Appendix 1: Commonwealth Development Corporation Bill: Government Response
Letter from Rt Hon. Lord Bates, Minister of State at the Department for International Development, to Baroness Fookes, Chairman to the Delegated Powers and Regulatory Reform Committee
The Department for International Development is grateful to members of the Delegated Powers and Regulatory Reform Committee (the “Committee”) for their consideration of the Commonwealth Development Corporation Bill (the “Bill”). We regret that our initial memorandum did not sufficiently explain why we consider the relevant delegated power to be appropriate for this Bill and hope this letter of response provides you with the necessary information.
Increasing the limit on government assistance
Over the last 5 years, CDC has grown to meet demand for capital in target markets in Africa and South Asia leading to a step increase in the level of annual investment activity. The Bill aims to enable the Department to continue funding CDC over the medium term–over the two next strategy cycles. The Department has estimated demand for up to £4.5 billion of additional funding over the next 5 year strategy cycle from 2017 - 2021 to maintain this increase and has therefore proposed to raise the limit on financial assistance to £6 billion. Over the following strategy cycle, from 2021–2026, CDC capital needs are estimated to be up to £1.2bn a year, reaching £12 billion at the end of the cycle.
Reasons for taking a delegated power
Subject to the will of Parliament, the Department was faced with three options to achieve this policy. Our first option would have been to increase the limit on financial assistance to the CDC to £12 billion at the outset. However, as explained in our initial memorandum to the Committee, the Department does not wish to increase the limit beyond that which it considers necessary to meet the anticipated financial need over CDC’s next strategy cycle. The Department has estimated this to require an additional £4.5 billion funding and therefore decided to raise the limit by £6 billion only.
Our second option would have involved returning to Parliament for primary legislation as and when a further increase to the limit was needed. However, it is not the case that the Department anticipates a one-off increase of the financial limit to £12 billion by the end of 2021. The Department expects to continue to follow the approach of only increasing the financial limit to what it is needed at the time. It is not possible to say with certainty, at this stage, how much and how often such increases would be. Various factors will be at play, including external factors such as the outcome of future Spending Reviews or a change in market conditions. We therefore consider it more appropriate to use secondary legislation rather than primary legislation on each occasion the limit needs increasing.
The Department fully appreciates the concerns regarding the use of Henry VIII powers. However, we believe this is a very narrow and limited power which can only be used in one simple and foreseeable way: to increase the figure of the limit on government assistance to the CDC. It is also clear on the face of the Bill that such power is further restricted to a limit of £12 billion.
We have therefore concluded that the third and final option, which allows for any further increases to be made by statutory instrument, would strike the right balance: avoiding an increase of the financial limit to a sum higher than what is immediately necessary, whilst having a process at hand for future increases, subject to Parliamentary scrutiny, as and when needed. This is the flexibility element suggested in our initial memorandum to the Committee.
Statutory precedent
In our initial memorandum, we referred to the precedent delegated power under the Commonwealth Development Corporation Act 1978 (as amended) (the “1978 Act”). The 1978 Act has now been repealed by the Commonwealth Development Act 1999 (the “1999 Act”) which introduced the relevant provision on the limit on government assistance. We would like to clarify that the 1999 Act was passed with the purpose in mind of privatising the CDC. As the Committee is aware, the CDC has not been privatised and has since remained wholly owned by Government. However, the expectation at the time was that the Government would play a progressively smaller role in the corporation and therefore there was no intention to increase government financial assistance any further than the limit set in this Act.
CDC has since been restructured and reformed to become a leading development finance institution. It is with this expansion in mind that we want to provide a structure in the Bill to allow for further increases on the limit of financial assistance and it is in this context that the Department refers to the precedent model under the 1978 Act of providing for such further increases by statutory instrument.
22 January 2017