Britain starts 2017 handing billions of aid money to private sector

A DFID staff member supervises the unloading of UK aid from an RAF C-17 aircraft in Kathmundu, Nepal on the 29 April 2015. The flight is carrying vital UK government aid stocks to Nepal, including shelter kits and solar lanterns. DfiD UK under a Creative Commons Licence

One day in to Parliament's first week of 2017, the British government set the scene for the new year by seeing through a piece of legislation that hands over billions of pounds from the country's aid budget to the private sector.

The disastrous Commonwealth Development Corporation (CDC) Bill gives the green light to an eight-fold increase in the amount of money that the Department for International Development (DfID) can give to the little known CDC Group. Under the bill the current cap of £1.5 billion will now increase to an eventual £12 billion.

The government plans to spend this additional money at a rate of £1billion a year over the next ten years. That’s a staggering £1billion of British aid money each year that will not be spent on ‘poverty reduction’ as most people understand it.

Wholly owned by DfID, CDC Group is a company whose stated objective is to reduce poverty through investing in business in the global south, often via private equity funds.

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While putting money in to sectors that are lacking funds may sound like a sensible enough idea, in reality the investments made by the CDC Group have extremely questionable development impacts for poor communities. The company has supported projects including luxury hotels, shopping malls, expensive fee-paying schools, private hospitals, restaurant chains and advertising companies.

The problem with the CDC Group's approach to development is that it is based on the ideological belief that 'rising tides raise all ships' which is the idea that economic growth at the top ends of society will automatically benefit everyone in that society. That is how they can get away with the bizarre logic that investing in high-end businesses can be done in the name of poverty reduction. This is the extreme end of the market-based approach to development that DfID has been pursuing for some years, but is now being ramped up with terrifying commitment from DfID's new leader Priti Patel.

Related: 10 Economic myths that we need to junk

The problem with basing policy on ideology is that it delegates evidence to an inconvenient truth. In the case of the CDC Group the evidence that their investments have at best questionable effects on poverty reduction comes from numerous independent bodies. Only last November the National Audit Office report in to the company found that it is a ’significant challenge’ for DFID’s private equity arm CDC ’to demonstrate its ultimate objective of creating and making a lasting difference to people’s lives in some of the world’s poorest places’.

In light of the lack of proof that CDC investments have any real lasting impact on poverty reduction, and given the lack of accountability that comes with the use of private equity funds, it is wholly irresponsible of Parliament to have granted the CDC Group such huge amounts of extra money. And the fact that the vast majority of CDC Group's investments in private equity funds go through funds based in tax havens, this bill makes a mockery of the government's supposed plans to address tax-avoidance.

The passing of this controversial bill through the Commons comes despite attempts by both Labour and the SNP to amend the Bill in parliament, a series of exposés in the national media and thousands of Global Justice Now supporters lobbying their MPs to put a stop to the Bill.

Although the Bill is to pass through the House of Lords over the next few weeks, as this is a money bill – meaning it is associated with public spending – the Lords have limited powers to intervene.

It’s pretty disheartening to kickstart the year with a new bill based on an erroneous ideological belief that places blind faith in the power of markets and the private sector to solve all the world's problems. It means there will be countless new dodgy aid projects that we need to resist.

It makes it more important than ever that we keep a close eye on how the country’s £12 billion a year aid budget is spent, and continue to hold this government to account to ensure British aid meaningfully reaches those who need it the most.

For more info on the CDC Bill, see the briefing Inviting Scandal – DfID’s dangerous plans to expand its controversial private equity arm.