House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Twelfth Report

Finance Efficiency savings

89. The Annual Report records the Foreign Office's commitment to achieving efficiency savings of 3% per annum in 2003/4 and of 2.5% in 2004/5-2005/6, as agreed with HM Treasury in the two most recent Spending Reviews.[122] We commented on these savings targets in our Report on last year's Annual Report.[123] At that time we registered our wholehearted support for the FCO's aspiration of operating as efficiently as possible, but expressed our concern that the target might lead to "cutbacks" in real terms.[124]

90. Our concerns over the impact the efficiency savings are having on the Office's work have been heightened during the year. In April, the Office told us that:

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91. We raised the issue of whether efficiency targets were being achieved by genuine savings or real-term cuts in services with the Permanent Under-Secretary. He told us that at that time he was confident Directorates had not cut core activities but had "reviewed their activities in the light of their efficiency plans," and had, "identified activities which can be dropped without significantly jeopardising the desired outcomes."[126] However, he also told us that:

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This appears to confirm our fears that, if not at the present time, efficiency savings will in the near future effectively represent not savings but cuts in services.

92. We conclude that it is highly probable that in the very near future the efficiency savings agreed by the Foreign Office with HM Treasury will result in cuts in the core activities of the FCO. We recommend that in its response to this Report, the Foreign Office set out how it intends to ensure that the efficiency savings it has been set do not damage its core activities and state whether it will be seeking to re-negotiate these targets prior to the next Spending Review.

Impact of Iraq

93. One of the "highlights of 2002-03" referred to by the Annual Report is the Foreign Office's work in relation to Iraq.[128] The FCO has naturally played a crucial role in all aspects of the pre- and post-conflict situation in Iraq, for example in its work at the UN, and this is reflected in several chapters of the Report. We have inquired into the detail of the Office's work in this area elsewhere, and recorded our support for the highly commendable role played by its staff throughout the crisis.[129]

94. However, the additional expenditure incurred as a result of the work arising from the Iraq crisis, has inevitably created severe strains on the Office's financial resources. We were told, for example, that the FCO had had to redeploy five per cent of its London staff into Emergency Units to cope with the demands of the conflict.[130] The cost of establishing new diplomatic missions in Baghdad and Basra has also been, and will be, particularly significant.[131] The knock-on effect of this additional burden on the rest of the FCO's work was made clear to us.[132]

95. In situations such as this, where a Department faces an unprecedented drain on its resources that it cannot meet from its agreed expenditure limits, it is usual for it to make a claim on HM Treasury's 'contingency fund.'[133] When we asked Mr Gass about this, we were told that the Office had indeed made such a bid to cover some of the pre-conflict costs but that the Treasury had, "met the claim in part, but not in full, and therefore we were left with a sum which was unfunded."[134]He also told us that a similar bid was being prepared to cover the extra costs incurred in this financial year. The FCO subsequently confirmed that the bid would be in the region of £20-23 million.[135] We presume, however, that it is far from certain that this bid will be met in full either.

96. We conclude that the Foreign Office has performed extremely well in coping with the demands presented by the conflict in Iraq. We find it perverse, however, that in organisational terms as a consequence of its success, the FCO should have to cut core activities elsewhere to meet the additional burdens it has encountered. We recommend that the Government meet the claim on the contingency fund prepared by the Foreign Office in full.

FCO resourcing

97. Throughout this Report, we have noted a number of instances where the good work of the Foreign Office is being severely undermined by a fundamental lack of resources—the closure of posts overseas, limits in the Global Opportunities Fund budget, the impact of the efficiency savings and so on. We frequently come across other examples in our regular scrutiny of the Office and its associated agencies.[136] It is clear that the Office, and its senior management in particular, are determined to gain the maximum possible benefit from the financial allocation they do have and to secure the greatest possible efficiencies in its work.

98. We applaud this stringent approach to the use of taxpayers' money. We are also well aware of the pressure to limit public expenditure that all governments face, and the hard decisions that this inevitably forces upon them. There can be no doubt, though, of the benefit that a well-conducted foreign policy brings to the UK. The terrible terrorist atrocities we have witnessed in the last few years illustrate vividly how global events affect all of us, however remote they may initially seem. This changing world environment inevitably places greater pressures and expectations on the work of the Foreign Office, which has seen increasing demand for all aspects of its work—export promotion, entry clearance, conflict prevention, travel advice, the promotion of inter-cultural understanding and so on. It is our inescapable conclusion that for the Office to maintain its standards in all these areas and meet the fresh challenges that regularly arise, there has to be a fundamental increase in the resources available to it.

99. We conclude that the Government must increase the allocation of resources available to the Foreign Office in the near future if it is to avoid doing lasting damage to the good work the FCO is doing in so many fields. Asset recycling, efficiency savings and continuous re-prioritisations can only go so far in meeting the increasing demands arising from new global challenges such as Iraq upon the Foreign Office's already over-stretched budget.

122 Departmental Report 2003, p 23 Back

123 Foreign Affairs Committee, Twelfth Report of Session 2001-02, Foreign and Commonwealth Office Annual Report 2002, HC 826, paras 50-52 Back

124 Ibid., para 52 Back

125 Ev 35 Back

126 Ev 87, paras 7-8 Back

127 Ibid. Back

128 Departmental Report, pp 7-8 Back

129 For example, see: Foreign Affairs Committee, Tenth Report of Session 2002-03, Foreign Policy Aspects of the War against Terrorism, HC 405, paras 155-159. Back

130 Ev 84 Back

131 Ibid. Back

132 Q 49 (Jay) Back

133 "The Contingencies Fund is used to meet payments for urgent services in anticipation of Parliamentary provision for those services becoming available, and to provide funds required temporarily by any Government Department for necessary working balances, or to meet other temporary cash deficiencies." HM Treasury, Contingencies Fund Accounts 2000-01. Back