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Harriett Baldwin responds to debate on establishing a UK development bank

20th June 2018

Harriett Baldwin responds on behalf of the Government to an Adjournment debate calling on the United Kingdom to establishment a development bank.

The Minister of State, Department for International Development (Harriett Baldwin)

I congratulate my hon. Friend the Member for Stafford (Jeremy Lefroy) on securing this debate and on his thoughtful speech, which was laden with his experience and expertise in this subject. This timely debate allows me to emphasise the importance of the UK’s role in international development generally. We have a statutory commitment to development, with a focus on the very poorest people in the world.

Many developing countries have been experiencing rapid economic growth over a sustained period, leading to rising per capita incomes in those countries. That progress has improved millions of people’s daily lives, and the UK can feel proud of our ongoing contribution to economic development around the world.

But we cannot simply step away as countries transition to middle-income country status. They still face substantial poverty and inequality challenges, and progress is often precarious. Economic and political shocks have resulted in dramatic reversals, even in relatively prosperous countries. A defining challenge—I recognise my hon. Friend’s personal contribution here—is to create mass numbers ​of productive and good jobs for the many millions of young people who need real economic opportunities to meet their aspirations, to provide for their families and to take their countries forward.

Sustaining economic progress is important not just for these countries but for whole regions and for global issues that directly affect the UK, as set out in the Department for International Development’s economic development strategy, which has a focus on jobs, investment and trade. The type of financing and support these countries want is also evolving. As countries get richer, they are better able to finance their own development. They are able to transition away from grant support for basic service provision and business environment reform and move towards mobilising private sector capital for investment.

Indeed, the economic development strategy, which the Department launched last year, sets out our clear ambition to support countries in transforming their economies and attracting much-needed finance for their private sectors. As my hon. Friend recognises, this House agreed last year to allow the Government to invest more equity into the CDC so it can invest more in companies in Africa and south Asia in key sectors such as infrastructure, financial services and agriculture that create jobs across the economy. Between 2014 and the end of 2016 alone, companies backed by the CDC in those two regions created an estimated 3 million direct and indirect jobs—that is 1 million jobs a year, on average.

These countries also have a continuing need for long-term public sector investment, but many are unable to finance it from domestic resources and have insufficient access to external commercial borrowing on affordable terms, particularly to support infrastructure development at scale so they can readily address the challenges they face meeting the sustainable development goals.

My hon. Friend mentioned, and the House will be aware, that a $13 billion capital increase for the World Bank Group was agreed in principle earlier this year, of which the UK contribution will be £390 million. As part of that, this Government negotiated and secured a commitment to better pricing from the World Bank Group. Discussions are also likely to start next year about a possible capital increase at the African Development Bank.

Capital increases for multilateral institutions such as those can be counted as ODA, according to the OECD committee’s rules. In contrast, capitalising a bilateral sovereign lending institution such as a UK development bank would not be considered ODA. Instead only a proportion of each loan from the bank would be considered ODA, depending on the level of concessionality and the type of country borrowing. The £1 billion UK prosperity fund, which targets middle income countries, is, on the other hand, 100% ODA, because it is grant-funded technical assistance.

So the question in front of us is whether our own approach needs to evolve further to match country needs. That could mean, as countries become better off, a shift away from grant assistance towards other forms of partnership, other financial instruments and helping to leverage other financial flows. Different countries have different needs and we need to consider how best to deploy different instruments in different places.​
As I said, this debate is therefore very timely. A UK development bank is one of a range of possible new instruments that could be considered. I noted that hon. Members got in some early lobbying about locations for this still hypothetical and possible new instrument. The Government have a range of instruments available to them to support developing countries. The Secretary of State for International Development has asked officials to explore what new instruments could be developed to meet the changing needs of countries as they get richer and give the UK greater flexibility to respond to individual country needs.

These are complex issues that require careful and detailed consideration, and the work is still at a very early stage. However, in considering all options for potential new instruments, including a development bank, the Government will need to be satisfied on a range of issues. First, such an instrument would have to ensure very clear value for money for taxpayers. Any option involving a new institution would of course involve significant up-front costs, which would need to ​be justified by the scale of subsequent benefits. Secondly, we would need to be confident that any option contributes sustainably to development and poverty reduction. For loan instruments that includes ensuring that they do not contribute to unstainable debt burdens. Thirdly, we would need to ensure that any option is affordable, considering its impact on UK Government finances. Lending options will require provision of a significant non-ODA budget, as well as ODA, which presents a particular challenge. Fourthly, we would need to ensure that any option contributes to the wider UK national interest, in line with the Government’s aid strategy.

My hon. Friend has made an important, timely and very well-informed contribution, and I assure him that his advocacy will be taken fully into account as we explore these options further.


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