400. Is that based on marginal
cost differences or a full apportionment?
(Mr Young) Full apportionment, including overheads.
401. It is still going to be very expensive
to put an outside officer into Paris or Washington or Moscow.
(Mr Young) Yes, and the Government Department
concerned will have to judge between competing priorities in the
same way that we do.
(Sir John Kerr) Concealed subsidies are always
dangerous. If we were subsidising somebody to work in Paris without
that being declared, the Department would not know the full cost
of the operation that it wants done in Paris. I do think it is
an important principle. People should realise the cost of what
it is they are asking to be done. So I have no difficulty with
this.
Chairman
402. Clearly with the Asian financial crisis
rental with some purchased properties is historically fairly cheap,
and is our system sufficiently flexible to have the resources
to buy property now in the market for diplomatic personnel at
a time of historic cheapness?
(Sir John Kerr) You ask an extremely apposite
question, Chairman. I am not quite sure what new rules will emerge
from the Treasury for asset recycling proceeds. We would like
to manage our estate more proactively. We would like to dispose
of a number of properties which are either run down, no good,
or too big, out of scale. We would like to envisage a certain
amount of new build or new hire with one stop shop facilities,
where we could look after all bits of an Embassy and the Council
and the British travel authorities under one roof. We would like
to do that. Under the past rules, if we sold some property in
year the Treasury snaffled the money. We did not have any incentive
to manage our estate proactively. I very much hope that we shall
very shortly have end year flexibility and an asset recycling
agreement which will enable us to do just that. I would like to
ask Mr Arthur to speak about that. Can I answer your south east
Asia point first, and I think you have been in Bangkok. I hope
you think our compound in Bangkok is an asset which is well used.
403. It is.
(Sir John Kerr) There are properties in south
east Asia which probably fall into the category—not the
Bangkok compound—of things that are oversized, out of scale.
Now would clearly be a very bad time to sell them. We certainly
must not have a fire sale. I am not sure that it is in south east
Asia that we most want to acquire new properties and move up market.
I think there may be a mismatch between the scale of our representation
in south east Asia—I do not think it is there that we would
most want to invest.
404. However, there may be on a longer term
basis rentals which would not be prudent and it may now be prudent
to buy on that basis.
(Sir John Kerr) That is absolutely right, Chairman.
Could I ask Mr Arthur to describe the system he has devised?
(Mr Arthur) As part of the Comprehensive Spending
Review, one of the areas that we looked at was this longer-term
strategy for estate rationalisation, subject to those conditions
which Sir John mentioned just now of asset recycling and end year
flexibility. I should add that we did have an asset recycling
agreement in the distant past, but it expired and for the last
ten years or so we have not been able to do this. So with a forward
look over the next five or even ten years to that sort of a strategy,
we have been developing, with the Treasury indeed, some objective
measures, a system of performance indicators, for how to judge
which properties to realise, where to invest. They are based on
things like fitness for purpose, spare standards, the existing
use value that we get from it, the open market value, and the
annual rentable value against a benchmark in the country concerned.
We are in the process of a rolling programme of estate valuation
worldwide, which we need to do anyway for resource accounting
purposes, and we have done the first phase of that and we will
keep that under review. So we now have an armoury, if you like,
of techniques which will help us, we hope, to make the right decisions
in value-for-money terms and fitness-for-purpose terms for the
estate over the coming decade, once we get the agreement that
Sir John has mentioned.
Chairman: I would
like to make progress and before calling Sir John Stanley, I would
like to ask Mrs Bottomley to start on the World Service and then
other matters.
Mrs Bottomley
405. I think it is the Committee's view
that the World Service is a phenomenally successful and highly
regarded way of spreading British values and understanding around
the world and successive governments have learnt, to their cost,
that to tamper with the World Service is often counter-productive
and ends up costing more than the original proposal because of
its huge popularity and respect. The World Service has set out
a case that they need a funding formula involving RPI + 1.5 per
cent over the next three years and that without that, they would
have to cut back on, I think, seven of their language services
and draw back on their education programmes. I wondered what Sir
John's comments were in that area.
(Sir John Kerr) First, I think it should be on
the record that the grant-in-aid to the World Service is 50 per
cent higher in real terms than it was 20 years ago. In the period
that I described where the Foreign Office money has gone down
very substantially, 14 per cent in real terms, the BBC World Service
money has gone up 50 per cent in real terms. Second, there is
an argument, it is quite true, Mrs Bottomley, about whether there
is inevitably a positive relative price effect on the kind of
expenditure that the BBC World Service engages in. Obviously on
some of it, there is not. On the provision of transmission facilities,
there is not, but it is argued, and it may be the case, that for
the acquisition of particular rights to particular kinds of broadcasting,
there is a positive relative price effect which means that inflation
in that sector of the economy is higher than inflation in the
economy as a whole. That is so maintained. I think that is an
issue that needs to be carefully assessed as to whether that is
necessarily the case, whether it is necessary, in order to stand
still, to spend more than is necessary in other sectors of the
economy or other sectors of Foreign Office expenditure. I would
like to ask Mr Arthur to join in, he is more expert than I am
on the detail of this, but there is, though, one point that I
would like to make first, and that is that I think the BBC World
Service have a bigger point than the one you make, with respect,
Mrs Bottomley. The one you make is an argument about how much
money they need to go on doing the same amount of things. They
have a bigger point which is whether it is really right that the
World Service should be confined to the short wave radio section
of a wide multi-media spectrum. Now, the rubric of our Vote, the
ambit of our Vote only permits us to pay grant-in-aid to the BBC
World Service for radio broadcasting. I am not sure that is right.
I think looking down the years short wave radio is probably going
to be an area that shrinks. I think that on-line and television
are areas that will expand, so I think there is a bigger question
lurking around here which needs to be addressed in relation to
the World Service. We cannot pay them at present, with the ambit
of our Vote as it is, to do television. It is quite a big question
and my answer is in principle that there is nothing wrong with
changing the ambit of the Vote to permit us to pay money to the
BBC which would be used for wider purposes, like television and
on-line, but whether we pay them more money, I do not know.
Chairman
406. Mr Arthur, do you want to add anything?
(Mr Arthur) Simply, Chairman, just to say that
in their vision of the future, as Sir John has mentioned, the
BBC see digital, technology on-line, and television as very important
elements. They would also like to do a second English language
channel. We have been in discussion of course first with them
and now with the Treasury in the final stages of the Comprehensive
Spending Review, and in all the areas, except for television where,
for reasons we have just given, it is not possible, we have taken
up their cause and are trying to secure the funding that they
would like. So I can reassure the Committee on that.
Mrs Bottomley
407. Well, Sir John is absolutely right
about his response to the question. The listener is anyway becoming
much more discriminating with respect to higher standards and
there will be the move towards television. I suppose the difficulty
or the dilemma is to be sure that there is an alternative means
of funding for accepting an inadequate public expenditure commitment
because to accept an inadequate sum on the basis that it should
be possible to work something out might cause difficulties.
(Sir John Kerr) Well, I totally agree with that,
but I think there should be no question of anybody accepting inadequate
sums. The best way of ensuring that the BBC World Service gets
a satisfactorily high grant-in-aid will be to ensure that the
Foreign Office Vote as a whole is satisfactorily high.
Mr Ross
408. Sir John, can I just say again that
we have just now come back from a tour of the Middle East, Africa
and Asia and I would just say on behalf of those of us who were
in the Middle East and the Gulf that the services that we received
and the support that we received from the Embassies and Consulates-General
was absolutely excellent.
(Sir John Kerr) Thank you very much, Mr Ross.
Thank you for saying that.
409. It made the actual exercise we were
involved in much easier. The BBC World Service is one of those
issues which you tamper with at your own peril. It is one of the
manifesto commitments that the last Government actually had when
it referred to the BBC World Service, the British Council, and
the organisation which I chair, the Westminster Foundation for
Democracy, and we certainly see those things as being very important.
Like Mrs Bottomley, I will not talk about my own organisation,
but I think the BBC World Service's case that they presented to
the Committee about widening, as you have rightly identified,
on to on-line and the digital services and also FM are very important.
If it was felt that we were not able to give them the increase
plus 1.5 per cent, I think that there would be a fairly substantial
reaction from both sides of the House and from all political parties
in the House and I think you just need to be aware of that. I
know that most of the organisations probably did receive an increase
in real terms in their grant-in-aid or whatever last year, but
I think that we want to ensure that if the Treasury are a bit
harder on you than you perhaps hope they might be, you are aware
that there are defenders of those organisations in this Parliament
who would be looking very, very closely at how the BBC World Service
and the British Council end up.
(Sir John Kerr) Thank you, Mr Ross. I pay tribute
to the work of the Council and I, like Mrs Bottomley, am on its
board. I greatly admire the work of the World Service and I also
admire the work of the Westminster Foundation, Mr Ross, though
whether the BBC World Service will be quite as fortunate as the
Westminster Foundation has been in achieving increases of its
funding from £1 million in 1992 to £3 million in 1997
and 1998/99, I do not know. You have done extremely well, Mr Ross.
Mr Illsley
410. I take on board everything you say
about competing priorities, but the case put to us by the World
Service was that between 1999 and the year 2002, they would require
£25 million over those three years. My understanding is that
they have put figures in to the Foreign Office reflecting their
business case which was based on exactly what you said, an increase
in on-line services, digital services and FM radio transmissions,
and they put to us that they were fearful that perhaps the Foreign
Office input into the Comprehensive Spending Review used figures
which were much less than those put forward by the World Service,
ie, the £25 million, which was £9.7 million this next
year followed by £8.8 million and £7.7 million. Is there
a misunderstanding on the part of the World Service that they
cannot have funding for those services and did the Foreign Office
reduce the £25 million that they suggested should go into
the CSR on that basis, in that on-line services, on which the
World Service is obviously basing its future, are not payable
under the particular Vote that you mentioned, the Foreign Office
Vote?
(Sir John Kerr) We did two things. First, we put
forward a bid in relation to all the things that we are allowed
to do, ie, radio, and, second, we raised the issue, which I raised
with the Committee, in terms which made it clear that we think
that actually there is a case for their moving into the areas
of television, digital and on-line. That was not a quantified
case, that second one. That was not quantified. Michael, do you
want to add to that?
(Mr Arthur) Just one extra element, if I may,
Chairman, which is that part of the case we are making for the
World Service is the replacement of the Oman transmitter, which
is very important. It is a self-contained problem, but it is something
which is crucial for their future broadcasting to all parts further
East from Oman. We are, in addition to the list that you mentioned,
also trying to secure additional funding for that.
Mr Rowlands
411. The British Council, the BBC World
Service, the Diplomatic Corps, commercial work, conflict resolution,
the whole burden of your evidence this morning, Sir John, has
been that the FCO budget cannot take any more cuts. Is that the
simple message you want to leave with this Committee?
(Sir John Kerr) It is the case, Mr Rowlands, that
if we were to have a cut in our money, we would have to have a
cut in our Posts. We would have to reduce the numbers of Posts
which I would be very sad to see, as I have explained. I do think
that we need to be thickening up our Posts rather than getting
rid of them.
412. I am just trying to test the sort of
strength of your language. What state has the FCO budget reached?
Is it parlous, is it serious, is it copable with, but, nevertheless,
undesirable? What adjective are you going to use about the budget
as it stands?
(Sir John Kerr) I would say that the orange has
been squeezed now for 20 years and you can hear the pips squeaking.
Mr Illsley
413. Do you have any contingency plans or
priorities for closure? Are you actually looking at that now or
are you so hopeful that you will be able to retain them?
(Sir John Kerr) I hope we will not be in that
territory. The answer to the question is yes, clearly we have
to make contingency plans, but I really hope we will not be in
that territory.
Mr Godman
414. Just on the question of cost-cutting,
what about this question of the Embassy in Moscow where, according
to the figures I have, the original current cost estimates for
this new Embassy are given as £81.3 million? I think that
is more than the cost of the new Scottish Parliament. I am not
going to be a member of it, I hasten to add!
(Sir John Kerr) I am a Glasgow man, not an Edinburgh
man, but I do not think the security risks are quite as high even
in Edinburgh.
Mr Godman: You would
say that, would you not!
Sir John Stanley: Sir
John, like other Members of the Committee, I was very struck by
the figures you gave in the earlier part of your session indicating
the very small number of UK-based personnel that we have in some
of our overseas diplomatic Posts compared to those of comparable
competitors, and you particularly mentioned the figures for French
and German posts. As you know, the predecessor Committee to this
carried out a similar exercise when it visited Latin America in
the last Parliament and came to a similar conclusion. Would you
consider, when your Department produces its next annual report,
taking this particular statistical exercise much further and more
comprehensively than it has been done so far and make public,
as far as you can, the comparison of the finances and UK-based
personnel that we are providing for our overseas posts around
the world alongside the best figures that you are able to obtain
for countries such as France and Germany? I think this would be
of immense value to this Committee and indeed to the House generally.
Chairman
415. Will you consider that?
(Sir John Kerr) Thank you very much, Sir John.
I am very happy to consider that. Personally I agree with you,
I support the idea, but I add two more examples. You spoke about
Latin America and I did read the report. There was, in my view,
a mistake made when we thinned out in Latin America in order to
find people to put up the little Posts in the ex-Soviet Union.
I think we probably made a mistake. I think if you look at the
Export Forum's choice of target markets, they are quite right
to have Brazil up in lights as one of our top ten markets. Brazil
is a place where we have a 2½ per cent share of the market.
Brazil is a place where the Germans have 8 per cent of the market,
and I cannot explain that. Brazil is a place where the economy
is going to grow at 4 per cent a year and Brazil, if that happens,
is going to be the same size as the British economy and the Italian
economy within 20 years. We are very light on the ground in Brazil
and particularly for export promotion. We have got to try and
do something about it. The second example I would quote is an
Eastern European example, and here I am thinking particularly
of the countries that will join the European Union and within
five or six years, or less, I hope, will be voting on our laws
in the Council of the European Union. We have good Posts in places
like Prague and Warsaw and Budapest, very good Posts, but they
are Posts that were basically tailored to an era of COMECON and
the Warsaw Pact. We are very good at marking foreign ministries,
extremely good at marking defence ministries, the Prime Ministers'
offices, but we are not so good yet at the environment ministry
or the industry ministry, the ministry of widgets, yet standards
for European widgets will be determined with these guys voting
on them very shortly. If you take Prague, we have in Prague, I
think, 19 staff, the French have 41 and the Germans have 43. It
is worse if you go to places like Tallinn or Ljubljana. These
are two countries which will be in the European Union, I predict,
within four, five, six years. We have four staff in Tallinn and
three staff in Ljubljana, yet they will be voting. They will be
voting with votes rather similar in number to the number of votes
the Irish have and the Danes have in the Council of the European
Union, so we really need to build up our Embassies in the applicant
countries. It applies to some extent to applicants to NATO as
well, but particularly to applicants to the European Union. I
worry about whether we are being sufficiently proactive, making
the new contacts, because the standards for widgets that they
think of in these widgets ministries in these capitals may very
well be German standards, which may not suit us very well.
Mrs Bottomley
416. It is clear, Sir John, that an extremely
difficult choice is being faced and it sounds as though you are
paring back in many areas from extremely important work and difficulties
with the priorities, so I wondered what are the numbers and the
total budget of staff in ministers' private offices.
(Sir John Kerr) I have not a number in my head
for either, but small.
417. Is that a budget which is falling and
has there been any change in that budget?
(Mr Young) The average cost, taking all expenditure
into account of a private office, not the Secretary of State's
office because obviously the costs are higher, but of a minister
of state's office, is about £400,000 per annum per office.
418. Could the Committee have the information
on the cost of the staffing of all the ministers' private offices
and whether the budget and the numbers have changed in any way?
(Mr Young) Yes, I am sorry I am not in a position
to give you numbers about the trend.
Chairman: But you
can provide the information requested?
Mrs Bottomley
419. Also could we have any information
about the cost and numbers of special advisers? Has that changed
in any way or how many special advisers are there, to start with?
(Sir John Kerr) The numbers are two special advisers
and I cannot remember how many there were when the last Government
was in, but I think it was two.
Chairman: Two and
two.
