Select Committee on Foreign Affairs Minutes of Evidence


Examination of Witnesses (Questions 104 - 119)




  104. Sir Michael, welcome to you and your colleagues to this session on the Foreign and Commonwealth Office Annual Report 2002. Sir Michael, you may be delighted or disappointed that there is a rival attraction to yourself just down the corridor. The Chairman of the Committee is present at the Liaison Committee's meeting with the Prime Minister, and therefore I am chairing the session this morning. We welcome your colleagues also. Sir Michael, we are conscious that you have relatively recently taken up your post. I would like to start by asking you, when you eventually get to the end of your time as Permanent Under-Secretary to the Foreign and Commonwealth Office, what would you have hoped to have achieved within your department?

  (Sir Michael Jay) Thank you for your words of welcome to my colleagues and to me. I am delighted to be in front of the Committee again. I would like to leave the Foreign and Commonwealth Office to be seen as a thoroughly professional service, engaged in promoting British interests and serving the British public around the world, maintaining its network of posts. I would also like to see it more closely engaged than it is at the present with other Whitehall departments because I see that foreign policy is increasingly indivisible from domestic policy. One of the tasks that I see for myself is having to work more closely both in our posts overseas and in the formulation of policy in London with other government departments. I think that I would place the emphasis on professionalism, and obviously I would also like to leave a service which has a high morale and self-confidence, which I believe it should have. The job that we do is hugely important for Britain. I do believe that we have a network of posts overseas which is very well designed to promote British interests.

  105. How would you propose securing your objective of working more closely with other Whitehall departments?
  (Sir Michael Jay) We have begun work on that already in the last few months. It is something to which the Foreign Secretary and I both attach great importance. One of my Deputy Secretary colleagues, Michael Arthur, has been charged with establishing closer links with all the key government departments with whom we have contacts, talking to them about the services we can provide to them and being clearer about the common interest that we have. We are doing that, and I think that is becoming clear in key issues like links with the Home Office over asylum and immigration. That is a very good example of an area of policy which is shared, in a way, between the Home Office and the Foreign Office. It is clearly true also with the DTI over a wide range of commercial, investment, industrial and trade policy issues where the policy formation in London and the delivery of that policy and the negotiations are already shared between us.

  106. Could I also ask you: as you see it now, Permanent Secretary, what would you regard as the biggest challenges and problems that you need to overcome at the present time?
  (Sir Michael Jay) I put that in the context of a world which is changing quickly and presenting I think all of us, and certainly the Diplomatic Services, with greater challenges. We are facing a world in which there is one clear superpower, in which there is a risk of regional conflicts that are very difficult to predict and difficult to control, which require a network of international relationships, both with the United States, in our case, and within Europe, and indeed, as we have seen recently over India and Pakistan, others such as Russia and indeed China. So, it is finding what the role of the Diplomatic Service is in a rapidly-changing world. I think we need to become more flexible, and achieving a Diplomatic Service which can respond more flexibly to a world which is itself becoming less predictable is going to be one of the challenges we face. That means being able to be more flexible in our operations overseas; it means being able to be more flexible in our operations in London. The other challenge I see myself, and something which I have started doing since I took over this job a few months ago, is to try to change the corporate structure of the Foreign Office in London so that it does reflect these needs. For example, we have brought together what were two Boards—the Policy Board and the Board of Management—so there is one Board now which looks at policy and the delivery of policy together because they are inseparable. We have created at the level below that a Committee of Directors, formerly Under-Secretaries, through whom papers come when they come up to the Board, and we have established a Directorate of Strategy and Innovation, which works very closely to the Board and to me. That is looking at the longer term perspectives of foreign policy and how we need to adjust our operations in order to reflect the change in circumstances. I hope all this will help us to look rather more strategically at the direction of foreign policy and our need to respond to it.

  Chairman: We will return to some aspects of those points you have highlighted later on. What we would like to do is to spend a little time now on the Comprehensive Spending Review, and then we will go back to the Annual Report.

Mr Olner

  107. Sir Michael, the Chairman has alluded to yesterday's Spending Review. The Foreign Office, the World Service and the British Council all received substantial uplifts to their budgets over the next three years. Obviously the extra money nowhere near matches the bid you made. Firstly, are you happy with the settlement that was made?
  (Sir Michael Jay) We think it is a good settlement. I think it was described in the Financial Times as a respectable settlement. I think somewhere between respectable and good is how I would describe it but there are some very positive aspects to it, in particular the creation of the Global Opportunities Fund, which provides us with an opportunity to develop some programme spending to support our network of posts overseas. I am pleased, too, that there were good increases for the BBC World Service and for the British Council because both of those are extremely important parts of the overall projection of British interests overseas.

  108. As the settlement did not match the bid, what part is going to suffer? What part is not going to be able to proceed as you wish?
  (Sir Michael Jay) We did not achieve all our bids in full, so we will have less money than we would have liked for our programme expenditure, for example, but I do think that we have, through the Global Opportunities Fund in particular, an opportunity to do more. I should also say that we have an obligation to provide 2.5 per cent of efficiency savings during the three-year period. I see that as a stretching target but as something which we would in any case have wanted to do in order to increase our efficiency over the next two to three years. I think it is a good settlement, which we welcome and which the BBC World Service and the British Council have both welcomed.

  109. Could I perhaps stretch you a bit more on the new Global Opportunities Fund? Could you, firstly, explain the purpose of that fund and describe the sorts of projects that it will sponsor?
  (Sir Michael Jay) Its purpose is to enable us to spend a certain amount of money each year over the three years, starting next year, on programmes which support British interests overseas. The areas in which I see this focussing include: economic governance, human rights, promotion of democracy and the fight against drugs and crime. You will have seen that we have a specific PSA target on the reduction of drug production in Afghanistan. We will have to work out exactly how this operation is going to operate because this is a new concept, but I see it operating with our posts overseas, which are well placed to spot opportunities in these areas, bidding against a sort of challenge fund, bidding against a fund back in London, and then agreement being given to the allocation of targeted programmes in these areas.

  110. So the opportunities will just be flagged up by diplomats abroad. The countries themselves will not make an independent bid for it?
  (Sir Michael Jay) We have not worked out the details of how it would work. I would imagine that we would be asking our embassies in the countries concerned to look out for—and many of them already have very good ideas—ways in which more money could be spent. We have had to tell them in the past that there is not money to spend. They would be coming to us and saying, "We believe that there is an opportunity for spending X thousand or million pounds is this particular country over the next two or three years to achieve this particular objective, which will fit in with our PSA targets". That will be a bid back to London and a decision will be made because there are clearly going to be more priorities, and obviously there are going to be more bids than money to spend. There needs to be selection mechanism in London.

  111. I gained the impression, rightly or wrongly, from that answer that you are looking to take forward human rights and such matters with other countries rather than, say, trade objectives.
  (Sir Michael Jay) The trade objective will be the responsibility of British Trade International and they have their own programme funds for pushing forward commercial opportunities. Through the network of posts we have overseas, we have a delivery mechanism which is British Trade International. We will be strongly supporting that but I see this particular fund as being more in the areas that I have described.

Mr Chidgey

  112. Sir Michael, may I take you back to some of your opening remarks regarding the British Council, the new budgets and your award? Starting with the vehicles, and I understand you do not like to bite the hand that feeds you, nevertheless, it is a concern to myself, and no doubt to many of my colleagues who have seen the excellent work that the British Council is achieving in various parts of the world. I can give just two examples quickly. We found in Turkey, for example, that the work of the British Council was valued and scholarships were sought after. That struck us all very strongly. But, at the same time, we discovered that the scholarships are being reduced or the budget has been reduced relative to Russia. The reason I mention this, alongside, by the way, some of the experiences in Africa, Francophone Africa in particular, is because of the very high value of the British Council's work there. I am linking that in to your concept stated here about the importance of the British Council in spreading information and certainly the influence of Britain's standing, all of which is good for this country in terms of foreign policy. I am worried that, on the one hand, the British Council has not appeared to have been sought out: OK, that happens. I am equally worried that this is against a background where there is greater and greater demand for what the British Council offers to other countries, which is clearly to the direct benefit of this country. I would like some more information. I would like to know where we are cutting back in our aspirations, but most importantly, I would like to know what checks and monitoring you do on the equivalence of the British Council offered by other nations which are competing with Britain for influence in these middle-income, transitional, developing countries. That is a long question.
  (Sir Michael Jay) It is a long question. I share your basic premise. All of us in the Foreign Office, and this certainly goes for the Foreign Secretary, have a huge admiration for the British Council. I certain share in that. I have seen their operations both in Paris and in posts elsewhere. I was posted in India some time ago. I think we all share their disappointment, the World Service's disappointment and our own disappointment that we did not get our bid in full, but we got a pretty good proportion of our bid. As I understand it, from talking to Baroness Kennedy, the British Council are pleased with the money that they have received and this will enable them to focus on some of their key priorities, which include, for example the work they are doing on their programme Connecting Futures, which is linked with the Muslim world. They are themselves, I think, pleased. I think this will enable them to increase their work on scholarships. I hope that our settlement will also enable us to increase the amount of effort that we put into scholarships. The Chevening Scholarship Scheme is funded by the FCO and one of the good results of the settlement that we have today is that that will enable us to increase our Chevening Scholarships in countries which really matter. I do not think at the moment we could ever meet the full demand for scholarships here, either we or the British Council. I am enormously struck when I travel, and I was in China a little while ago, by the tremendous demand from high quality students to come to this country. I am absolutely convinced myself that it is hugely in our interests that we should be giving the next generation of leaders in China a year's experience or so of a British university in Britain.

  113. If I may add to that, Sir Michael, you speak here of your aim with the Global Opportunities Fund to connect with Muslim communities. I deliberately mentioned Turkey and West Africa, Muslim communities where, from what I could tell from the figures available to me, and they may be anecdotal, we seem to be talking about a ten-fold reservoir of young people who meet the standards needed to qualify for achieving a scholarship but only, of course, one-tenth are being given a chance. That, to me, seems to be a tremendous opportunity to spread our influence in the interests of this country and also in the interests of international relations. I wondered whether there is enough priority being given in the overall scheme of things to just how important that is in terms of progressing Britain's influence.
  (Sir Michael Jay) As I say, it is never going to get as much money as we would like. I believe it is getting a high priority for the Foreign Office and for the British Council but we have to accept that we have not got everything that we had wanted, and therefore there are going to be some things which we are not going to be able to do.

  114. You are only meeting one-tenth of the demand. Let me move on with the question because I know colleagues want to come in. How do these new public service agreements reflect the direction in which the FCO is moving? How different are they in substance from the targets set for 2000? We are looking at 2002 now.
  (Sir Michael Jay) The objectives the PSAs, in our view, are broadly consistent with the objectives and the PSAs that we have set for earlier years as part of SR 2000. You will have seen that we have reduced the number of objectives from nine to seven, and reduced the number of targets. This was because the Treasury's view was that there have been too many objectives and too many targets. I think actually that is right. I think there were a few too many. They have changed. As I say, some have been elided. There are some new points which have been added, and I mentioned one earlier where the emphasis is on drugs in Objective 1. I think that shows why objectives and targets change because over each two or three year period we succeed in meeting some of our objectives. Therefore, there is a need to change, but also the world changes. Three years ago we would not have put in a specific one on Afghanistan. There is now a need to do that. There is inevitably going to be a shift in objectives and a shift in our aims with each spending round if they are going to be, as they should be, a real guide to us a department in deciding what we do.

  115. Can you be more specific - and I am thinking of Mr Olner's questions earlier - about how the Foreign Office is actually going literally and physically to contribute to the reduction of opium production in Afghanistan? Clearly, with drugs it is not easy and it is not even easy to do that in this country. How can you be so specific that you are going to reduce the cultivation of poppies in Afghanistan by 70 per cent in five years?
  (Sir Michael Jay) We are going to contribute to it. Those are two rather important words at the beginning of that sentence. Our view is that there is no point in having an objective which is unrealisable. I think we do have a chance, by focussing on that particular objective, of making a contribution. We have helped to make a contribution in the nine months or so since we started focussing on this. There have been really positive results in reducing the crop in Afghanistan this year. We need to build on that. I think we can contribute to that.

  116. My final question is to do with the annual efficiency savings mentioned earlier, Sir Michael, that you now have a challenge or a target of reducing yours costs by 2.5 per cent per year. These are annual efficiency savings. I always find this fascinating. How many years does this go on for? When does the exponential curve, or whatever it is, come to zero? Is it 2.5 per cent a year, and on and on and on. Is it realistic to maintain that sort of saving? That is why I am really concerned to ask the question: do you have £100 million worth of assets? You talk about selling off and re-investing the assets in properties, for example. When does this 2.5 per cent annual saving grind to a halt?
  (Sir Michael Jay) I think there are two separate points there: the 2.5 per cent efficiency saving, which we have to meet as part of this; and then there is the separate target for recycling assets.

  117. Are they totally separate?
  (Sir Michael Jay) They are separate things. On the efficiency savings, you are right, of course: it gets harder and harder as you go on, particularly as far as the asset recycling is concerned. As far as efficiency is concerned, it is not a question of giving up 2.5 per cent of our budget; it is finding ways of doing things more efficiently. To be honest, that is something that I would have wanted us to do anyway. I think it is incumbent on any organisation to be looking the whole time at where the lower priorities are, where are the things you are doing which maybe you do not need to do, so that you can shift your priorities towards the more important things. Are here better ways in which we can do things? Are there ways in which we can deploy our network of posts overseas more flexibly or more efficiently? We need to give some hard thinking to that. I actually regard this 2.5 per cent target as quite an encouragement to do that. If I can just give you one example: we are going to open a post in one of the Francophone countries in which we have not been present up to now, Niger, but it is going to be an embassy which will be two rooms in the French Embassy. That will be manned one week a month by somebody from our Embassy in Abidjan. That is not going to cost us very much but it is an extremely effective way, at a low cost, of getting influence in a country which may become increasingly important in Africa. I see that as an example, but there are ways in which we need to be thinking about the more flexible use of resources. On the question of asset recycling, we have an obligation to find £100 million in the triennium which is now under way. We have, I think I am right in saying, found about £41 million in the first year of that. We have two years to go and £59 million to find. It is going to be tough because there is a dwindling number of assets to sell. I think we can do it but it is going to be tough.

  118. My concern is that this may be an arbitrary target set by the FCO and you have to find £100 million. The danger is that you may be forced to sell off value-for-money buildings simply to meet this Treasury-inspired target.
  (Sir Michael Jay) No, we will not do that because we have our system. It is all based on the key performance indicators. We assess each property we have against these indicators: are they providing value for money; is this the best use of an asset in that city at this particular time?

  119. Why do you not start the other way round? Do you not feel it would be better if you had been asked to come up with a sum of what you could dispose of rather than setting a target of saving £100 million regardless?
  (Sir Michael Jay) It is not a bad discipline to do it this way but there are constraints in going too far. We are not going to be selling off properties which really are providing good value to the taxpayer overseas.

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