After section 15 of the Commonwealth Development Corporation Act 1999 (limit on government assistance), insert—

“15A Condition for exercise of power to increase limit: prohibition on use of tax havens

(1) The Secretary of State may only lay a draft of regulations under section 15(4) before the House of Commons if he is satisfied that the condition in subsection (2) is met.

(2) That condition is that any new investment enabled by the proposed increase in the current limit at the time is not in either—

(a) an investment entity, or

(b) a company

which uses, or seems to the Secretary of State likely to use, tax havens.

(3) In determining whether the condition in subsection (2) is met, the Secretary of State shall consider—

(a) information provided by the OECD on countries or territories which are considered to be tax havens, and

(b) such information as is available to the Secretary of State, whether supplied by the CDC or others, about the current location of funds of the potentially relevant entities for the purposes of subsection (2).

(4) In this section, “the current limit at the time” means—

(a) prior to the making of any regulations under section 15(4), £6,000 million,

(b) thereafter, the limit set in regulations made under section 15(4) then in force.””.—

This new clause would prohibit any new investment arising from any increase in the limit on government assistance under regulations under section 15(4) from going to an investment vehicle or company which uses or seems likely to use tax havens.

Brought up, and read the First time.

I beg to move, That the Clause be read a Second time.

This new clause relates to the issue of tax havens, which has been a persistent concern, not just on this side of the House, which is why it is in the name of myself and of my hon. Friends. I know that it is a matter of concern to Members across the House and to many of the campaigning organisations out there. There seems to be a major issue of incoherence between the Government’s stated policy to bear down on tax avoidance and the types of vehicles that facilitate it, and CDC’s continued investment, even to this year, through these vehicles.

I have had the argument made to me about the reason for using investment vehicles and companies that are not located in the country where the investment takes place. I think that it is a very reasonable argument, in that sometimes the legal framework—the fiduciary control frameworks—whatever they might be, are not good enough for us to be spending taxpayers’ money, or for CDC to be spending its own funds, or, when it comes to other investors, for them to be willing to accept the risk of, for example, a fund in a particular African country.

However, I struggle to understand why so many of the investments continue to be made through offshore havens such as the Cayman Islands and Mauritius rather than simply under the law of England and Wales. Some would argue that the UK is a tax haven. We are not going to get into that debate here, but I do not understand why these investments are being made through Cayman in particular.

The international aid transparency initiative data reveal recent 2015 commitments to funds domiciled in tax havens, including £9.7 million to the Ascent Rift Valley Fund, which is administered by Trident Trust Company, domiciled in Mauritius, and £33.1 million to Capital Alliance Private Equity IV (Cape IV) administered by the African Capital Alliance, which is based in the Cayman Islands. When you look at the overall portfolio, you see that at the end of 2013 a significant number of the CDC’s fund assessments were channelled through the top 20 jurisdictions that are considered to be in the financial secrecy index, as it is known. We see 69 in Mauritius, 26 in the Cayman Islands, nine in Luxembourg, three in Guernsey and two in Singapore. That seems to be very odd.

The counter argument that is being made—it is one argument; I do not think it offsets this one—is that CDC’s investment portfolio is contributing to the payment of taxes in developing countries. I have no doubt that that is the case. It says that its investment portfolio in Africa and south Asia contributed to the generation of £2.6 billion in local taxes in 2015. It is only fair that I reflect that on the record, because clearly tax is being paid. However, I have a few questions for the Minister. When we are investing in the Cayman Islands and using these particular vehicles, for the apparent reason that that is the only possible place we can do it effectively, what fees are we paying to the fund managers and the financial services sector in those countries? These are fees that are undoubtedly being paid by CDC and some of its investment partners. I have tabled a written question for the Minister, so if he has not got the information today, I hope he will provide it in due course.

Are we indirectly facilitating the operation of offshore financial services that are being used, perhaps not in relation to the specific CDC investments but in relation to overall tax avoidance and tax secrecy indirectly supporting that industry? I argue that we should not be supporting overseas territories to conduct these types of activities any more; we should be much more robust when looking at the activities of Cayman, BVI, Anguilla or any of these other locations. Yes, the CDC invests only in the top of the white list—that was an innovation introduced in the Department under the last Labour Government—but the fact is that it is still investing in tax havens. That is of deep concern to many people, not just in terms of the types of fees or indirect support that it might be providing to the offshore industry, but also in terms of transparency. I tried to look into a number of the companies and yes, there is information on the CDC website, but trying to get clear information on who is involved, why, how, where and for how long is very difficult. Particularly given the transparency of DFID’s bilateral aid, and the overall agenda of transparency that the Government have pursued, it seems very odd that CDC continues to use these vehicles.

So I hope that the Minister can explain, first, what sort of indirect effect might be encountered by the CDC using these vehicles, and secondly, whether he thinks it acceptable in terms of transparency—and even if we cannot get transparency directly from the tax havens, whether there is another way of providing that information so that we can see what is going on. Thirdly, I have concerns that a number of these vehicles are bringing together other capital investors. Even if I believe that the CDC is not deliberately trying to avoid paying taxes, I am not so convinced about some of the partners, and there is no way of finding out. Many of the types of arrangements involved other funds, including Actis. I do not want to suggest that Actis has done anything wrong, but it has obviously been subject to controversy in the past. There are other partners involved, and it is very difficult to get clear about whether, by our relationships and our partnerships, we are facilitating tax avoidance and, fundamentally, affecting the flow of resources to developing countries that could be used for tackling poverty. This is a serious issue. I am concerned at the number of havens that are being used and I hope that the Minister can provide answers about how we are going to bear down on this.

I have not spoken a lot today. That is not because I have not been in support of my hon. Friend the Member for Cardiff South and Penarth, which I believe is the right way of saying it—I have heard many versions today. I want to speak on this Clause, because my issue relates to tax havens and the way the CDC is using them. In the evidence session earlier today, Diana Noble of the CDC admitted that at times it has to use tax havens, but I feel that DFID should be looking at transparency. We should be working more closely with CDC because we are setting up a system that could be exploited, and I am concerned that we could be sitting back and not using the power that I believe DFID could be using.

This is the time to look at how the relationship was initially set up and at how we might reform that relationship, not because we should be micromanaging but because we should be taking some responsibility for taxpayers’ money. I say that because, while there is cross-party support for DFID in this House, there is a lot of tension outside among people who do not agree with the way we are spending money. If this was highlighted and got into the wrong hands—the Daily Mail—it could turn into a situation in which the Government would have to fight back. I ask that we look at that relationship, make it a lot more transparent and also look at what will happen when Diana Noble moves on, because a new CEO may not able to turn things around the way she has. She has made great changes, but she is moving on, so we need to look at how that new relationship with DFID will be, and this is the time to change that situation.

I support the clause and I hope that the Minister can reassure us that we will not be in a situation going forward whereby the CDC, or similar organisations, have to use tax havens because the country they are functioning in does not have systems to take the tax.

I have a lot of sympathy with the points made. I cannot support this new Clause because I do not think that the international situation lends itself to being practical for the CDC at the moment. Regrettably, there is not the range of options for CDC to make its investments at the moment alongside other partners. When it is direct investments, which I am very glad to see the CDC has started to do again since the new arrangements in 2011-12, there is absolutely no reason why the investment cannot be made directly into the share capital of the company in which the investment is being made. However, when you are trying to leverage other investments, as the CDC often does, alongside other DFIs or other private sector entities, you have to arrive at a mutual agreement as to what jurisdiction is most suitable, both from the point of view of the ability of the legal system to uphold agreements and in terms of when dividends are paid, and whether double tax arrangements and so on are in place.

These are all practical matters, but I very much agree with the hon. Member for Edmonton and the hon. Member for Cardiff South and Penarth that there is an opportunity here for the CDC to set the pace—for instance, here in the United Kingdom, where we have such a fine legal system, as is being displayed right at this very moment across the road.

Hear, hear.

That is true from whatever point of view we approach the matter. Why can we not set up the kind of structure, based in the UK, that would be perfectly reasonable for funds to see as an acceptable basis for making their investment alongside the CDC?

I shall try, for the sake of right hon. and hon. Members who are under time pressure, to be quite short in answering. Of course, I agree strongly with points made about the absolute importance of this. The CDC never invests in any of these locations in order to save tax or to avoid scrutiny. There are only two reasons why we would do it, and those are the reasons that were raised by the hon. Member for Cardiff South and Penarth; which is to say either because the regulatory environment in the country in which we are investing is not sufficiently robust for us to be able to trust UK taxpayers’ money to that location, or because we are attempting to accumulate a larger fund where we are trying to get co-investors. We are very proud of that. We have brought in, at times, £1 billion of investment and have managed to bring in £30 billion behind it, so that is a multiplier effect of 30 which might not have been possible had we not been able to ensure that we were able to go through certain offshore centres.

However, we are very focused on this issue. The Labour Government made great progress in focusing on the white list. The hon. Gentleman mentioned Anguilla and the British Virgin Islands. To be absolutely clear, as I think he is aware, we do not, nor would ever, invest in those locations, nor would we invest in Panama. We only invest in the places that have been put through the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes as compliant locations.

Nevertheless, I agree that in the long run we need to develop financial sectors within Africa to ensure we can make secure investments through African locations, rather than having to go through offshore centres. DFID is now running a big programme on that, which is something the CDC can learn from. To respond to my hon. Friend the Member for Stafford, we absolutely should be taking the lead on this. On that basis, I ask that the motion be withdrawn.

The Minister provided some helpful assurances, but again, I want to see much clearer targets and guidance. I still do not feel satisfied on the indirect effects. He mentioned that we do not invest in Panama, but of course, many of the CDC’s investments turned up in the Panama papers. The reputational damage that does not only to the United Kingdom but to the CDC is significant, because it suggests an organisation and a Government that do not take these commitments seriously, however much we might be able to explain an individual instance.

The 2014 report from Eurodad—the European Network on Debt and Development—found that 118 out of 157 fund investments made by the CDC went through jurisdictions that feature at the top of the financial secrecy index. To be clear on the scale, between 2000 and 2013, these funds received a total of $3.8 billion in original CDC commitments, including $553 million in 2013 alone. Whether or not there is avoidance or malfeasance going on with the CDC portion of these investments, the indirect effects in terms of payments being made to fund managers and financial services businesses in the Cayman Islands and others that may be engaged in other activities is significant. Transparency is also significant, in terms of being able to assess and properly scrutinise the information available. I am keen to press the new Clause to a vote. It is important that we test the Committee’s view on it, although no doubt we will return to this issue in due course.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 5, Noes 8.

Question accordingly negatived.

New Clause 7