Oral evidence: Oversight of the Private Infrastructure Development Group, HC 675
Oral evidence, 15 October 2014.
Witnesses
Mark Lowcock, Permanent Secretary, Department for International Development (DFID), David Kennedy, DG Economic Development, DFID, and Philippe Valahu, Executive Director, Programme Management Unit, Private Infrastructure Development Group (PIDG), gave evidence.
Chair
Welcome. May I just establish some facts with Mr Valahu? If we go through the resources that you will have received from DFID from 2002 to 2015—the end of the spending review period—you either will have received or will be due to receive £860 million. Is that correct?
Philippe Valahu
It is, yes.
Chair
It is correct—nearly £1 billion. Mr Lowcock, it is your job as accounting officer to assure that there are no possibilities of fraud and corruption when you follow that money. That is correct, isn’t it?
Mark Lowcock
Yes. It is my job to make sure we are satisfied that the PIDG has an overall set of systems that guard against fraud and corruption. That is my job.
Chair
It would be your job to ensure that we have no fraud and corruption in the use of that money.
Mark Lowcock
Yes, that is a key thing I do. I am reliant, obviously, on the systems that the institution puts in place, but I am absolutely focused on that.
Chair
And also it is your job to try to ensure that the money helps the world’s poorest people.
Mark Lowcock
Yes.
Chair
And would you agree that when you use the private sector to deliver aid to the poorest people and to ensure no fraud and corruption, it is ever more important that you are vigilant?
Mark Lowcock
Yes.
Chair
Okay. May I raise two separate issues? I will start with the first one, which is the very convoluted relationship between PIDG and Emerging Capital Partners. Mr Valahu, would you like to try to explain to the Committee—I will do it if you cannot—what PIDG’s relationship with Emerging Capital Partners is?
Philippe Valahu
Thank you, Madam Chair. Your question, if I understand it correctly, is about the relationship between the PIDG—the donors in particular—and the Emerging Africa Infrastructure Fund.
Chair
Say that again. You are going to have to speak up because this is a very bad room for acoustics.
Philippe Valahu
Sorry. If I understood the question correctly, you are asking about the relationship between the PIDG donors and the Emerging Africa Infrastructure Fund.
Chair
No. I am asking about the relationship between the organisation of which you are the chief executive, PIDG, and what I assume is a company—it is either a company or a partnership—called Emerging Capital Partners.
Mark Lowcock
Chair, if I may, as far as I am aware there is not a relationship between PIDG and ECP. I am aware of ECP, because it is, or in the past has been, a fund manager of CDC. I will check for you, Chair, if I may, but I am not aware of there being a relationship between PIDG and ECP.
Chair
This is why I asked you about the issue of vigilance, Mr Lowcock, because my understanding is that PIDG and two of its facilities or companies from which money goes out, Emerging Africa Infrastructure Fund and GuarantCo, are managed by something called—I have had to draw a picture because it is so bloody complicated—Frontier Markets Fund Managers Limited, or FMFML. My understanding is that your money, particularly for those two funds—well, all of your money—is managed by that organisation.
Philippe Valahu
Yes. FMFML is the fund manager for the Emerging Africa Infrastructure Fund and GuarantCo.
Chair
And for anything else in relation to PIDG?
Philippe Valahu
No.
Chair
More than 80% of the money PIDG gets is our money, just to make that clear—it was more than 88% in 2013. So it is just those two. My understanding is that FMFML is jointly owned by three things, one of which is an organisation called EMP Africa, which was spun off in 2005 to form Emerging Capital Partners. In effect, FMFML, our money going through PIDG, is being managed by Emerging Capital Partners—if everybody understands ECP, I will use that. That is right, in part.
Philippe Valahu
The EMP that you referred to was a shareholder in the past and FMFML is no longer the owner of FMFML. Following a procurement that took place in 2013, it is owned by Harith.
Chair
I understand that. I was going to come to that. Let’s take it until 2013. ECP was taken over in 2013. We have been giving money to you since 2002. Until 2013 we probably gave half a billion and, give or take a bit, we are going to give you nearly a billion by the time we finish. ECP is being investigated by the Serious Fraud Office, isn’t it? There is a man called James Ibori at ECP. What is he?
Mark Lowcock
James Ibori is a former governor of a state in Nigeria, who is now in prison.
Chair
In Britain.
Mark Lowcock
In Britain, yes.
Chair
Did he run ECP or was he a shareholder or a part-owner?
Mark Lowcock
He was certainly related to ECP. I cannot remember exactly what the relationship was. I am familiar with the matter because ECP was a fund in which CDC had investments.
Chair
Yes, but the problem is that it is a fund in which PIDG had money. Did you know that, Mr Lowcock?
Mark Lowcock
I didn’t know that, I’m afraid.
Chair
Shouldn’t you have known that? Anyway, this guy is in prison.
Nick Smith
Can we just go back? Mr Lowcock, you talked about the gangster’s involvement with ECP. You said there was a relationship. What did you mean by that?
Mark Lowcock
I may need to write to you with more details because I have not refreshed my memory on the matter. There was a parliamentary ombudsman report that looked at part of this, which I think was published last year. A man called Dotun Oloko raised a whistleblower case—I think it was in 2009 or 2010—with some concerns about ECP. We made a mistake in the Department by inadvertently allowing his name to be released. Andrew Mitchell apologised for that at the time. The ombudsman did a report that confirmed we had made a mistake. She asked us to make a payment of £2,000 to Mr Oloko, which we have done. We have, in parallel, looked at the allegations that Mr Oloko made, as have the NAO and the Financial Services Authority. There are a series of things ongoing that—
Nick Smith
This just feels off the point. I am still trying to discover what the relationship is between the gangster who is in a British jail for money laundering, and ECP, which has received British taxpayers’ money. What did you mean by “relationship”?
Mark Lowcock
I need to check exactly what the relationship was. He was convicted, through a prosecution brought by a unit that we finance at the City of London police, for stealing large amounts of Nigerian taxpayers’ money. He was said to have a relationship, the precise details of which I am really sorry that I cannot remember, with the company ECP to which the Chair referred.
Chair
I will help you. I think he was a part-owner or a shareholder. The SFO is investigating him further after a lot of pressure from various people, and the British CPS is trying to recover funds from him, and yet we are giving him more money through this very circuitous route.
Mark Lowcock
I am not—
Chair
Were you not even aware of that? Do you feel comfortable with it, Mr Lowcock?
Mark Lowcock
No, I don’t. As far as I understand, there is no relationship between—
Mr Bacon
You said at the beginning that there is no relationship between PIDG and Emerging Capital Partners. Now, Mr Valahu, we need to get down to some very simple brass tacks. You are the chief executive of PIDG. Is that right?
Philippe Valahu
I am the executive director of the programme management unit, which sits between the donors and the facilities themselves.
Mr Bacon
Okay. Are you aware of a relationship between PIDG and Emerging Capital Partners?
Philippe Valahu
I joined PIDG nine months ago, so I am not fully aware of the past shareholding.
Mr Bacon
I was not asking you when you joined. You are now an employee. I have been a Member of Parliament for 13 years, but I am aware of things that happened in Parliament before then. I am really asking you about the relationship, if there is one—Mr Lowcock seems to think there isn’t—between PIDG and Emerging Capital Partners. Are you saying that there is no relationship between them, that there is a relationship, or that there might be, but you don’t know?
Philippe Valahu
No, there is no relationship today.
Chair
No, there isn’t. There isn’t because Emerging Capital Partners has now been sold on. There was a relationship. Ask the question, was there a relationship in 2013? We will come on to who they have sold it to.
Mr Bacon
Right. Has there been a relationship?
Philippe Valahu
As I understand it, yes.
Mr Bacon
And can you describe the nature of the relationship that existed, of which Mr Lowcock was unaware?
Philippe Valahu
The only thing that I know is that they were a part shareholder of FMFML, which was the fund manager to the two in the ’70s.
Mr Bacon
Hang on, slow down again. FMFML is the fund manager for the Emerging Africa Infrastructure Fund and for GuarantCo. That is what we have got from what was said earlier. This is certainly going too fast for me and I am sure it is going too fast for many viewers. My question was about the relationship that existed at some point in the past between PIDG and Emerging Capital Partners. Can you describe the relationship that existed, even if it doesn’t any longer, which Mr Lowcock appears to have been unaware of, between PIDG and Emerging Capital Partners?
Philippe Valahu
I am afraid I do not have the details for that.
Mr Bacon
So you knew that there was a relationship, but you do not know about the details of it?
Philippe Valahu
I do not, no.
Mr Bacon
Even though you are the executive director of the programme management unit in charge of the relationship between the donors? Can you just repeat what you said about your function?
Philippe Valahu
The programme management unit sits between the donors and the various facilities. We are the secretariat that acts on behalf of the donors and that acts as an interface between the donors and the various—
Mr Bacon
And the various facilities. When I worked in a bank a facility was a loan, but what do you mean by “facility”?
Philippe Valahu
I mean the eight or nine companies that operate under the Private Infrastructure Development Group.
Stephen Phillips
Let me deal with it this way. PIDG is, or was, an investor in the Emerging Africa Infrastructure Fund. Is that correct, Mr Valahu?
Philippe Valahu
It is, yes.
Stephen Phillips
Who is that fund managed by now?
Philippe Valahu
The Emerging Africa Infrastructure Fund is managed by FMFML, which itself has been owned by Harith since the fall of last year.
Stephen Phillips
Previously, and this is the relationship I want to suggest to you, FMFML was jointly owned by a number of organisations, including the Standard Bank group, but one of those was known as EMP Africa. Is that correct?
Philippe Valahu
Yes.
Stephen Phillips
And EMP Africa is what became Emerging Capital Partners—that is also right, isn’t it?
Philippe Valahu
Yes.
Stephen Phillips
That is the nature of the relationship. You are invested in a fund that was managed by a fund manager that was jointly owned by an organisation known as Emerging Capital Partners. Correct?
Philippe Valahu
Yes.
Stephen Phillips
Emerging Capital Partners was one of the companies that was alleged to be embroiled in Mr Ibori’s wrongdoing. Is that also correct? Perhaps Mr Lowcock can answer that because you are aware of it from your experience with the debacle over CDC group, aren’t you?
Mark Lowcock
Yes. My understanding is, and I will correct this if it is wrong, that Mr Ibori was involved in Notore, which was a Nigerian fertiliser company that ECP, which you referred to, invested in. Mr Ibori was not a shareholder in ECP.
Stephen Phillips
No. He basically siphoned the money out of ECP into a company from which he has derived significant personal benefit. That is no doubt the nature of the allegation, correct?
Mark Lowcock
My understanding of why Mr Ibori is in prison is that he was convicted of stealing money from the Government of Nigeria.
Chair
Mr Lowcock, if there is a guy in prison and there are further investigations by the SFO and the CPS is after him to try to get assets out of him because he has stolen money and we do not know that we are giving taxpayer’s money to an organisation with a circuitous link to him, that is of massive public concern. What really worries me is that you never knew about it. You knew about the CDC stuff, but you did not think to even ask if it was happening here.
Mrs McGuire
May I ask you to qualify Mr Ibori’s status in our prisons at the moment? You said your understanding was that he had been charged with offences relating to Nigeria, so why is he here and not in Nigeria? Perhaps I am naive in this respect, but I ask merely for clarification.
Mark Lowcock
A prosecution was brought by the City of London Police, which has an international remit that the Department for International Development finances. The result of the prosecution was that Mr Ibori was convicted and the penalty he was given was to serve a prison sentence in the UK. There was collaboration between the Government of Nigeria and the Government of the UK in the preparation and the run-up to the prosecution.
Stephen Phillips
Because two prosecutions had previously failed in Nigeria.
Mrs McGuire
Thank you for that clarification.
Stephen Phillips
For the record, you nodded, but the answer is yes.
Mark Lowcock
I believe that is the case. Again, I would have to check on the precise facts, but I believe that that is the case.
Stephen Phillips
I think that what the Committee is concerned about—without wishing to usurp Mrs Hodge’s role—is whether either the Department or PIDG were aware at any stage of the role of Mr Ibori in the distribution of funds provided by the UK taxpayer, particularly given that the first set of charges were laid against him in Nigeria in 2007.
Mark Lowcock
I am more familiar with the issues in respect of the link between Mr Ibori and ECP as a fund manager for CDC. As I said earlier, I was not previously aware of any link with any company that has a relationship as a fund manager with PIDG.
Mr Bacon
Why not?
Mark Lowcock
I am not in a position to answer that, Mr Bacon.
Chair
This is £840 million. It is such a lot of money. There is a real duty on the Department to ensure where that money goes. I think you have failed in your duty, Mr Lowcock. I am sorry. I usually praise your Department, but in this instance you have failed in your duty. FMFML has just been sold to Harith. Is that correct?
Philippe Valahu
It is.
Chair
Did you know about that, Mr Lowcock, given that they were the fund managers for our money?
Mark Lowcock
I personally was not aware of that.
Chair
Mr Kennedy, what is your job?
David Kennedy
Director general of economic development.
Chair
Did you know about that?
David Kennedy
I did not.
Mr Bacon
When the Government enter into a PFI contract with a provider to provide a school, hospital or prison, although the companies often end up being sold on, there is pretty much always a clause that says the authority that has issued the contract must give its consent to the sale of the company. It certainly must be informed about the sale of the company. You have given taxpayers’ money to be managed by one of these fund managers. Let us leave aside for a moment the question of whether this model of giving taxpayers’ money to fund managers to manage in this way is a good one; I expect we will come on to that. If you are giving substantial amounts of taxpayers’ money to a fund manager to manage, I do not understand how you cannot automatically know whether the beneficial ownership of the fund manager changes hands. Would it not be written into the contract that you would automatically know and be informed?
Mark Lowcock
The contract is let by PIDG, which is owned by nine Governments.
Mr Bacon
That does not alter the point.
Chair
We have over 80%.
Mr Bacon
You are contracting the Governments of the other eight countries involved. Presumably you have a contract with PIDG, which then goes on to have a contract with fund managers. At each stage in changes in ownership of this kind—if a fund manager changes hands—that should be disclosed automatically. Is that not stated in each of the contracts at each level?
Mark Lowcock
I am not sure.
Mr Bacon
You are nodding, Mr Valahu.
Chair
Somebody behind you is saying, “We knew.”
Philippe Valahu
If I may, information on any such purchase or sale would indeed be made available to everyone.
Mr Bacon
To everyone? Automatically?
Philippe Valahu
It would be a transparent process.
Chair
The official behind you, Mr Lowcock—to get the record straight—says that the Department did know. I am assuming that the person behind you is an official. Can I ask you this about Harith? Harith’s value, its ethos and mission, and what it is trying to do is stated as, “Africa is the last frontier of emerging markets to achieve superior returns for risk capital.” Do you think it is appropriate that a company that specialises in maximising returns for risk capital should be receiving UK taxpayers’ money intended to help the world’s poorest?
Mark Lowcock
The role that the fund manager plays in respect of PIDG, which I am assuming is not the only thing the company does, is to deliver the goals that the countries that own the PIDG set for it. Those goals are to bring private capital alongside public capital to build factories, ferries and ports.
Chair
We understand that. Take it that we have read. The point is that this is a company that has taken over running our money, using our money that was intended for the world’s poorest. The company’s aim is to see this as “the last frontier of emerging markets to achieve superior returns”. You did know. The Department representative behind you did know. Should you not have a view about the nature and ethos of a company in which you are putting our taxpayers’ money that was intended to help the world’s poorest? What it really wants to do is maximise profit rather than help the poorest.
Mark Lowcock
What we need to have a view about is whether, in the work they are doing for the PIDG, they are fulfilling the mandate they were given. We do think that it should be profitable for private investors to construct infrastructure in Africa. We think that all the required infrastructure can’t be paid for from local taxes or aid. Of course we don’t want them to run—
Chair
We agree with that. Everybody agrees with that. We have dealt with them on tax issues, which we will come to in a minute. We have dealt with them on other issues. This is not a company that believes it should try to make deals with other private sector companies to encourage private investment in infrastructure. We all agree and buy into that. This is a company whose ethos is seeing Africa as “the last frontier to achieve superior returns”. That is very different. I am going to Austin and then I want to come back on another issue.
Austin Mitchell
I’m a simple-minded Yorkshireman who is getting confused by all these acronyms that are like alphabet soup, but can smell something funny and thinks you all look fairly shifty about this issue. Emerging Capital Partners handles an Africa Fund II, in which DFID is a major investor. Is that right?
Mark Lowcock
I believe that is a CDC fund.
Austin Mitchell
Africa Fund II invested in three companies—Notore, a fertiliser company; OandO, an oil company; and Intercontinental Bank—that were all involved in money laundering for Mr James Ibori, now currently in prison. DFID was alerted to the allegations of potential corruption. Up until then you had accepted Emerging Capital Partners’ untested and unsubstantiated assurances that there were no illegal connections between the companies and Mr Ibori. You had accepted—or thought—that all was well. In February 2009 you were notified of potential corruption by Nigerian anti-corruption campaigner Dotun Oloko, but you took no action on that until December 2013. That was after a concerted public campaign had been run against the situation. Finally, after that you passed allegations to the Serious Fraud Office. What took you so long? Why were you deceived for so long?
Mark Lowcock
When we took delivery in 2010 of Mr Oloko’s concerns we asked CDC to investigate them and we also sought some advice from the NAO and the Financial Services Authority. We then took delivery of some subsequent concerns from Mr Oloko and I met him at his request to discuss them. We have passed, at his request, the material to the appropriate authorities, who, so far as I am aware, continue to investigate them.
Austin Mitchell
No sense of smell or anything? Nothing wrong?
Chair
You should have known about it. Let me go on to what PIDG is actually investing in, which is another issue raised through this.
Q52Stephen Phillips
Before you do, I just want to ask Mr Lowcock one question. At the very least we have ended up with this position, haven’t we? The Department is funding PIDG or was at the relevant time. Correct?
Mark Lowcock
Yes.
Stephen Phillips
So the Department is funding PIDG to the tune of several hundred million pounds. PIDG is funding a programme managed by an entity one of whose owners we now know is alleged to have been involved with Ibori. Just assume that that is correct. The real question is this. Given that you have so many hundreds of millions of pounds of DFID money engaged, there may or may not be some problem with the link with Ibori. Surely it is something that with proper oversight within the Department, the Department should have known about at the time that this money was being invested between 2010 and now. Why have you come to this Committee unaware of it even today?
Mark Lowcock
So far as I am aware, Mr Ibori was not a shareholder in ECP which had the 10% shareholding in the company before the current company that owned PMFML. I have some familiarity, as I have said, with—
Stephen Phillips
Forgive me, Mr Lowcock. You are on a different point. You are on the point about whether it is right or wrong. All I am saying to you is that there is a sniff of suspicion, which all of the Committee have got, associated with all of this. The Department has several hundred million pounds of taxpayer funds, which we are about to come on to, invested with Mr Valahu and the Department did not know about this. To my mind it shows a stunning lack of oversight and care with public money. What is your response to that?
Mark Lowcock
My response, as I said earlier, is that I was not aware of any link between Mr Ibori and PIDG.
Stephen Phillips
That is the point.
Mark Lowcock
I am not sure how direct that link is. That is something that I clearly need to pursue.
Stephen Phillips
That also does not matter.
Mark Lowcock
Well, I have a separate interest, which I have been exercising to the best of my ability, to pursue other allegations in respect of Mr Ibori.
Stephen Phillips
Through CDC, which we know all about.
Mark Lowcock
I have been working as hard as I can for some years on that case.
Chair
But this is not just several hundred million. This is up to £840 million. It is a lot of money. I have two other areas. I hope the Committee will bear with me. The next area is where PIDG is putting its money. What has been raised with me—perhaps you can answer this one, Mr Valahu—is that you have put over $1 million of equity investment and a €6 million loan into a company called Aldwych Holdings Corporate Finance which develops independent power plants in Africa. Is that correct?
Philippe Valahu
Yes.
Chair
Okay. Again we have a complicated little map of Aldwych’s connections. Aldwych is a joint partner with a company called Azura-Edo IPP, but the sponsor and co-equity partner is Amaya Capital. Is that right?
Philippe Valahu
Yes.
Chair
And Amaya Capital is registered in Mauritius—we shall come to Mauritius in a minute—which is in effect a very low tax jurisdiction, if not a tax haven. It is a shell company there. And there is a subsidiary of Amaya Capital also registered there, which is called Seven Energy Ltd. Is that correct?
Philippe Valahu
As I understand it, yes.
Chair
Okay. And it is also correct, is it not, that Seven Energy has been named by Lamido Sanusi, former Governor of the Central Bank of Nigeria, in his recent investigation into the looting of Nigerian oil revenues? In his view, in the 19 months between January ’12 and July ’13, almost $50 billion of revenues that should have gone to the Federal Government are unaccounted for. Is that correct?
Philippe Valahu
I am afraid I don’t know, Madam Chair.
Chair
Well, I assume it is not incorrect. So again, we are left with the question of what on earth you are doing investing in a venture with such direct links, through this complicated network of shell companies, with a company which is being investigated in Nigeria for looting Nigerian oil revenues. What are you doing that for? Why? This is our money. It is supposed to be going to help poor people. Again, we haven’t got any proof of anything going wrong, but it looks to me like a highly dodgy investment. I wouldn’t do it.
Mr Bacon
Why are you doing it?
Philippe Valahu
My understanding was that the investment was made into Aldwych proper, who would then be acting as a developer in developing deals themselves in the energy sector.
Mr Bacon
How much money?
Philippe Valahu
As I recall, it is $6 million—€6 million in debt and $1 million in equity.
Mr Bacon
Mr Lowcock, do you think that the parliamentary ombudsman was right when she raised concerns that this model of investment, where you give the money to fund managers, who then manage it for you, restricts your ability to exercise proper oversight?
Mark Lowcock
I don’t remember her saying exactly that. The Government thinks it is a good idea to invest through, for example, CDC and PIDG to bring capital in to help build infrastructure across the poorest countries. So the Government does think that basic model is a good model.
Mr Bacon
My question is about oversight. My question was whether you think this model restricts your oversight unduly.
Mark Lowcock
I think that on the basis, as the Report says, that PIDG finances projects with good development returns and good financial returns, which so far have provided services to more than 100 million people in poor and difficult environments, with most of the money coming from the private sector and 200,000 jobs created, and large contributions in taxes and other benefits to the fiscal situation in the relevant set of countries, I do think that this is an important part of the Government’s overall approach to economic development because—
Mr Bacon
Hang on just a minute, because that is an interesting answer but it bears no relation to my question. My question was about oversight and your answer was about benefits. Could you answer my question about oversight and whether you think this model unduly restricts DFID’s oversight of taxpayers’ money?
Mark Lowcock
No, I don’t think that.
Mr Bacon
So it’s okay not to know about what’s going on. Because it was perfectly obvious from your answers to Mr Phillips that you didn’t know what was going on. Are you saying that that’s okay as long as there are some benefits?
Mark Lowcock
No. I don’t think your second question follows from my answer to your first question. I think it’s important that we—all the donors—have a proper relationship with the PIDG or with the World Bank or with whoever else we are working through. It is important that they have a set of systems and processes which catch problems when they arise. But I don’t think it follows that we should have micro-level control over every single thing that a multilateral institution does. That does not, in my opinion, follow.
Mr Burrowes
In December last year—we will come on to this, the TradeMark Southern Africa programme—when you came before the International Development Committee, the Secretary of State said that you and she “blamed poor management and lack of credible scrutiny by the department. Both accepted that the external auditors, Deloitte, relied too much on the success stories given to them by programme managers.” Are we not seeing a similar story here? The NAO Report in paragraph 2.14 says: “Board members rely on the knowledge of the managers they are holding to account. Boards rarely visit projects on the ground…Board discussions and papers focused on financial issues. There was little discussion of development impacts…managers sometimes played a more active role” in board meetings “than we would expect”. Is this not the same systemic issue of relying on the programme managers, with lack of oversight and care?
Mark Lowcock
The Department was culpable in respect of TradeMark Southern Africa, and the Secretary of State and I gave evidence to the International Development Committee on that. We directly managed that programme and we did a poor job of it. We have subsequently closed the programme. The PIDG and other multilaterals are actually a different thing. We are making a choice there to operate not directly but in concert with other Governments through shared institutions. There, it is more appropriate to have a different approach to the oversight than it is when we are directly managing the project.
Chair
But Mr Lowcock, the Independent Commission on Aid Impact, which we all welcomed, assessed your £1.2 billion private sector development programme and concluded that it “performs relatively poorly overall against ICAI’s criteria for effectiveness and value for money.” You are not just getting criticism on that instance, or from us today: the organisation you have set up to look at the impact of aid is also critical of your performance. Is that not right? That was in April 2014.
Mark Lowcock
The Secretary of State—
Chair
Is that right?
Mark Lowcock
You have given a fair summary of what their report said. The Secretary of State gave a response to that report, which reiterated the Government’s view that supporting economic development is important to promote jobs and incomes and help countries become less reliant on aid. The Secretary of State continues to think this is a very important area for the Department’s work, both through supporting multilateral organisations and through what we do bilaterally.
Chair
No one is questioning the importance of the work. Everybody thinks it is important work. The issue is the oversight.
Stephen Phillips
Obviously you have accepted—when you gave evidence to the International Development Committee—that in relation to TradeMark Southern Africa the Department was at fault. The Department there had direct oversight. In relation to the delivery of interventions in developing countries delivered through organisations like the PIDG; you have much less oversight because those are private bodies that are taking public funds from the United Kingdom and other donor Governments, marrying them with private funds and investing in those projects. You have less oversight in relation to those projects than you do in relation to, for example, TradeMark Southern Africa—that is correct, isn’t it?
Mark Lowcock
Yes. That was sort of my answer to Mr Bacon. If you decide to do things jointly with other countries and you hire or build an organisation to do it for you, you are buying into the proposition that sometimes it is better to have one entity take responsibilities on for a group of Governments.
Stephen Phillips
You are hoping for better results, but accepting the fact that you are going to have a lesser role in oversight, yes?
Mark Lowcock
Yes.
Stephen Phillips
That may or may not be right, and we can debate that; but the UK Government is ploughing in 80% of the budget of the PIDG, isn’t it?
Mark Lowcock
70%.
Stephen Phillips
All right, 70% to 80%. Yet we rank equally with all the other donor Governments in having voting rights, don’t we?
Mark Lowcock
Yes.
Stephen Phillips
So, if this is a decent mechanism for delivering interventions in developing countries, why don’t we just take our 80% and do it on our own, so that we have control, without letting a number of other Governments stick in 20% and say, “We also have control, and by the way we get all the soft power benefits of seeing our aid labels below our national flags all over the projects being delivered overseas”—why don’t we just do it ourselves?
Mark Lowcock
Because we would like to encourage other donors to put more in than they are doing at the moment.
Austin Mitchell
But they aren’t.
Mark Lowcock
Well, three or four additional donors have joined over the past two or three years. I believe that the Government of Norway has announced an intention to join, and they are talking about two or three other countries who are going to join as well. Mr Phillips, we share your view that we need to reduce the UK burden share.
Stephen Phillips
I’m sorry, could you say that again?
Mark Lowcock
We need to reduce the share of the bill in PIDG—I am sorry to use the jargon—that the UK pays. What that involves is trying to give more and more—
Stephen Phillips
In circumstances where you made a business case just two years ago to ramp it up to £700 million over three years?
Mark Lowcock
The £700 million is actually now over six years, I think. Because PIDG, as the report says, delivers good financial returns and good development returns, our proposition to lots of our donors is, “You should put more money into this.”
Stephen Phillips
No, I want to go back. You said that the view of the Department is that the UK should essentially reduce the share of money it gives to PIDG. Is that correct? When did that policy come about? Is it a view within the Department, is it a policy that the Government have announced, or is it your personal view? I do not remember it ever having been announced to Parliament.
Mark Lowcock
As we have, as you say, taken a growing share over the past two or three years, this issue has been more prominent in our minds. That is why we have been encouraging PIDG to bring other donors in.
Stephen Phillips
Why should they? You have given them a blank cheque.
Mark Lowcock
I don’t follow that.
Mrs McGuire
I am just wondering whether we are not talking slightly at cross-purposes here. Maybe I am giving you the benefit of the doubt, but do you mean that you want to grow the pot of money, which means that we as a Parliament and you as a Government are still going to put in the same amount of money, but the pot of money will grow because of the extra donors? Is that what you are intending to say? It is not very clear, frankly.
Mark Lowcock
I am sorry if that is not clear. Yes, we would like the pot of money to grow. We have up to £700 million available. I think that £300 million to £400 million of that has been released so far, but whether we release the remainder depends on value-for-money issues going into the future. We are trying to bring more money from others so that the pot grows.
Mrs McGuire
Not necessarily to reduce the amount of money that DFID puts in to PIDG.
Mark Lowcock
Not necessarily, so long as the value for money continues to be justifiable.
Mrs McGuire
Albeit with all the caveats about value for money. Can I ask Mr Valahu what exactly PIDG has done over the past two to three years to broaden and deepen the donor base? I appreciate that you are fairly new in post.
Philippe Valahu
There have been discussions on the public and private sector sides. On the public sector side, there are donors in Asia with whom we have had preliminary discussions.
Mrs McGuire
Have you seen the colour of their money yet?
Philippe Valahu
No, because we have only had preliminary discussions. In part, those discussions will not go further until we have from each of the companies proper business plans towards the end of the year that we can scrutinise and analyse, so as to understand better their capital requirements in the medium to long term. That then helps us to have a better discussion with those donors with whom we have had preliminary discussions. On the private side, some pension funds have expressed an interest, albeit a preliminary one, in participating in some of the companies.
Mr Bacon
I do not understand how, when you are having a conversation with these various different countries—Australia, Switzerland, Germany, the Netherlands—
Mrs McGuire
You know your flags, don’t you?
Mr Bacon
Yes. I do not understand how you can end up in a place where, as paragraph 1.27 states: “By December 2013, DFID’s total funding of £414 million represented 70 per cent of all contributions to date…In the last two years, DFID provided 88 per cent of in-year contributions to PIDG.” When you are sitting around with the Germans, the Australians, the Swedes and the Swiss, how does the conversation go? They say, “I know. We five or six countries will fund 12% between all of us, which is 2% or 3% each, and you can fund 88%.” You reply, “Yes, that sounds reasonable.” How does that happen?
Mark Lowcock
Each country makes its own choice about how much overall to fund and into which facility. The Swiss aid programme gives a larger share of its total budget to PIDG than we do. For them, this is quite an important vehicle.
Mr Bacon
Yes, but there are some large countries, such as Australia and Germany, that are also in this.
Mark Lowcock
Yes, and the conversation goes, “We think that PIDG is providing benefits”—as the Report says—“and the projects are successful. Don’t you think it would be a good idea to do more of this? Having a small proportion of public money with a lot of private money is the most effective way of dealing with the infrastructure gap in these countries, which is one of the things we need to do if we are to enable them to grow faster, create more jobs and be less reliant on aid.” It is the case that the Australians and the Germans have some of their own institutions that they can use. It is also the case that there are some other new institutions. The World Bank, for example, is creating a global infrastructure facility. So donors have choice about where to put their money. Mr Valahu and his colleagues will have to work very hard to get a bigger share of the total available money from the other donors, and we want to help them to do that, because we think the PIDG has potential to deal with the problems we are concerned about in the countries we are most concerned about.
Mrs McGuire
You have spoken about a multilateral approach. When you drill down into the figures, it is essentially a British approach, with a few other countries, some of which have significant economies, but all of which, as you have identified, have their own vehicles for doing things. In effect—to go back to the flags issue in the Report—what we are doing is branding projects as multinational when in fact they are British taxpayer-paid projects.
Mark Lowcock
You are right to say that the Government could have chosen just to do things bilaterally. Ministers have not decided to do that—
Mrs McGuire
But with 88% of the funding coming from the UK Government, it is almost bilateral in all but name.
Mark Lowcock
Well, there is a question about whether, if we were not doing it through this structure, it would be possible to attract in the private money in the same way. If you are doing it with a number of other countries, even if some pay a lot more of the bill than others, you get a different dialogue in the country in which you are doing the investment. There is a range of reasons why we think a multilateral approach such as this, alongside the bilateral approach, has some benefits.
Chair
Austin is going to ask one quick question, and then I want to move on to tax.
Austin Mitchell
I sympathise with that point of view, but I sympathise even more with Stephen Phillips’s view that we should do it for ourselves and get the credit that’s going and set the example. The thought of us setting examples to the Australians is ludicrous. We should set the example by doing it for ourselves and doing it—let other people follow that example. Even if we don’t do that, as I certainly agree we should, why don’t we demand more weight and say within the organisation that is supposedly doing it? We are just one among a number of people who bleat support for what we are spending—88% of the support—yet we have very little influence in the organisation. At the very least, we should have and exercise the rights to inspect the accounts and the records of its fund manager—FMFML—and we should have the right to carry out money laundering checks and to stop money laundering by the subordinate companies that it is establishing. At least we need to assert our power so that we don’t get the discredit and damage that arises from the kind of thing we are discussing now.
Mark Lowcock
I agree with that, Mr Mitchell. So far as I am aware, we do have and exercise those rights. Mr Valahu maybe should comment on this.
Philippe Valahu
We do. Will you allow me to give a bit of background? At the beginning of the year, a code of conduct was put in place, and different operating policies and procedures that go with that. Those operating policies and procedures have to do with tax; they have to do with fraud and disclosure. They had been in place in the companies over the years, but it was decided that there would be a crystallisation of those various policies into a PIDG code of conduct, so front and centre of what the board of directors of each company will look at when they are submitting projects to the new business committee or the credit committee will be such issues as those that pose a risk—reputational risk as well as financial risk.
Chair
This is 2014 and it has been going since 2002.
Philippe Valahu
No, what I am saying is that—
Chair
The code of conduct is a 2014 code of conduct that allows the sort of investigations that Austin is talking about, but the organisation—not with you there—has been going and receiving public money, taxpayers’ money, since 2002.
Philippe Valahu
May I clarify the point that I was making? The policies and procedures under the code of conduct were embedded within the companies prior to 2014.
Chair
It doesn’t look like it when we look at these examples.
Philippe Valahu
There was simply a decision in 2014 to crystallise them and put them in a central place.
Stephen Phillips
May I ask one final question on oversight and governance within DFID before we move on to tax? Mr Valahu, what is the contestability mechanism that we read about in the Report?
Philippe Valahu
The contestability mechanism was put in place by DFID, as I understand it, whereby if a company met its so-called logframe results, it could apply for additional funding—up to 5%—for additional activities under the various activities that it performs within its guarantees of debt. Equally, if it did not meet its targets, it would be penalised by the—
Stephen Phillips
That is perhaps a more appropriate question for Mr Lowcock. Mr Lowcock, more than £200 million has been routed through the contestability mechanism. Is that right? I am looking at paragraph 1.26 of the NAO report.
Mark Lowcock
More than £223 million was available for the contestability mechanism. In fact, only a small proportion of it has been allocated and drawn down.
Stephen Phillips
Right, but £223 million was available for use within the contestability mechanism.
Mark Lowcock
Yes.
Stephen Phillips
Now just remind the Committee, if you would, of the departmental authorisations in relation to spending limits in DFID. At what level do you have to go to the Secretary of State?
Mark Lowcock
This has changed over the past four years. When the allocation was approved when Andrew Mitchell was our Secretary of State, he agreed a set of arrangements whereby he approved the availability of the 700 and then delegated to officials below that. When my new Secretary of State was appointed, we reviewed that with her and put in place different delegated authority arrangements, not just for PIDG but for the whole Department, so the current delegated authority is that anything above £5 million is put to Ministers for approval.
Stephen Phillips
Right. So anything over £5 million needs ministerial approval, yet for the entire pot of money—potentially more than £200 million—no ministerial approval is necessary. Correct?
Mark Lowcock
That was the case under the arrangement in place under Mr Mitchell.
Stephen Phillips
It’s still the case because those funds have been—
Mark Lowcock
It’s not the case. It was changed as part of the set of new arrangements that Justine Greening asked us to put in place.
Chair
Is the report wrong?
Joe Perkins
My understanding is that the Secretary of State has been informed of the extra funding that has gone to PIDG under the contestability mechanism, but it has not had ministerial approval in the way that new spend of over £5 million would require.
Mark Lowcock
I think the recent cases have been put to her for a decision. I will take that away and if I am wrong I will apologise.
Stephen Phillips
I think you need to be absolutely clear about that and write to the Committee. Either this has been the subject of a decision by the Secretary of State, or she has simply been advised of it. What the Committee is interested in knowing is whether there has been a spend greater than £5 million on the basis of previous authorities granted that have not received ministerial oversight in the way that new spending would have done.
Mark Lowcock
Yes.
Joe Perkins
Let me read from the cleared Report on this: “For these bids, directors have delegated authority to approve spending, although officials have informed the Secretary of State of their decisions.”
Chair
Just to finish that point, how many PIDG projects have been rejected over time?
Philippe Valahu
Is that a question for me?
Chair
I don’t know who it is for because I am unclear about who takes the decision. Perhaps you can both answer it. Am I right that two have been rejected?
Philippe Valahu
By individual PIDG companies?
Chair
Yes.
Philippe Valahu
A considerable number of projects are not taken forward because a two-step process takes place with the board of directors through which all projects must go. They go to the new business committee and then to the credit committee. But even before making it to the new business committee they would have to comply with a number of regulations under the investment policy to make them eligible.
Chair
Page 31, para 2.32 states that only four were rejected out of 220 applications.
Mark Lowcock
That refers to only two of the facilities. I think Mr Valahu was referring to the process across all the facilities. This is the position just in respect of proposals that have passed PIDG’s own internal scrutiny and have then, as I understand it, been put up to the donors collectively.
Mr Bacon
On that, when a decision is made, is it simply by majority voting? So if five donors want it and four don’t, the project goes ahead? Is that how it happens?
Philippe Valahu
No. If DFID, for example, were to say it would not be a good idea to support a water project in a particular African country, as was recently the case, the project would not go forward.
Stephen Phillips
So we have a veto, do we?
Philippe Valahu
Effectively, on the projects, yes.
Stephen Phillips
And everyone else, even though they put up only 12% of the funding, has a veto over the projects that we think ought to go ahead. Correct?
Philippe Valahu
Correct, but from what I have seen since I have been here it is usually done by consensus. I have seen few instances of that having to happen.
Stephen Phillips
Let me ask my question again. Consensus is not always possible. If the Swiss don’t like a project that DFID thinks is a good project that will deliver valuable interventions in the developing world, they can block it. Is that right?
Philippe Valahu
In principle, yes.
Stephen Phillips
Even though they are contributing a very small amount of money to your finances.
Chair
Okay, one final thing on this and then I will move to tax. If you go to page 31, I think it is very instructive—again, it is back to the oversight issue—paragraphs 2.31 and 2.32. According to paragraph 2.32, in two of the facilities only four out of 220 applications were rejected. Given how risky this work is, I find that an astonishingly low figure, in particular when you delve in and projects emerge as dodgy as some of the ones we have been talking about this afternoon. If you look above that, at paragraph 2.31, you do not always consult the country teams—there is a lack of proper co-operation—but where you did, they stopped one in Odisha in India and, just by a little bit of interference, brought down the costs by 58%. What that gets you thinking is that if there were proper vigilance and oversight, which I have to say has to come from DFID as well as the organisation, you might well be able to save one heck of a lot of money.
Mark Lowcock
Yes, I agree. The report is right that we need to improve the way in which we engage our country teams in looking at PIDG activities. I have accepted a recommendation and we are in the process of ensuring that it is implemented effectively.
Chair
What honestly makes me want to cry is that you have accepted that, but we have spent £0.5 billion here.
Mr Bacon
Why would you ever be in a position where you were not consulting your country teams? Your country teams are there, paid for by the taxpayer, to know what is going on on the ground. Why would you ever be in a position where you would avoid consulting them?
Mark Lowcock
As you know, Mr Bacon, we fund large numbers of multilateral organisations, which between them fund thousands and thousands of projects. If on every project there is a multilateral organisation—
Chair
This is mega-money, mainly British money. That could be the case if it was a £15,000 grant for one voluntary worker to work on a particular education team. This is megabucks here.
Mark Lowcock
Yes, and I am accepting that for the PIDG we need to have a different arrangement than is generically sensible for us to have for all the multilateral organisations, simply because we do not have the staff to double-guess what every multilateral organisation is doing through each of its thousands of projects. We need a different arrangement of PIDG, I agree.
Chair
Oh dear! May I move to tax—
Stephen Phillips
When was it pointed out to you that you would need a different arrangement with the PIDG? Was it when the NAO turned up and conducted an audit of how well—or not very well—this was working? Or was it a view you had formed previously?
Mark Lowcock
We have been having internal discussions on this for a while. It is absolutely the case that the NAO Report crystallised this as an important issue. I am grateful for that. We need to do better on it. If the NAO raises things that we have not seen, it will always be my policy to sort the problem out.
Stephen Phillips
Come on, Mr Lowcock. If the NAO had not shown up and the Committee had not put this on the NAO’s radar and agenda, and said, “Go in and have a look at this,” you would not be sitting here today with this as a priority, would you? This would be just carrying on in its merry way with 80% of the funds for the PIDG being provided by the British taxpayer and everyone hoping for the best about any proper oversight being directed at the PIDG by the Government.
Mark Lowcock
Maybe Mr Kennedy could respond to that.
David Kennedy
It is my job to take forward our economic development approach, so we have a high-level strategy, and we are trying to operationalise that. The way that we are doing it is to identify what the priorities are in each of our countries, across each of the sectors, and then what other levers we can pull, including using PIDG. So we are going through a process now that will link up PIDG with those priorities in each country. It is not that we have not interacted with PIDG anyway; there are many good examples at the country level in Nigeria, India and Nepal. I have only just joined DFID and I went to Kenya for my induction trip. Among the first people I met there was PIDG to talk with them about the work in the country and to ensure that it was co-ordinated. We are doing things, but we need to get better and we need to make that systematic, and that is what we are doing.
Mr Bacon
You mentioned the word priority. Before we move on to tax, may I ask you one question about priorities, Mr Kennedy? Paragraph 1.14 says that 62% of commitments are in DFID’s priority countries, so less than two thirds, which is quite low, given the shift that we heard about some years ago, which was that DFID was going to concentrate much more on priority countries and famously not fund so much to countries that were running space programmes and running up enormous balance of payments surpluses, such as India and China. Still only three fifths of the money is going to priority countries. Why is there such a large proportion that is not going to priority countries?
David Kennedy
Another relevant figure is that 42% is going to fragile states, and one of the reasons for setting up PIDG was that other organisations did not have the focus on fragile states. We could get that higher, and there is a really good opportunity to do that, so we are going through the process at the moment of refreshing the PIDG strategy. That will be discussed at the governing council in December, and part of the strategy refresh is what the geographic focus of PIDG is going forward, so we are actively considering that issue.
Mark Lowcock
The other point I would make, Mr Bacon—[Interruption.] If I may, Mr Phillips, I will just make a point about this question. The 61% relates to our priorities today—the 28 countries that are a priority today. As you will recall, in 2010 we reduced the number of priority countries, so most of the other activity is in countries on the picture on page 18, such as Indonesia, Vietnam and one or two other countries, which used to be our priorities, but when we narrowed down, stopped being. So there will be a residue of some in the former priority countries, but we want PIDG to focus on the fragile, most difficult countries, which are the ones that we are focused on, too. I hope that that number will rise over time—that is what we would like to see.
Stephen Phillips
Just before we leave this point, PIDG is obviously engaged with ensuring that these projects take place, in part using its own money, Mr Valahu, but in part using private investors’ money—correct?
Philippe Valahu
Yes.
Stephen Phillips
So part of where these projects go ahead is driven by where private investors are prepared to invest—also correct? Philippe Valahu: Yes and no, because each of the companies is guided by its own internal investment policies.
Stephen Phillips
So, just for example, let us take west Africa at the moment. I suspect in a year’s time that there is not going to be a great deal of appetite on the part of private investors—and certainly now—to invest in Liberia, Sierra Leone and Guinea. That is just obvious, so it must follow from that that part of what PIDG can do is driven by where private investors are prepared to invest.
Philippe Valahu
I agree with that, Mr Phillips, but the point to be made is that the companies have to follow a number of targets that have been set for them by the donors, which includes those countries in the frontier markets.
Stephen Phillips
I understand that, but it creates the problem for Mr Lowcock and the Department that you are now using British taxpayer funds through a vehicle whose investment portfolio geographically is driven by private investor appetite, rather than by the policy of the British Government.
Mark Lowcock
Well, Mr Phillips, what we are trying to do is change the private investor appetite. You gave the example of Sierra Leone, and one of the things that a PIDG project has done is help to finance the telecommunications network in Sierra Leone, with private money as well as a little bit of public money, without which—
Stephen Phillips
I should say that my partner was formerly working in Sierra Leone, so I know quite a lot about it—I do not know whether I need to declare that as an interest—and indeed, was indirectly funded by DFID through the ODI programme.
Mark Lowcock
Well, you will know better than me that without the mobile telecommunications network, the very difficult challenge that we have on Ebola in Sierra Leone, candidly, would be even more difficult. So I am sure you are right that we will face a different—
Stephen Phillips
But I am asking you a general question, not about specifics. I am asking you about this: you now have several hundred million pounds of taxpayer money, which is being invested geographically, in part, on the basis of the appetite of private investors for where they are prepared to invest. That is inconsistent with the Government’s keeping control over their own investment portfolio.
Mark Lowcock
But as Mr Valahu says, there are only a limited number of places that the companies can invest, so what we are trying to do is change the appetite of the private investors to help bear a little bit of the risk they face and to get them a bit more willing to engage in these places, which as you say, they have not previously been willing to engage in.
Stephen Phillips
Right, let us move on.
Guto Bebb
Before we move on, let me just follow up an earlier question. I think you gave a reasonable response to the question about 62% of funding going to the priority countries by arguing that some of the spending had gone to previous priority countries. Would you be in a position to indicate the percentage that went to priority countries now and to the previous ones as well? Would that be something you could furnish the Committee with?
Mark Lowcock
We could. I should say one other thing, if I may. There is one PIDG facility that we do not finance, and we don’t finance it because it operates in countries we do not consider to be a priority. You have to take that out when you do the calculation that Mr Bacon was referring to, but we will try to furnish you with the comprehensive set of numbers.
Chair
How do you, Mr Lowcock, ensure that the way in which PIDG conducts itself is in keeping with the Government’s stated objectives and policies on tax avoidance?
Mark Lowcock
When PIDG was set up, one of the things that could have been done, as is generally the case with multilateral organisations, is that it could have been set up under treaty. If an organisation is set up under treaty, it has various immunities and exemptions, including from tax. A decision was taken in 2002 by the then Secretary of State that the better thing to do, because of all the time involved in that option, was to look at trust options. We looked at whether it would be possible to create a trust—for example, a purpose trust—here in the UK. The Charity Commission advised us that, although PIDG was clearly developmental, it was not going to fully pass the Charity Commission test for being registered as a charity, so we had to look at other places where the trust could be registered. As you know, it is registered in Mauritius. The Government were happy with the decision, which we were asked to take a view on, in respect of Mauritius, because Mauritius is approved by the Treasury, and it has an OECD status and a set of arrangements to do with its relationships—for example, with the countries which are members of the Common Market for Eastern and Southern Africa which made it useful operationally for things like the Emerging Africa Infrastructure Fund. That is the background to the decision that was taken to set it up as a trust in Mauritius.
Chair
But, if I may say so, Mauritius has a tax regime and a whole set of tax deals with other countries—it is like the Irish double sandwich or whatever it is called—which, in effect, makes it a tax haven, or, at the very least, a very, very low tax jurisdiction. My understanding is that the PIDG Trust is Mauritius-based; so is the Emerging Africa Infrastructure Fund, which we have been talking about; so is GuarantCo; and so is FMFML, a company we have, again, been talking about, and which has links to the guy in jail—they are all based in Mauritius.
Mark Lowcock
I do not know if Mr Valahu wants to comment on that, but the background—
Chair
Do you pay any tax, Mr Valahu? Does the PIDG Trust pay any tax?
Philippe Valahu
The company—
Chair
The trust makes money, the trust takes a return out of these investments—does it pay tax on that money?
Philippe Valahu
The companies that are registered in Mauritius indeed pay tax.
Chair
Does PIDG? The question I asked was not about the companies—I asked whether PIDG paid tax.
Philippe Valahu
The trust is registered in the UK for tax purposes.
Chair
So what is registered in Mauritius? My understanding is that the PIDG Trust is registered in Mauritius, and that is what Mr Lowcock confirmed in his contribution. It is not registered in the UK.
Philippe Valahu
I’m sorry: it is registered in Mauritius but operates in the UK and pays taxes in the UK—
Chair
But it is for tax purposes—
Mr Bacon
So it is domiciled for tax purposes in the UK, even though it is a Mauritian corporate entity. Is that correct?
Joe Perkins
The PIDG Trust is domiciled for tax purposes in the UK. The PIDG companies are domiciled for tax purposes in Mauritius—or two of the largest ones are.
Chair
So the two large companies are domiciled there, so they would not pay tax.
Joe Perkins
They pay Mauritian tax, but they do not pay UK tax.
Chair
Okay. May I ask about something else? My understanding is—let me get my bit of paper so I don’t go wrong on this one—that the PIDG Trust is advised by SG Hambros. Is that right?
Philippe Valahu
That is correct.
Chair
Well, we know SG Hambros rather well in this Committee—particularly its links with NT Advisors and Matthew Jenner. There are a whole raft of tax avoidance schemes that this Committee has had an interest in where Hambros has been at the heart of it. There were the two Gary Barlow schemes—Icebreaker and Liberty—where Hambros was the bank. I want to read out a bit of what the judge said about these schemes. In the Highlands scheme, which was one of these NT Advisors schemes, Hambros “helped plan and create the scheme with Jenner. Their role went further than merely providing finance.” The judge found that Jenner “worked with Hambros to develop the planning with which this appeal is concerned. Hambros received 1% of the amount of income to be sheltered, to include commissions on the gilt purchases.” There was also the Price scheme, which was defeated by HMRC in 2012. Hambros was also the bank there, and the judge found that Jenner—the NT Advisors guy—discussed the scheme with a contact at Hambros. There was Project Corbiere, where the judge found that “the banking and other financial resources necessary to the scheme had been provided by the Société Générale group and, in particular, SG Hambros bank.” There was the Chappell scheme, where Hambros was named as a participating bank, and the Working Wheels scheme, which was the Chris Moyles scheme we considered in this Committee. Again, the man at Hambros—Stuart Gower—was the one who organised the finance for that scheme. There was Blue Box, which was one of these outrageous schemes that exploited charitable gift aid. Hambros helped one of Jenner’s NT Advisors clients gain charitable tax relief “whilst passing on 99% of the value of the assets supposedly ‘given’ to the charity to a family trust for the benefit of the appellant”. All of that is happening. Do you think it is appropriate that hard-working taxpayers are placing their money into the hands of people who are deliberately avoiding tax?
Philippe Valahu
My understanding today is that—as the permanent secretary has explained—there were historical reasons for us setting up the various trusts and for selection of the trusts. The donors have, over the years, re-confirmed their satisfaction with the services provided thus far by the trust.
Chair
I will ask the question again. Historically, it was set up like that and everyone was happy. Do you, with your responsibilities within PIDG, think it is appropriate that our money—the money of hard-working taxpayers—should be placed in the hands of people deliberately avoiding tax through what are, in effect, tax havens? I have to keep saying this: this money is supposed to be used for lifting people out of poverty.
Mark Lowcock
I do not know who the people are at Hambros who are doing the work for PIDG. Clearly, it would be a matter of deep concern to us if it turned out to be the people guilty of all the things you described, but I am not aware of that. The arrangements for the various PIDG trusts get scrutinised by the Department. I have tried to explain the reasons why they were set up in the way they were. This is something we need to keep under review the whole time because, if it turns out that the company have picked a manager who then does something inappropriate or wrong, that of course should call into question their role with the trust in the future.
Chair
Let me put it to you again. They choose to locate themselves, at best, in a low-tax jurisdiction. That means that tax is not paid into developing countries. There is a big issue around tax avoidance; it is the developing countries that miss out the most. The companies choose to do that in the first instance. They choose to use a bank which has this reputation for engaging quite aggressively in tax avoidance, together with an individual we know well in this Committee, who sets himself up with the cheeky name of NT Advisors—No Tax Advisors. We are back to the issue of your oversight of this all. If it were me and I knew that, I would sniff around, ask questions and satisfy myself. Clearly you and Mr Valahu have not done that. We are left wondering whether taxpayers’ hard-earned money, which is supposed to be helping to lift people out of poverty, is actually being used aggressively to avoid tax.
Nick Smith
Chair, may I ask a question?
Chair
Can I get an answer to that question? Then I promise I will come to you.
Mark Lowcock
Clearly the Department is in favour of helping developing countries raise their tax base. We do a lot of work on that. It is a priority for the Department and the Secretary of State. For shared institutions, as I explained at the outset, there is a decades-long agreement across countries that there are certain immunities and privileges. When many of those shared institutions operate in developing countries, they benefit from immunities and privileges, including those in respect of tax. That is how lots of countries—
Chair
I mean, these taxpayer-funded companies are in a jurisdiction—let’s say they have a deal with India—and are deliberately not giving tax for their activity to needy developing countries. It is just not on.
Mark Lowcock
May I respond to that point? The fiscal benefits from the 46 completed PIDG projects add up, I am told, to something like $3 billion. One of the companies that PIDG invested in was a telecom company in Ghana—
Chair
You are taking it off the two that are there.
Mark Lowcock
No—
Chair
You are saying, “Well, generally they pay a bit of tax.” I am saying that there is evidence here that they deliberately located themselves—
Mr Bacon
With respect, Chair, I did not get to hear what Mr Lowcock is saying, and I would like to hear that.