My Lords, remittances are a significant source of funds for developing economies and have a positive impact on the UK economy. Money service businesses trade around £1.8 trillion daily through the UK. The World Bank estimates that in 2019 UK remittances totalled around £23 billion, £8 billion more than the UK overseas assistance budget. Remittance payments typically flow to households and increase income and resilience to economic shocks. Let me assure noble Lords that the UK is committed to working with the G7 and G20 to ensure that remittances are sent as cheaply, accessibly and securely as possible.
My Lords, with the total value of remittances to low and middle-income African countries three times higher than official development aid—which is now being cut—and with a dramatic Covid-related reduction in remittances in 2020, will the Minister look at the gains that could be made by remittance matching and cutting the 6.5% cost in fees when sending remittances from the UK to meet the UN goal of 3%? Will he also say what the Government are doing to follow up the recommendations in chapter 5 of the International Relations and Defence Committee’s report on sub-Saharan Africa relating to remittances?
On the noble Lord’s first point, I can give him that assurance. The cost of transactions for remittances in Q4 2020 stood at 6.48%, which is beyond the SDG target. We will use our presidency of the G7 and G20 in pursuit of that aim. He is right to raise the report, which I have looked at carefully, and the work that needs to be done in that respect. As we said in our response to the International Relations and Defence Committee’s report in September, we are committed to supporting innovative mechanisms that can leverage sustainable sources of finance.
The noble Baroness, Lady Stuart of Edgbaston, does not appear to be on the call, so I call the noble Baroness, Lady Anelay of St Johns.
My Lords, I welcome what the Minister has said so far. What opportunities have the Government identified specifically to support greater access to local secure remittances as a consequence of their work with the World Bank and the UK’s Financial Sector Deepening Africa programme?
My Lords, we are committed to working with the World Bank. It is noticeable that the World Bank has talked about the challenge of the decline in remittances. Across the key countries, including in sub-Saharan Africa, we are working to ensure prioritisation of access and looking at more innovative schemes. Last year, as my noble friend will recall, we launched an initiative with Switzerland in this respect.
My Lords, I offer the Minister an innovative idea, to which he referred. Given the pressure on overseas development budgets and programmes to create growth and employment, might it be time to consider that the global tax system should be turned around and restructured, whereby taxes are not paid to a country where a company is domiciled but remitted to, or shared with, the origin country in which a purchase was placed or a service delivered? Would the Minister conceivably advance this thought to the powers that be as a possible G7 discussion over a Cornish pasty?
While the whole amount of remittances is clearly more than UK aid to developing countries, it is not targeted at national strategic objectives being mainly used for housing and business development. Have the Government been able to make any analysis of the proportion of remittances that went to those sectors, or education?
My Lords, the noble Baroness raises an important point. Our priority for remittances has been key countries across the world, in Africa and Asia in particular, and key sectors focused on the most vulnerable. I will write to the noble Baroness with a specific breakdown if that is available.
My Lords, the sustainable development goal target is to reduce the transaction costs of migrant remittances to less than 3%. However, the most recent data from Our World in Data tells us that countries in sub-Saharan Africa were, at 9%, paying the highest remittance costs of any region as a proportion of the amount remitted. This is morally repugnant. As well as raising the subject at the G7, will the Minister raise it with his colleagues at the Treasury?
My Lords, acknowledging the significance of remittances is particularly important at the moment, with the global impacts of Covid-19 and as our own development assistance to low-income countries is being cut so substantially, so I welcome my noble friend’s reassurance that this subject will be discussed at the G7. There are many stakeholders who need to be involved in improving the ease and cost of remittances, and some years ago the Government established the Action Group on Cross Border Remittances, chaired by Sir Brian Pomeroy, which brought those groups together. Can my noble friend tell me whether that group continues its important work and, if not, what it has been replaced by?
My Lords, I pay tribute to my noble friend’s work in this area. The action group last met in person in 2019. Its current membership and format are under review, and I will, of course, share with her the outcomes of those discussions.
My Lords, this issue is, of course, one of the untold benefits of migration. As the noble Lord, Lord Alton, said, it accounts for three times the amount of FDI and ODA flows. Last year, the UN Conference on Trade and Development forecast that ODA and FDI flows will have contracted by 40%. To pick up the point made by my noble friend, what steps is the FCDO taking to ensure that funds that are remitted are turned into productive investment and help pave the way to economic prosperity for all?
My Lords, I share the noble Lord’s opinion. Indeed, in my own family, when my father first arrived in the early 1950s, remittances were an important part of supporting his family in the sub-continent. In answer to the noble Lord’s specific point, remittances have been shown to be more resilient than, for example, capital flows—but they also tend to be countercyclical. As for the specifics of where they are going, they are aimed at the most vulnerable; as I said, there is further information on the sectors available, and I will share that with him.
My Lords, the Minister has admitted how vital remittances are to individual communities and families. Yet most of that money is used on basic purchasing and family needs. Will the Government look at exploring the possibility with the banks both here and there—wherever “there” is—a holding pools investment strategy to make money from the money while it is being transferred, and pre-transfer, and put that into jobs, trade and infrastructure? Will the Minister meet me to discuss this?
Of course, I look forward to meeting the noble Lord on that last point. We are looking at particular processes, especially in countries such as Ghana, Nigeria and Somalia, and I am sure that will form the basis of our discussions.
My Lords, does my noble friend agree, particularly in current circumstances, that it would be desirable to have an international drive to scale up digital solutions, complete with the integration of fintech, if we are to be more innovative in facilitating less costly cross-border transactions?
My Lords, I agree with my noble friend. The UK supports the Financial Stability Board’s work to enhance cross-border payments, and we will work through the ambitions set at the last G20. I have alluded to the work of the G7; as I said, the UK encourages innovative fintech solutions connecting cross-border mobile wallets, because it is much easier and cheaper to send remittances in that way. We support that objective.
My Lords, the Minister will be aware of the figures showing a very significant reduction in the level of remittances, and the wider impacts of coronavirus on the economies of lower-income countries. In light of those figures, can he conceive of a worse possible time for the Conservative Party to decide to betray its manifesto commitment on 0.7%, when the poorest people in the world are in the greatest need?
My Lords, on the noble Lord’s last point, we have had various discussions on the announcement made on the reduction in ODA. As I have said before from the Dispatch Box, we will look to return at the earliest opportunity to 0.7%—but the fact is that we will still be spending one of the highest sums of any G7 country, amounting to £10 billion, on our ODA commitments. Equally, on the subject that we are discussing today—remittances—we are working, and indeed leading the world, in innovative solutions to reduce the cost of transactions and increase the number of remittances. As I said in my original Answer, remittances far outweigh ODA in developing parts of the world. Our eight countries of priority reflect the very objectives of our ODA spend, which is helping the most vulnerable around the world.