2 The Implementation of SR2010|
5. The large spending reductions demanded of
the FCO and its associated bodies by the SR2010 should not be
seen in isolation but instead as part of a long-term pattern of
reductions in the FCO's budget. Giving evidence to us as part
of our inquiry into British foreign policy and the "Arab
Spring": The Transition to Democracy, Lord Malloch-Brown,
a former FCO minister, described the previous Government as embarking
the strangest model of cost-cutting ... which was
that you expand programme and investment but cut headcounts and
buildings, basically. This fell astonishingly disproportionately
on the Foreign Office, which is all people and some rather grand
buildings. The whole model of Treasury-driven cuts over the previous
Government cut into the bone of the Foreign Office.
In 2009-10, the then Permanent Secretary, Sir Peter
Ricketts, told our predecessor Committee that "pretty drastic"
measures were needed if the FCO was to remain in budget that year.
Together with our colleagues on the Committee of Public Accounts,
we and our predecessor Committees have reported on the FCO's progress
in implementing a series of planned, and unplanned, spending cuts.
6. The FCO's difficulties in this area are compounded
by the distinctive characteristics of the FCO's budget:
- The FCO's budget is already
small. Less than 1% of Government spending is on the Foreign and
Commonwealth Office, and the entire spending of the FCO, including
grants to the British Council and BBC World Service, is less than
the spending of Kent County Council.
- A relatively large proportion of the FCO's spending
is inflexible because it is committed to staff salaries, buildings
and grants to other organisations such as the BBC World Service
rather than programme spending. The FCO is further responsible,
along with the Treasury for paying the UK's subscriptions to the
UN and other international organisations.
The NAO estimates that less than half of the FCO's total budget
is available for "direct spend".
7. We noted the long-term trend of reductions
to the FCO's budget in our Report last year and concluded that
"cuts to the core FCO budget even of 10% may have a very
damaging effect on the Department's ability to promote UK interests
overseas, given that these will come on top of previous cuts to
the FCO's budget in the very recent past." Given the scale
of the task that faces the FCO and its associated bodies we were
keen to monitor throughout this Parliament the effect of SR2010
on the core performance of the FCO, BBC World Service and British
Council, staffing levels in those organisations, and the Department's
The Foreign and Commonwealth Office
8. In evidence to this year's inquiry, The Foreign
Office told us that it would implement the spending reductions
demanded by SR2010 by acting in three main areas or "strands":
- The Estate strand: "we
are seeking to make £34m savings in our annual estates and
security running costs. As part of this we are currently reviewing
the scale and level of residential accommodation we provide overseas."
- The Corporate Services strand: "The majority
of this saving will come from reducing our numbers of locally-engaged
support staff; and, where possible, consolidating corporate functions
into regional hubs or bringing them back to the UK to maximise
efficiency." Simultaneously, the role of locally-engaged
staff will change and their use in other areas will increase,
"The localisation of corporate services and support positions
overseas is delivering benefits - annual savings of £12m
by March 2012."
- The Human Resources strand: reducing staff costs
by "reducing to a minimum the number of junior staff posted
overseas from London, by removing or reorganising their positions
or recruiting locally". The FCO estimates savings of £30
million per year from this process.
9. The majority of the money allocated to the
FCO by the Treasury is not available to the FCO as direct spend.
44% of the FCO's budget is spent on grants to various outside
organisations: to the BBC World Service (approx. 10%), the British
Council (approx. 7%), contributions to the cross-Governmental
conflict prevention pool (approx. 20%) and the UK's subscriptions
to international organisations (a further 6.5%).
A further large proportion of the Department's budget must be
allocated towards the upkeep and maintenance of the FCO's overseas
network. Changes to the Department's overseas network were announced
on 11 May 2011 and are analysed below. However, even accounting
for these other demands on the Departmental budget, a significant
proportion of the FCO's budget remains discretionary and is allocated
to the programme budget. It is this area, of discretionary or
"direct" spend, that is likely to see the largest reductions
10. Simon Fraser, Permanent Under-Secretary,
FCO was unable to tell us exactly how the SR2010 would impact
on the FCO's discretionary spending. He told us:
For the programme budget, which is discretionary
expenditure on different aspects of foreign policy, we have made
plans to reduce it over the spending round period. It is currently
around £140 million. The Foreign Secretary has said that
that will have to come down over the spending round period to
a figure not lower than £100 million, but we have not yet
planned precisely how that will happen.
We were further told that where decisions had been
made, it was too early to say what the impact on the Department
would be as the FCO was only at the beginning of the "implementation
phase" and "further difficult decisions" would
have to be taken. Despite this, he was "confident" that
the FCO would adapt to the spending reductions demanded in the
Spending Review 2010.
BBC World Service
11. Like the FCO, the BBC World Service faced
a long series of budget reductions even before the Spending Review
2010. In evidence to our inquiry this year, Lord Patten noted
Although the World Service has sometimes been protected
from the most savage instincts of the Treasury public spending
division, you could not say that it had done fantastically well
over the years in the allocation of public funds.
The cuts announced by the BBC World Service in immediate
response to the Spending Review came after a period of "lean"
spending for the World Service. The BBC World Service's initial
response to the SR2010 was announced in January 2011. Under these
plans, the BBC World Service announced the full closure of five
language services, the end of radio distribution in a further
seven and a phased withdrawal from "most" short wave
and medium wave distribution. This would lead to 650 post closures
by 2014-15, 480 in that financial year. We reported extensively
on these changes in April 2011.
Following the publication of our Report, the Foreign Secretary
announced further funding for the World Service to mitigate some
of the effects of the initial budget reduction. In a letter to
us of 20 June 2011, the Foreign Secretary announced funding of
£2.2 million per annum until 2014-15 which would continue
the operation of the BBC Arabic Service; further funding for the
World Service under the Arab Partnership;
and an arrangement whereby the Government agreed that if the World
Service's contributions to the wider BBC's pension deficit were
less than the £13 million already provided by the FCO, the
World Service would be able to keep the surplus. We were told
in November that this surplus equates to extra funding of £9
million over the spending review period. Some of this surplus
has allowed the maintenance of the BBC Hindi shortwave service
for at least one year.
12. As a result of the changes announced in June,
the BBC World Service's savings target over the Spending Review
period has been reduced from £46 million to £42 million.
The World Service estimates that the changes announced in January,
and subsequently revised in June, will save approximately £30
million. A further £12 million of savings will have to be
found over the next two financial years. We asked Peter Horrocks,
Director, BBC World Service, where he anticipated these cuts would
come from. He told us that plans to meet the £12 million
target were neither finalised or announced, but he did not rule
out further reductions in services.
13. Despite the impressive performance
of the Foreign and Commonwealth Office in representing the UK's
interests across the globe with what is, in Governmental terms,
a particularly small budget, we believe that the FCO is under-funded.
This situation has been exacerbated by the Spending Review 2010.
In this context, we conclude that the lack of detail provided
by the FCO and the BBC World Service as to exactly how the spending
reductions target set by SR2010 will be met is disappointing.
While there is no doubt that meeting the targets set by the Spending
Review will be challenging and will require much planning and
forethought, it is equally disappointing that the FCO has not
yet planned how a reduction of £40 million, or over one-third,
of its programme spending will be achieved.
14. Given the lack of detailed
plans available for scrutiny we do not at this time pass further
comment on the overall strategy pursued by the Foreign and Commonwealth
Office and the BBC World Service in meeting its budget reductions,
except to reiterate our earlier conclusion that SR2010 may turn
out to have had a very damaging effect on the Department's ability
to promote and safeguard UK interests overseas. We would expect
information on how the FCO and the BBC World Service plans to
reduce its spending throughout the Spending Review - including
information on which services or programmes are to be curtailed
- to be made available to us in response to this Report. We further
recommend that both bodies continue their current welcome practice
of writing to us in advance of major announcements and changes
to their respective organisations.
15. The lack of detail provided by the FCO and
the BBC World on the broad strategy they will follow to meet the
SR2010 spending reductions prevents us passing comment upon the
FCO and the BBC World Service's plans. Accordingly, we present
the evidence we have received to the House without detailed analysis.
However, we draw the House's particular attention to the following
areas of interest which we will address in the following chapters:
- The FCO's Overseas Property
Network and the "Network Shift";
- The future governance arrangements for the BBC
- The performance of the British Council.
3 Oral evidence taken before the Foreign Affairs Committee
on 31 January 2012, HC (2010-12), 1672-iii, Q141 Back
See for example: Committee of Public Accounts, Forty-Eighth Report
of Session 2010-12, Spending reduction in the Foreign and Commonwealth
Office, HC 1284 Back
Oral Evidence taken before the Foreign Affairs Committee on 8
September 2010, HC (2010-12), HC438-I, Q 15 Back
Subscriptions to International Organisations are split on a 40/60
basis between the FCO and the Treasury. According to the NAO,
subscriptions to international organisations cost the FCO £0.17billion
in 2010-11. This was 6.5% of its total budget. Back
A Summary of the NAO's work on the Foreign and Commonwealth
Office 2010-11, National Audit Office, September 2011, page
Ev 40-41, paras 12 and 14 [Simon Fraser CMG] and Letter to the
Committee from Simon Fraser CMG dated 23 February 2011 Back
Summary of the NAO's work on the Foreign and Commonwealth Office
2010-11, National Audit Office,
September 2011, page 8 Back
Q 3 Back
Qq 1-5 Back
Q 113; See also: Q 114 and Q 117 Back
Foreign Affairs Committee Sixth Report of Session 2010-12, The
Implications of Cuts to the BBC World Service, HC 849 Back
The "Arab Partnership" is a direct aid programme to
those countries which have overthrown dictatorships during the
'Arab Spring'. It provides funding to organisations in these countries
which are working to promote democracy, political pluralism and
good governance. The UK has pledged £110 million over four
years to the Partnership. Back
Letter to the Committee from Rt Hon William Hague MP, dated 20
June 2011. Available on the Committee's website. Back
Qq 129-130 Back