FOREIGN AND COMMONWEALTH OFFICE ANNUAL
Examination of Witnesses (Questions 104
TUESDAY 16 JULY 2002
JAY KCMG, MR
CMG, MR SIMON
GASS CMG AND
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
Boardsthe Policy Board and the Board of Managementso
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
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.
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
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 forand
many of them already have very good ideasways 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
(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.
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
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
(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
(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
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.