House of Commons - Foreign Affairs

Select Committee on Foreign Affairs First Report

OTHER SCRUTINY ACTIVITIES

40. During 2004, we raised a number of questions concerning the FCO's expenditure and resources. Of these, we have chosen to highlight two: 'Asset recycling'; and the cost of operations in Iraq.

'ASSET RECYCLING'

41. The sale of FCO buildings and land abroad in order to raise funds for expenditure on a range of purchases and services—not limited to real estate—is called by the FCO 'asset recycling'. We have for some years looked closely at this policy and found it wanting in several respects: most notably, that appreciating assets were being sold and, all too often, the proceeds were being invested in heavily depreciating assets, such as computers.[26] In 2004, a new twist came to our attention, when we investigated the sales of the New York and Dublin residences.

42. Our Report concluded that both these sales had been badly mishandled. In the case of the residence of the Ambassador to Ireland, we pointed out that the curious decision to sell the residence and its grounds, to purchase what turned out to be an unsuitable replacement residence, and then to repurchase the original residence, had meant that a potential gain of £4 million had been lost.[27] The FCO conceded this point, but otherwise defended its overall handling of the matter. However, in November, a Report by the National Audit Office concluded that the FCO embarked on the sale of the original residence without real knowledge of the likelihood of being able to find the kind of replacement that it wished to purchase, and that the purchase of a new residence should not have gone ahead without a full survey of the general condition of the property.[28] We trust that the FCO will be studying the NAO Report carefully.

43. The FCO also made mistakes in its purchase of a new residence for the Consul-General in New York, where an expected seven-figure profit turned into a loss of £380,000. In this case, we concluded that the FCO's action in proceeding with the purchase of a new residence in adverse market circumstances and with the dollar weakening against the pound was "reprehensible".[29] The FCO acknowledged that "In retrospect and with the benefit of hindsight it would have been better not to exchange contracts."[30] It told us that it has tightened its procedures in the light of the experiences in Dublin and New York. We welcome these changes, and will monitor their implementation.

THE COST OF OPERATIONS IN IRAQ

44. Also in our Report on the FCO's Annual Report for 2003-04, we noted that the FCO is carrying significant extra costs arising from its expanded operation in Iraq.[31] In its response, the FCO told us that "To date HM Treasury has responded favourably to our reserve claims for additional resources for Iraq. We agree with the Committee that HM Treasury should continue to meet such claims, given the unique nature of our activities there involving numerous departments across government."[32] The point made by the FCO in its response is an important one: the FCO is effectively the delivery service for a wide range of the Government's policies in Iraq and it is entirely appropriate that the large proportion of its activities there which are additional to its mainstream diplomatic and consular roles should be funded from the reserve.

WINTER SUPPLEMENTARY ESTIMATE

45. At the end of 2004, we wrote to the FCO, asking for further information on the Winter Supplementary Estimate submitted to the House on 15 November, in which it sought additional funds for FCO operations in Afghanistan and Sub-Saharan Africa, as well as for restructuring costs such as early retirement of some senior staff. Our work in this area has been assisted by the Scrutiny Unit of the Committee Office, a central resource which is available to all select committees, providing them with specialist services such as analysis of expenditure and revenue data.

Scrutiny of the Foreign Office's associated public bodies

46. The two principal associated public bodies of the FCO are the British Council and the BBC World Service. We often comment on the work of one or both of these bodies in the course of our work on specific foreign policy issues,[33] but we also ensure that we scrutinise their overall finance and operations as part of our annual inquiry into the FCO's Departmental Report.

47. In our Report on the FCO's Departmental Report for 2003-04, we commented on several aspects of the British Council's work. For example, when visiting Moscow, we had discussed with the British Council Director there and with senior Russian officials the Russian taxation authorities' heavy-handed attempts to impose taxes on the Council's cultural and educational activities across Russia.[34] This dispute remains unresolved.

48. We have also noticed with concern the increasing tendency to remove United Kingdom branding from the Council's offices overseas, particularly the failure to use the very strong brand image of the Union Flag. We concluded in our Report on the FCO Annual Report that the British Council was in danger of repeating the mistake made by British Airways some years ago, when as part of its attempt to re-brand itself as a world airline it misguidedly dropped the flag from its livery.[35] We were also unimpressed by the new Council logo, consisting of four dots. Defending the logo, the FCO told us that the four dots meet a requirement for a logo which is "contemporary" and "modern" and which "attracts attention".[36] However, the four dots could just as well be the logo of an international banking corporation, or a manufacturer of microchips; they do not stand for anything distinctively British or cultural. We remain disappointed that the British Council is not projecting its Britishness.

49. In relation to both the British Council and the BBC World Service, we have sought assurances for some years that the ring-fencing of government financial support is not under threat from the Treasury. We were therefore pleased to be reassured by the FCO that there is no current threat to ring-fencing.[37] We will remain vigilant on this point.

Scrutiny of major appointments

50. We have yet to carry out our intention of scrutinising any major diplomatic or consular appointment of a person from outside the diplomatic service. We have noted the Government's announcement of its intention to appoint our colleague, Mrs Helen Liddell MP, to be the United Kingdom's High Commissioner in Australia, if it wins the next election.[38] We have also noted the Secretary of State's announcement in relation to the United Kingdom's representation to the Holy See that the FCO will "widen the pool of potential candidates as ambassador to beyond the FCO when we look for a successor to the present incumbent next summer."[39] If either of these appointments is made after a general election, we trust that our successors in the next Parliament will wish to consider it.

26 See, for example, HC, 2003-04, 220, paras 46-48 Back

27 HC, 2003-04, 745, para 89 Back

28 FCO Resource Accounts 2003-04, Report of the Comptroller and Auditor General to the House of Commons, Rationalisation of the Glencairn Estate, Dublin, HC, 2003-04, 1088, pp 48-49 Back

29 HC, 2003-04, 745, para 91 Back

30 Cm 6415, p7 Back

31 HC, 2003-04, 745, para 31 Back

32 Cm 6415, p2 Back

33 For example, South Africa (see paras 22 - 24 above) Back

34 HC, 2003-04, 745, para 197 Back

35 HC, 2003-04, 745, para 206 Back