To ask Her Majesty’s Government what assessment they have made of the impact of remittances (1) on the United Kingdom economy, and (2) from the United Kingdom to the economies of developing countries.
My Lords, remittances are a significant source of funds for developing economies and have a positive impact on the UK economy. Money service businesses trade around £1.8 trillion daily through the UK. The World Bank estimates that in 2019 UK remittances totalled around £23 billion, £8 billion more than the UK overseas assistance budget. Remittance payments typically flow to households and increase income and resilience to economic shocks. Let me assure noble Lords that the UK is committed to working with the G7 and G20 to ensure that remittances are sent as cheaply, accessibly and securely as possible.
My Lords, with the total value of remittances to low and middle-income African countries three times higher than official development aid—which is now being cut—and with a dramatic Covid-related reduction in remittances in 2020, will the Minister look at the gains that could be made by remittance matching and cutting the 6.5% cost in fees when sending remittances from the UK to meet the UN goal of 3%? Will he also say what the Government are doing to follow up the recommendations in chapter 5 of the International Relations and Defence Committee’s report on sub-Saharan Africa relating to remittances?
On the noble Lord’s first point, I can give him that assurance. The cost of transactions for remittances in Q4 2020 stood at 6.48%, which is beyond the SDG target. We will use our presidency of the G7 and G20 in pursuit of that aim. He is right to raise the report, which I have looked at carefully, and the work that needs to be done in that respect. As we said in our response to the International Relations and Defence Committee’s report in September, we are committed to supporting innovative mechanisms that can leverage sustainable sources of finance.
My Lords, I welcome what the Minister has said so far. What opportunities have the Government identified specifically to support greater access to local secure remittances as a consequence of their work with the World Bank and the UK’s Financial Sector Deepening Africa programme?
My Lords, we are committed to working with the World Bank. It is noticeable that the World Bank has talked about the challenge of the decline in remittances. Across the key countries, including in sub-Saharan Africa, we are working to ensure prioritisation of access and looking at more innovative schemes. Last year, as my noble friend will recall, we launched an initiative with Switzerland in this respect.
Viscount Waverley (CB)
My Lords, I offer the Minister an innovative idea, to which he referred. Given the pressure on overseas development budgets and programmes to create growth and employment, might it be time to consider that the global tax system should be turned around and restructured, whereby taxes are not paid to a country where a company is domiciled but remitted to, or shared with, the origin country in which a purchase was placed or a service delivered? Would the Minister conceivably advance this thought to the powers that be as a possible G7 discussion over a Cornish pasty?
While the whole amount of remittances is clearly more than UK aid to developing countries, it is not targeted at national strategic objectives being mainly used for housing and business development. Have the Government been able to make any analysis of the proportion of remittances that went to those sectors, or education?
My Lords, the noble Baroness raises an important point. Our priority for remittances has been key countries across the world, in Africa and Asia in particular, and key sectors focused on the most vulnerable. I will write to the noble Baroness with a specific breakdown if that is available.
My Lords, the sustainable development goal target is to reduce the transaction costs of migrant remittances to less than 3%. However, the most recent data from Our World in Data tells us that countries in sub-Saharan Africa were, at 9%, paying the highest remittance costs of any region as a proportion of the amount remitted. This is morally repugnant. As well as raising the subject at the G7, will the Minister raise it with his colleagues at the Treasury?
My Lords, let me assure the noble Baroness that, in preparation for the G7, we are working across government to ensure that the targets, including the SDG target of 3%, can be met—and we will work to ensure that other countries also commit themselves to that.
My Lords, acknowledging the significance of remittances is particularly important at the moment, with the global impacts of Covid-19 and as our own development assistance to low-income countries is being cut so substantially, so I welcome my noble friend’s reassurance that this subject will be discussed at the G7. There are many stakeholders who need to be involved in improving the ease and cost of remittances, and some years ago the Government established the Action Group on Cross Border Remittances, chaired by Sir Brian Pomeroy, which brought those groups together. Can my noble friend tell me whether that group continues its important work and, if not, what it has been replaced by?
My Lords, I pay tribute to my noble friend’s work in this area. The action group last met in person in 2019. Its current membership and format are under review, and I will, of course, share with her the outcomes of those discussions.