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Mr. Streeter: Has not the Secretary of State forgotten the other part of the equation? The reason why equity investments are often referred to as risk capital is, of course, that they have no security, and if the company in which one is investing fails, one might lose the total value of the investment. At least with secured loans, more often than not, one gets back some of the asset and is able to recover some of the investment. Will the right hon. Lady take that into account? The shift from secured loans to equity alone will not, perhaps, give her the uplifting returns that she seeks.
Clare Short: The hon. Gentleman does not seem to understand the whole purpose of the exercise, which is to get more private sector investment into countries into which it currently does not flow. That will be done directly through the CDC and by proving, through the CDC, that such private sector investment can be profitable and secure. The rates of return that the CDC, as a lender of last resort in very secure loans, at present achieves will not attract the private sector. The CDC must be able to handle equity investment if it is to succeed in bringing private sector investment into developing countries, which will not thrive economically unless we can bring them more such investment. It might help the hon. Gentleman if he reads my explanation in Hansard later.
Mrs. Maria Fyfe (Glasgow, Maryhill): I have very little knowledge or experience of the stock market, but a question has occurred to me while I have been listening to my right hon. Friend. If the CDC should go into substantial profit, would there be an opportunity both for private sector investors to have a reasonable return on their capital and for there to be greater investment in developing countries?
Clare Short: My hon. Friend describes the position exactly. At the moment, the private sector tends not to invest at all in sub-Saharan Africa. She will know that during recent globalisation, the international flow of private sector investment has massively increased, but 90 per cent. of that goes to the 11 most-developed countries and very little goes to the rest. The Bill's purpose and the objective of successful development is to create conditions in which the private sector will want to invest in the poorest countries. If equity investment brings a commitment to more creative companies in those countries and a higher rate of return, investment in those countries will be attractive to the private sector, which is the overwhelming objective of this exercise.
In the past, the CDC has also tended to be a lender of last resort because it is a public sector institution, so it is required not to compete for investments that are attractive to the private sector, as the hon. Member for South-West Devon will know. It is, in effect, required to seek a rate of return that is lower than the commercial rate; otherwise, the public sector would be unfairly crowding out the
private sector. The new CDC will no longer be constrained by being wholly publicly owned, so it will be able to seek good investments that offer attractive financial returns and make a greater contribution to sustainable development.
The Bill is the first stage in the creation of the public-private partnership that I have described. The Bill is largely technical, and the policy issues that I have outlined--other than the entrenchment of the Government's shareholding--do not generally appear in the Bill. As I have said, those issues are covered in the background papers that have been deposited in the Library, and they are essential to understanding the Bill's purpose and effects.
The Bill, taken narrowly, covers four main areas. The first is the provisions needed to transform the CDC into a public limited company. Initially, the Government will hold all the shares. The intention is to proceed with that transformation as soon as practical after the Bill becomes law. As I have explained, the timing of the eventual sale of the majority holding will depend on a number of factors and in particular on market conditions.
Although the transformation of the CDC is a technical issue, I should explain a little further why we are proceeding in the way that we have chosen. At the moment, the CDC is a statutory corporation that is obviously not a suitable legal vehicle for the partnership. The Bill departs from the technique usually employed in privatisations whereby legislation transfers the assets of the public corporation to a newly formed successor company. Instead, the Bill transforms the CDC directly into a public limited company without creating a new legal entity. No transfers of assets are involved, because the CDC retains the same legal identity and remains in being, both before and after the transformation.
That legal technique is being used because many CDC assets are held abroad. Had the successor company method been used, every individual asset would have had to be transferred under the local laws applying in all countries in which it operates. That would have been laborious and time-consuming, to say the least. We were pleased to find such a good legal remedy to what was at first a headache.
The second area contains provisions that are needed to restructure the CDC's balance sheet. As I have explained, it will be necessary to give it a financial structure that suits the needs of the partnership. That part of the Bill also makes provision for the continuation of Government financial assistance while CDC plc is wholly owned by the Government--subject to a cash limit.
The third area is tax. Clause 27(3) says that the Act shall not come into force until a draft order that makes provision for tax treatment for the CDC has been laid and approved. As I said, I intend to table detailed amendments in Committee which will set out the tax treatment to apply to the CDC, which I described earlier.
Clause 18 entrenches the Government's role in CDC plc. As I have made it clear, the Bill creates a partnership between the Government and the private sector, involving a substantial and long-term Government interest. Given that proposal, as I have said in answer to questions, if a future Secretary of State wanted to dissolve the partnership and fully privatise the CDC, he or she should be required to seek Parliament's approval before doing so.
Mr. Rowe:
A thought has just occurred to me; I wonder whether the Secretary of State could set my
Clare Short:
The Department will hold a minority share; profits will go to it. It would have the same liability as the majority of shareholders if there were a sustained period of loss. However, the likelihood is that there will be gains, not losses, to the Department. A disaster would have some consequence, but it would not be major or one about which the hon. Gentleman needs to be concerned. Logically, if the thing were to collapse completely, the loss of value in shares would affect the Department.
Clause 18 entrenches the requirement for Parliament's approval for any change or desire to privatise. It does so by entrenching the two key aspects of the Government's side of the partnership: first, a substantial economic interest and, secondly, the golden share, with the important rights that it reserves to the Secretary of State. Clause 18 requires the Government to hold at least 25 per cent. of the CDC's ordinary share capital and to continue to hold the golden share. The clause cannot be amended or repealed without Parliament's consent. I think that I said to the Select Committee that I was struggling with that matter. Members of the Committee will be pleased to hear that we found a solution.
Clause 18 also prevents a Secretary of State from agreeing to changes in the CDC's constitution that would diminish the Government's rights as holder of the golden share, except with the approval of Parliament. Together, the provisions of clause 18 will ensure that the fundamental nature of the partnership, as it is being presented today, cannot be altered without Parliament's consent. I am sure that that is right.
Mr. Gary Streeter (South-West Devon):
For more than 50 years, Conservatives have supported the Commonwealth Development Corporation. For 35 of those 50 years, when in government, we nurtured and encouraged it and its important work in investing in the developing world--investing in business and in people and bringing hope and dignity where there was none. During those years, the CDC created thousands of jobs and changed thousands of lives. Conservative Members pay warm tribute to the skill and dedication of its staff, who have achieved so much over the past half-century.
Today's debate is really about how we can best take the CDC into the 21st century, to help even more effectively the millions of people in the world who live in abject poverty. The words "abject poverty" are easy to say, but the misery, squalor and pain which are the daily experience of so many people alive today and which those simple words represent, must motivate us to do something
about it. I pay tribute to the Secretary of State for the attempts that she has made since taking up her post to do precisely that.
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