North West Hampshire and the hon. Member for Walthamstow. I will come to the powers of trading standards in a minute, but the key aim of the draft order is to change how trading standards operates with HMRC. Trading standards will gather information and refer cases to HMRC for sanctions to be administered, and HMRC will administer all the penalties. We are not giving trading standards additional powers. It is not required even to execute on the track and trace regulations. It is up to trading standards, but we are asking it to gather information that could then be provided to HMRC. That is why we feel that there is no additional burden on trading standards; if anything, much of the burden of administering the penalties is on HMRC.

The hon. Member for Erith and Thamesmead asked about the review of the policies. All policies remain under review, but HMRC and Border Force will be producing a new strategy on tackling illicit tobacco later this year, and I expect this policy and the success of Operation CeCe to form part of it.

As usual, my right hon. Friend the Member for North West Hampshire makes some incredibly insightful points that are based on his extensive experience. As I pointed out, trading standards is already covered by schedule 5 to the Consumer Rights Act. The draft order is about changing the approach to enforcement so that it is focused on track and trace. To date, it has been focused on the amount of illicit tobacco that has been found, and we have found that organisations and individuals have been holding a small amount of illicit tobacco to avoid significant penalties. The measure will change the approach so that new measures and regulations are tied to the 2019 track and trace regulations, and it will provide additional penalties and enforcement mechanisms for HMRC.

I am no lawyer, and maybe I am reading this wrong. I acknowledge that schedule 5 already includes local weights and measures authorities. That is not necessarily the full extent of the powers of trading standards. I accept that, in legislation, it has the powers to smash its way into premises in pursuit of weights and measures issues, but it do not have those powers in anything else. My reading of the legislation is that it expands that power beyond weights and measures and into the regulation of tobacco. Its current ability to demand documents and enter without a warrant is being expanded so as to include enforcement of tobacco regulations. I do not think that that part of its work is currently included. If it were, why is the measure necessary?

This measure is necessary, first, to increase the penalty up to £10,000 for HMRC; secondly, to give trading standards the ability to share data with HMRC, which was not previously the case; and, thirdly, to shift the focus on to track and trace and away from the amount of illicit tobacco that is found. Trading standards is empowered to gather information and refer cases to HMRC for further investigation. I can write to my right hon. Friend on his specific point on weights and measures—he will forgive me for not having the same mastery of detail as him on that point. I hope the three points I mentioned clarify what we are seeking to do with this specific measure.

My right hon. Friend quite rightly asked about the border, where typically a lot of illicit tobacco enters our country. HMRC and Border Force work very closely together. As I mentioned in response to the hon. Member for Erith and Thamesmead, a new strategy will be published this year to outline how HMRC and Border Force interact and what more they can do to tackle illicit tobacco coming into our country. I can tell my right hon. Friend that 8 million cigarettes were seized between 2015 and 2021, and so there is a reasonably effective operation in place, but they can always do more.

I recall that Border Force ran a competition looking for fast scanning technology. It awarded some money to a series of companies and there was some prize—I have in mind £1.5 million—for whoever could come up with this ability to whizz parcels through and scan them at speed. When I visited Langley, there were just two standard airport scanners, one of which was on the blink, for something like 1 million parcels a day, which is nuts. When he writes to us, will the Minister also update us on where that competition has got to?

I am very happy to do that. I am not familiar with that particular case.

The principle is right, in terms of ensuring that tobacco is tracked. We have a similar system for alcohol. The whole point of track and trace is to ensure that, from the point of manufacture to the point of sale, we are tracking and monitoring where illicit tobacco is going. We believe that will be an important way of bringing down the illicit trade that riddles our country and many countries in the world.

My right hon. Friend also asked about tackling smoking. That is an issue that unites the whole House. We all want to see smoking rates come down. He may describe the measures we have taken to date as piecemeal—I do not want to put words in his mouth—but they have had success. We have a prevalence rate of 13%, which means that 13% of our country smoke. That is lower than many countries and has come down quite significantly in recent years.

Some of the measures we are taking are based on the Khan review, which recommended the use of vaping to bring people off tobacco smoking. We are providing 1 million vaping kits for those who wish to come off smoking. Duty, as I said in my opening remarks, is a key way in which we can disincentivise the smoking of tobacco. We can always go further and I welcome the challenge.

I very much welcome the challenge, and I can imagine that my right hon. Friend will be right there with us as we announce further measures in the Department of Health and Social Care.

Finally, the hon. Member for Walthamstow asked about the powers. I hope that I have addressed many of those points already, in terms of trading standards not gathering additional powers but seeking to work more closely on data sharing with HMRC, which will have the burden of executing and administering the additional penalties that we are able to operate today.

The hon. Lady quite rightly asked how we are keeping trading standards officers safe. We are in constant discussions with Border Force. We have not had discussions with the National Crime Agency, but I will write to her on what discussions have taken place across Government. The safety of trading standards officers is not directly related or relevant to this order, but the hon. Lady is right to raise it at any opportunity, because we want those who are gathering information with a view to prosecution and penalty execution to be as safe as possible. I expect them to work closely with local police officers wherever they deem a danger to exist.

The sale of illicit tobacco undermines public health policy by offering a cheaper option to those who might otherwise see price as a reason to stop smoking. It damages legitimate businesses and makes tobacco more accessible to children. The evasion of tobacco duty also has a significant impact on our economy and a negative impact on public health, legitimate businesses and overall public safety. It cheats the Exchequer of revenues of billions of pounds each year, and it blunts the effectiveness of tobacco duty as a tool to reduce smoking. This amendment to the Consumer Rights Act is important in tackling the trade in illicit tobacco. These changes will facilitate the UK Government in their objectives to protect public health, raise revenue and combat organised crime.

I hope that the Committee has found today’s sitting informative. I am certainly grateful for the interventions made and speeches contributed. I commend the order to the Committee.

Question put and agreed to.


That the Committee has considered the draft Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2023.

Committee rose.

Draft Commonwealth Development Corporation (Limit on Government Assistance) Regulations 2023

The Committee consisted of the following Members:

Chair: Graham Stringer

† Bacon, Gareth (Orpington) (Con)

Benn, Hilary (Leeds Central) (Lab)

† Brennan, Kevin (Cardiff West) (Lab)

† Britcliffe, Sara (Hyndburn) (Con)

† Cruddas, Jon (Dagenham and Rainham) (Lab)

† Elmore, Chris (Ogmore) (Lab)

† Gill, Preet Kaur (Birmingham, Edgbaston) (Lab/Co-op)

† Hall, Luke (Thornbury and Yate) (Con)

† Harris, Rebecca (Comptroller of His Majesty's Household)

† Hart, Sally-Ann (Hastings and Rye) (Con)

† Henderson, Gordon (Sittingbourne and Sheppey) (Con)

† Leadbeater, Kim (Batley and Spen) (Lab)

† Mackrory, Cherilyn (Truro and Falmouth) (Con)

† Mitchell, Mr Andrew (Minister of State, Foreign, Commonwealth and Development Office)

† Mortimer, Jill (Hartlepool) (Con)

† Oswald, Kirsten (East Renfrewshire) (SNP)

† Penrose, John (Weston-super-Mare) (Con)

George James, Committee Clerk

† attended the Committee

Seventh Delegated Legislation Committee

Wednesday 5 July 2023

[Graham Stringer in the Chair]

Draft Commonwealth Development Corporation (Limit on Government Assistance) Regulations 2023

Before I call the Minister, I want to say that it is very warm and close in here, so if right hon. and hon. Members wish to take their jacket off, they have my permission. Minister, will you be good enough to move the motion?

I beg to move,

That the Committee has considered the draft Commonwealth Development Corporation (Limit on Government Assistance) Regulations 2023.

The draft statutory instrument was laid before Parliament on 6 June, in accordance with section 15(6) of the Commonwealth Development Corporation Act 1999. It is subject to the affirmative procedure and will be made once approved by the House.

I will start with a brief overview of British International Investment. The primary purpose of the draft regulations is to permit the Government to increase the assistance available to BII—formerly the Commonwealth Development Corporation—from £6,000 million to £9,500 million. The increase will enable the Foreign Office to increase financial support to BII in line with the new five-year technical strategy. As the UK’s development finance institution, BII invests long-term patient capital in private companies in developing countries’ pioneer markets. That delivers benefits that last. BII has a dual mandate of development impact and financial sustainability.

BII has a rich history and long commitment to supporting development around the world. Over the previous five-year strategy, from 2017 to 2021, BII made £7 billion-worth of investment in more than 600 investments, mobilising about £2.5 billion in additional capital from the private sector. I hope that right hon. and hon. Members will join me in recognising just how extraordinary and impactful those numbers are, and what they represent. Over the same period, BII supported businesses that employed more than 1 million workers, generated 277,000 GWh of electricity, and paid more than £10,000 million in taxes into the relevant exchequers.

BII’s investments are largely self-financing. Increases in taxpayer support allow it to accelerate the speed at which it makes new investment, thereby increasing its development impact. That increase in speed and size helps it to contribute more to the achievement of the UN sustainable development goals. The Commonwealth Development Corporation Act 2017 amended the Commonwealth Development Corporation Act 1999 to increase the limit on taxpayer assistance to BII from £1,500 million to £6,000 million, with a further power to increase taxpayer assistance to an amount not exceeding £12,000 million by way of a statutory instrument.

The aggregate amount of assistance provided to BII by the taxpayer to date is £5.2 billion. We launched BII’s 2022 to 2026 technical strategy in November 2021. In support of that, a new share subscription agreement was approved by His Majesty’s Treasury on 7 December 2022, based on the current spending profile. Under that agreement, the Foreign Office will reach the £6 billion maximum limit for support of BII by June 2024. The funding profile agreed under the share subscription agreement in December 2022 is required to enable BII to deliver on its 2022 to 2026 technical strategy ambitions.

The strategy commits BII to greater ambition on geographical spread, climate and gender impact. The provision of increased support is critical for BII to continue implementing this strategy, which is the cornerstone of wider publicly announced ambitions under the Government’s British investment partnerships, the international development strategy 2022 and the UK’s commitment to provide at least £11.6 billion of international climate finance between 2021 and 2026. Expanding BII’s reach into new markets of strategic importance to the UK, consistent with its mandate laid down by the shareholder, will enable it to continue as a key vehicle for our economic development objectives, helping to build greener and more prosperous economies.

In summary, my priority is to ensure that UK aid is used effectively to help achieve the sustainable development goals, to achieve value for money for UK taxpayers and to deliver in our national interests. The regulations will enable us to deliver on BII’s full potential in continuing to promote productive, sustainable and inclusive development. I commend the regulations to the Committee.

I am grateful to the Minister for outlining the new regulations.

I begin with some comments on BII’s role and objectives. The Opposition recognise the private sector’s important role in the development journeys of low and middle-income countries. The creation of new jobs and markets, especially for Africa’s young and fast-growing working-age population, the boosting of economic growth, productivity and tax receipts, and delivering innovative new products, services and infrastructure to meet the needs of poorer countries are all vital components of a genuinely sustainable development strategy.

Within that, I recognise the good work BII has been doing in supporting the delivery of the world’s first malaria vaccine, reducing pollution and deforestation in Malawi through investment in low-carbon building material providers, and scaling up access to off-grid solar energy systems for families and businesses that cannot access electric grid connections.

I commend all that good work, along with BII’s focus on Africa and its work on climate innovation and tech. However, we are here today to debate this amendment to the Commonwealth Development Corporation Act 1999, which would increase the maximum that the UK can funnel into BII by £3.5 billion.

We live in a time of intense converging global crises: the war in Ukraine, the global cost of living crisis, the sovereign debt emergency in Africa, record levels of conflict and displacement and hundreds of millions falling back into extreme poverty as a result of all those crises. The FCDO has slashed aid year on year, used the budget like a Government slush fund and funnelled billions into the Home Office black hole to deal with a self-made asylum accommodation crisis, so we have to ask the question: is channelling billions more pounds of scarce official development assistance into BII really the best use of Government resources?

First, let me be clear about that context. Investments through BII have a limited and specific role in Britain’s development policy if we are serious about SDG 1: eradicating poverty. Indeed, BII does not even use the standard World Bank definition of extreme poverty of having an income below $2.15 per day, instead using a higher threshold of $5.50. That shows that its work is less able to reach the very poorest and most marginalised. Even then, BII does not provide disaggregated data on the quality of jobs its investments create, including wages relative to local averages or poverty lines.

Does the Minister think efforts should be made to make that basic information publicly available, and is it something he has requested and had access to in advance of shareholder meetings? Does he share my concern about the low number of jobs BII is creating for women? By its own count, only 28% of the new jobs it created in 2021 were for women. Although I recognise the work done through the 2X Challenge, do the loose and optional objectives it set out not illustrate precisely my point that a DFI is often not the best vehicle to deliver on many of the Government’s development objectives?

That is not to say that I do not commend the progress that BII has been making on some of these points since it came under fire from the Independent Commission for Aid Impact in 2019, but there must be an honest conversation about whether this is the best use of what is left of the development budget. Given those constraints, what claim can BII make as a better investment for poverty reduction than all the other bilateral programmes being cut?

Secondly, on transparency and accountability, in last year’s Publish What You Fund DFI transparency index, BII scored 26.5 out of 100, behind its equivalent organisations in the US, France, the Netherlands and Germany. Before this Government destroyed it, the Department for International Development took the top spot among bilateral donors in the international aid transparency index for eight years in a row. The Minister used to take transparency and value for money very seriously when he was Secretary of State, and he is asking to plug more billions of pounds into an organisation that provides only basic information to the taxpayer about its work. On environmental, social and corporate governance, accountability to communities and financial information, BII came joint bottom in the transparency index. At the International Development Committee, it has been called out for its reliance on opaque financial intermediaries and for its failure to mobilise investments in projects that the private sector and other DFIs are not funding anyway.

I noted that the Minister said in a recent Chatham House speech that he accepts many of the criticisms on transparency, and he would set out a road map of commitments to improve BII’s performance. Would it not make sense to have a clear plan to improve things before handing over more billions of taxpayers’ cash? For example, one thing that other DFIs have are mechanisms that allow communities to hold them to account. The German DEG has one; the World Bank International Finance Corporation has one too. Could BII consider developing one? What efforts is BII making to ensure that the intermediated private funds that it invests in are not domiciled in tax havens, and can the Minister explain how he expects to restore Britain’s reputation as a development superpower while funnelling money into opaque private equity funds and financial intermediaries at the expense of UK-branded development assistance and aid?

These questions are not just an abstraction. Last week, I hosted a briefing in Parliament with Oxfam about this new report into DFI investments into for-profit hospitals, where I heard the story of Francisca Wanjiru, a Kenyan woman whose mother died at one of the for-profit hospitals in which BII is invested. For years, Francisca has had to live with the haunting fact that her mother’s body is lying locked inside a freezer at the Nairobi Women’s Hospital mortuary and she cannot get her out. For years, the hospital has refused to release her mother so that she can be properly laid to rest, because Francisca is too poor to pay the hospital fees that racked up when her mother fell ill.

I was deeply moved by Francisca’s story. She accrues another 500 shillings in fees every day that she cannot afford to pay for her mother’s release, and such situations are not uncommon, as Oxfam’s recent report “Sick Development” outlines. The report describes patients blocked from access or bankrupted by eye-watering hospital bills that should never have been charged—patients even imprisoned in hospitals for being too poor to pay. These hospitals are often charging fees that are simply out of reach for ordinary people to meet, and Oxfam has found some hospitals charging more than someone’s annual average income for basic maternity care. Not only is that clearly not helping the poorest people in those countries, but in some cases it is making accessibility and affordability worse. In Uganda, Oxfam found a hospital that BII invests in where prices increased by an incredible 60% in just four years.

The report contains some harrowing stories, and it raises serious concerns about the development impact of some of these investments and BII’s due diligence. Why has it taken years of careful research by a non-governmental organisation to shed light on something that basic functioning oversight mechanisms would have surely picked up and put an end to years ago? I hope that the Minister can tell us what action is being taken in response to the report, and whether, as BII’s sole shareholder, the Government will rule out any further investments in for-profit hospitals.

It is surely uncontroversial to ask that the significant sums of public money that we are talking about should not be invested in businesses that are undermining British policy objectives. Private hospitals are not the only example. There has been the Bridge schools scandal. There has been BII’s flagship billion-pound investment in DP World, the Dubai-owned parent company of P&O Ferries, which summarily sacked its British workers, frogmarched them out of their place of work and rehired foreign staff to replace them on poverty pay of around £1.82 an hour last year. There have also been its investments in the China National Investment & Guaranty Corporation, which is linked to the belt and road initiative.

I was concerned to hear the Minister’s response at the International Development Committee in response to some of these concerns, that BII should simply be left to “get on with it”. That is a remarkably lax response to the risk that millions of pounds of taxpayers’ money is being funnelled into projects that undermine UK policy objectives. At a time when needs are increasing and money is tight, it is surely more crucial than ever that taxpayers’ money is spent as effectively as possible, and I hope today that the Minister can give me some answers to the concerns that have been raised.

Lastly, I wanted to ask the Minister about what is driving UK development policy, as it simply does not make sense to me. Why, one might well ask, is BII the only untouchable domain of UK development spending, when we are scaling back climate finance, when bilateral aid to Africa has been parked, and support to desperate Afghans fleeing the Taliban, who now comprise the biggest group crossing the channel on small boats, has been cut to ribbons?

I have a theory. At the last spending review, 2021, the FCDO was given a £2.4 billion target to spend on financial transactions over three years—a new category of Government spending that was introduced by the coalition Government a decade ago. These financial transactions notionally involve the purchase of an asset and are excluded from the Government’s fiscal rules on the deficit and borrowing. I understand the attraction: after crashing the economy and with inflation soaring, the Chancellor wants to channel more and more money through a mechanism that does not register as day-to-day spending but, as things stand, the target set at the spending review would mean that at least £1.2 billion—around 10% of the total official development assistance budget—must be spent on financial transactions next year. That leaves Ministers with few options but to repeatedly recapitalise BII.

The difficulty is that that is a terrible way of deciding policy. The Treasury might like it, but how will it deliver impact for the very people that the ODA budget is meant to reach, not least when as much as 40% of the bilateral budget is now being spent within the United Kingdom instead of abroad? BII is already limited in what it can invest. Often, the challenge is that in the very poorest countries there simply are not enough businesses with the capacity to absorb the kind of money that BII wants to spend. Meanwhile, war rages in Ukraine, the global economy tightens, a sovereign debt crisis in Africa grows and record numbers of people are displaced by conflict, instability and disaster.

BII has a limited role in tackling many of these challenges, even where it is integral to creating the fertile investment environment, new markets and new job opportunities in the private sector in low-income countries—never mind its own mandate to turn a profit. Despite lofty promises to repair the damage this Government have done to our international reputation in development, accounting trickery rather than impact still seems to be driving Government policy, and it is all of us who are invested in a safer, greener, fairer world who will lose.

I will not divide the Committee on the draft regulations, as I recognise that the Government have already almost breached BII’s financial limit, and I will not seek to frustrate planned investments in things like Ukraine’s economic recovery. However, I hope the Minister will respond to my concerns—I know he will.

Transparency and value for money must be restored to UK ODA spending. A Labour Government will ensure that taxpayers’ money is spent with the respect it deserves. We will undertake a root-and-branch review of BII, including its mandate, transparency reporting and governance arrangements, to ensure it is supporting and not undermining UK policy objectives. Britain once led the way in principled, poverty-focused, transparent global development. Under the next Labour Government, we will make sure it does so again.

I am grateful for all that the Minister and the shadow Minister, the hon. Member for Birmingham, Edgbaston, have said. Both speeches were helpful. It is obviously a hugely challenging time across many areas of the world, and I certainly have serious concerns, as do my Scottish National party colleagues, about the erosion of aid and support at a time when they are so needed. In the current context, all measures for poverty alleviation are important.

It is important that we look at the three objectives that underpin the funding profile: raising productivity, the focus on sustainability, which is particularly important, and inclusivity. The points made by the shadow Minister about making sure that we are delivering in a real, constructive way for women are important. Like her, I do not intend to divide the Committee on the regulations, as any efforts to support poverty alleviation must be welcomed. However, while the uplift in funding is something that we agree to, it should be part of a bigger picture conversation outside this Committee.

I tend to come to these Committees and only contribute when I am invited to do so. This measure is the sort of thing that conforms to what I would call the inverse rule of public finance: the greater the sum of money involved, the less discussion there is and the more disinterest shown by Members in what the money is being spent on. With this statutory instrument, we are talking about an extension of £3.5 billion in the money that the Government are making available.

I take that back after listening to the contribution from my hon. Friend the Member for Birmingham, Edgbaston, who has done exactly what should be done on these occasions, despite the grumbling of Government Members, who obviously have other things they would rather be doing than scrutinising the expenditure of £3.5 billion of public money this afternoon.

If the hon. Member wants to intervene and make his points to the Committee on the record, I am very happy to give way, because he has been grumbling all the way through this whole Committee.

Thank you, Mr Stringer. I hope I remain in order throughout my contribution, unlike the hon. Member for Orpington.

My hon. Friend the Member for Birmingham, Edgbaston did her job admirably. I just have a couple of questions for the Minister, who will be relieved to know that I am not going to rebel against my own Front Bench and force a Division—they can never be sure, but I can confirm that is the case today.

What is the Minister’s assessment of the impact of using some of the assistance in order to assist reconstruction in Ukraine? What impact would that have on other projects around the globe that the investments are intended to support? One thing that I am not sure about, despite having read the briefing in an attempt to educate myself, is the position on social enterprise with these kind of investments. I know that it is principally designed to target private sector investment, but does social enterprise, which comes in a variety of forms as the Minister is aware, have a chance to benefit from BII investment?

I am grateful to the hon. Members who have contributed to today’s debate, and I will try and address the questions and points that they have raised. First, I am grateful to the hon. Member for East Renfrewshire for her support; she raised exactly the right questions.

The hon. Member for Cardiff West and I have been in this House for quite a long time; no one would ever criticise him for lack of diligence and hard work, and he sort of explained his attendance in the Committee today. I want to make it clear that none of us on Government Benches would ever accuse him of showboating—apart from my hon. Friend the Member for Orpington, of course.

I have four points to make in response to the debate. First, the hon. Member for Cardiff West talked about spending in Ukraine. He will know that at the Ukraine Recovery Conference it was made clear that BII would play a modest part further down the track, putting its shoulder to the wheel of our national interests, which I think is the right thing to do. Ukraine is not an area that it would normally invest in, but by co-investing with organisations such as the European Bank for Reconstruction and Development, it can help to move forward a policy that both the UK and the Ukrainians want to see realised.

BII has a role in respect of social enterprises, which I will explain later in my response to the hon. Member for Birmingham, Edgbaston. She raised four points, and was very supportive of the concept of BII. She appreciates the all-party basis on which the reforms that I enacted 10 years ago were carried out. We were careful to ensure that we carried the sector and the Opposition with us on those reforms. That is a very valuable consensus, which has propelled BII into a position where it is viewed with enormous respect and is widely regarded as the most effective and best development finance institution in the world. It is not a coincidence that that has happened on the back of the all-party support it has received.

The hon. Lady mentioned the difficulty of allocating ODA money in a very constrained environment, and asked if we should spend it in another area and not on BII. As she knows, under the Act we could have said that BII should receive an extra £6 billion, rather than an extra £3.5 billion—that is what the Act says. We are not doing that; we have reined it right back so that it is taking the same haircut as much else in the ODA budget is taking. I hope she accepts that we have exercised constraint and not just given the BII what it the Act as originally passed entitled it to. In trying to slice the cake with a very constrained ODA budget, we require maximum effectiveness and results for the British taxpayer, and for the aims and aspirations that she and I both want this country to pursue in international development.

Think what BII has achieved: it has directly employed 1 million people, and it is working in the most difficult, pioneering countries for the private sector. Putting food on the tables of, effectively, 1 million people and families is a remarkable result. Look at the massive increase in off-grid and grid electricity and the amount of money paid in tax by BII investments into the treasuries and exchequers of poor countries. Not all that money will necessarily be used well, and another part of that budget tries to ensure that it is used more transparently and better. Nevertheless, raising £10,000 million in tax predominantly in poor or very poor countries is a significant development achievement. I want to make that point to the hon. Member for Birmingham, Edgbaston.

Secondly, the hon. Lady made the point that BII does not, by definition, engage in the most egregious extent of poverty; other parts of the development budget do that. If we take a holistic view across the piece of where we should put our taxpayers’ money for maximum effect in achieving the SDGs and driving forward our climate financing and climate result objectives, we must make that allocation. We do not expect BII to address some of the most egregious effects of poverty; we use grant funding and co-financing, and we do it bilaterally and multilaterally through other mechanisms.

Thirdly, the hon. Lady said that she had read my speech at Chatham House—I am grateful to her for doing that—and pointed to the importance of transparency. On that, she, I and the International Development Committee, which is conducting an inquiry and has done so much good work in this area, are more or less agreed. We want greater transparency, partly because if there is not transparency, people think that something is being hidden when perhaps it is not being hidden at all. BII has a vested interest in greater transparency too, and we are talking to the board. We are waiting to see the advice of the International Development Committee on the issue, but we will then be driving forward on transparency as the hon. Lady suggested.

The hon. Lady mentioned that BII scored poorly on Publish What You Fund; actually, it came 12th out of the 21 non-sovereign development finance institutions. I emphasise to the Committee that that resulted partly from a technical issue on the website that prevented data from being unloaded, which has now been resolved. Publish What You Fund has indicated that BII, if it were to remark it now, would be towards the top end of the league table. I am completely with the hon. Lady on her overall point about the importance of transparency, and I hope that we will be able to move forward on that agenda after the International Development Committee has published its report.

The hon. Lady’s final point was about the Kenya hospital and the upsetting circumstances that she described. I should make it clear that BII takes all allegations of this sort extremely seriously, and the Foreign, Commonwealth and Development Office is working closely with BII on the matter. We encourage Oxfam to share any further evidence it holds of the alleged cases so that we can accelerate those investigations. I should also make clear that BII has already taken steps at Nairobi Women’s Hospital. A new fund manager was put in place in 2019. The new fund manager has put in a new management team at the hospital, including a new CEO, and strengthened procedures. The next five years will see BII prioritise investing in the manufacturing of medicines, vaccines, devices and equipment, pharmacy and early stage funding for health technology.

I think the Minister said that he would say a few more words on social enterprise. I apologise if I missed those in his remarks.

My point was really about the waterfront of different interventions on development. Social enterprise has certainly benefited indirectly from BII investments, but BII is predominantly an equity investor. Countries receive this equity. They do not have to provide a sovereign guarantee and they are not on the hook for paying back the money; it is an equity investment. As I have tried to set out to the Committee, that has a huge role in driving forward the international development aims that we all, across this Committee, want Britain to achieve.

Question put and agreed to.

Committee rose.