House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Second Report

5 Diplomatic representation overseas

110. The FCO's Public Service Agreement 9 target requires it to provide "effective advice on, support for, and delivery of Government objectives through a viable and responsive network of diplomatic posts."[155] In its Departmental Report for 2004-05, the FCO explains that it "has been reorganising to deliver the priorities […] including closing eight sovereign and ten subordinate posts."[156] It is not clear, however, that this programme of closures has any particular rationale, beyond saving resources. The increased representation in some of the new EU member states, for example, is arguably less important given the EU single market and the number of decisions now taken in Brussels; whereas closures of Posts in small, relatively distant Commonwealth countries where a modest effort may generate a substantial diplomatic or trade return could incur real political and economic costs.

111. Our predecessors in the last Parliament pointed this out in their Report on the FCO's Departmental Report 2003-04. They recommended that wherever possible the FCO should maintain its wide-reaching network of Posts.[157] The FCO agreed that "The network is our greatest asset."[158] Sir Michael Jay also reminded us that "over the last seven years or so, [the FCO has] opened 29 posts and closed 25."[159] This is, as he pointed out, "a reflection of shifting priorities." However, the latest announcements appear to reflect not so much a shifting of geographical or diplomatic priorities as a cost-cutting measure. We have no doubt that, given the choice, the FCO would have preferred to retain its network of Posts.

112. The most recent announcement of changes in overseas representation was made by the Secretary of State in a Written Ministerial Statement on 11 October 2005.[160] The consolidated effect of these when taken together with the changes announced the previous December is as follows:

113. In its response to one of our written questions, the FCO confirmed that 35 UK-based diplomatic staff posts will be cut as the changes are implemented. These reductions are in addition to staff savings in the senior management structure previously agreed.[161] The financial savings are expected to be of the order of £6 million, not including property disposals, almost half of this from the closures or localisations in Europe.[162] The October 2005 statement shows that 23 Posts will be (in some cases, already have been) closed, nine will be downgraded and one will be opened. These changes, it seems to us, are somewhat more far-reaching than the "adjustments at the margins of the network" which we were assured in November 2004 were all that was expected.[163]

114. We are particularly concerned that a number of the affected Posts are in Commonwealth countries, with which the United Kingdom has had a long and particularly close association. These include closure of the High Commissions in Swaziland and in Lesotho, both of which are now covered from Pretoria, South Africa. Such Posts will be particularly missed.

115. We also received evidence that the closure of the British Embassy in Antananarivo last August[164] took place at a time when Madagascar was emerging from a long period of misrule, with aid and trade opportunities opening up. The world's second-biggest mining company, Rio Tinto, is reported as having written to the Foreign Secretary, expressing its disappointment at the closure of the Embassy.[165] According to The Times, the Chief Executive of another British prospecting company active in Madagascar, Jubilee Platinum, said that embassies "are like insurance—they don't matter until they matter."[166] A British visitor to Madagascar, Mr Thomas Rambaut, wrote to us to suggest that "The FCO have made a serious mistake in deciding to close the British Embassy in Antananarivo" and pointed out that the decision appears to be at odds with the Prime Minister's declaration of 2005 as the Year of Africa.[167] To these voices were added those of many eminent politicians—including the former Chairman of this Committee, Lord Anderson—Africa specialists, naturalists and others in a letter to The Times on 22 December 2005, calling on the Government to reverse the decision.[168]

116. We note that the FCO has taken a different approach in Liberia, where a full-time presence has been maintained by locating the sole United Kingdom-based officer in the US Embassy in Monrovia.[169] In the Departmental Report for 2004-05, the FCO explains under the heading 'Alternative representation overseas' how it seeks efficiency savings by, "wherever appropriate", sharing accommodation with an ally.[170] Although this arrangement is not ideal, we believe that there are circumstances in which it makes good sense to co-locate, for example in countries where the United Kingdom has interests but they are not on a scale or of an importance sufficient to justify a free-standing Post, or where security considerations mean that it is impractical to maintain a separate Embassy. We were surprised that, given the Departmental Report's endorsement of 'alternative representation' as a means of maintaining a diplomatic presence, co-location was not the preferred solution in respect of some of the other Posts which are being closed. We therefore asked the FCO what consideration had been given to this possibility.

117. Sir Michael Jay replied that the FCO had indeed considered co-location, either by having an 'implant' in another country's embassy (as in Liberia) or by sharing premises (as is the case in a number of countries).[171] Unfortunately, co-location did not prove to be a viable option in any of the cases this time. Sir Michael told us that the factors which determined this included a lack of opportunity (presumably, lack of a suitable partner or premises) and lack of potential for savings to be made. However, we note that since Sir Michael sent his reply, co-location has been chosen—on security grounds—as the preferred option for continued representation in Abidjan, Côte d'Ivoire.[172]

118. We conclude that although co-location of a British sovereign Post with or within the post of another country is in general undesirable, it is almost always likely to be preferable to outright closure. We recommend that the FCO consider very carefully the case for co-location when adjusting its international priorities or when looking to achieve financial savings from its overseas operations.

119. The Foreign Affairs Committee in the last Parliament recommended on more than one occasion the establishment of a United Kingdom-staffed Post in Podgorica, the capital of Montenegro. This recommendation was most recently re-stated in the Committee's Report of February 2005 on the Western Balkans, when we drew attention to the likelihood that Montenegro will gain independence from Serbia.[173] We raised this again when Sir Michael Jay appeared before us last October.[174] In a subsequent letter, Sir Michael told us that "The Committee's views will be given full weight" in the FCO's deliberations on the future status of the Post in Podgorica.[175] We conclude that the forthcoming referendum on Montenegro is likely to add to the case for the FCO to upgrade its Post in Podgorica to one headed by its own British Ambassador and appropriately staffed, and we recommend that this be done without further delay.

120. Our predecessors also consistently made the case for a full-time Post to be established in Bishkek, Kyrgyzstan, a friendly country which by the standards of its region has made some progress towards democracy.[176] The absence of a British Ambassador in Kyrgyzstan's capital, Bishkek, causes hurt and dismay among that country's body politic and among those with whom the United Kingdom has a considerable interest in fostering closer relationships. The duties of Ambassador to Kyrgyzstan fall to the British Ambassador to Kazakhstan, some hundreds of miles away in Almaty. His responsibilities include representing British interests in an important and strategic country about the size of North West Europe. In addition, he is not based in that country's capital but some thousand miles distant from it, which inevitably places an additional representative burden on him. The Committee has repeatedly urged Sir Michael, personally, when he has appeared before us, about the need for a small embassy in Bishkek. He confirmed that the FCO would wish to open a permanently-staffed Post in Bishkek but that it does not presently feel this is a priority for the resources it has available.[177] Sir Michael undertook to keep this under review, which is a formulation often heard when something is kicked into the long grass. We recommend that the FCO make the opening of an Embassy in Bishkek a priority.

121. Regrettably, the British Council does not have an office in Kyrgyzstan either.

The overseas estate

122. Our predecessors in the last Parliament took a close interest in the FCO's programme of selling off embassy, consulate and high commission buildings overseas, known in the FCO as 'asset recycling'. In their final observations on this practice before the last general election, they reached the following conclusions:

[…] the "asset recycling scheme" has had a very serious impact on the Foreign Office's property portfolio, with valuable buildings that were appreciating in value being sacrificed on the altar of short-term Treasury-inspired targets. […] these sales have left the Foreign Office more at risk from fluctuations in the international property market and exchange rates, and may have significantly damaged the long-term financial strength of its estate.[

178

179

The Committee also criticised in very strong terms the FCO's refusal to publish details of its estate sales.[180] This practice was reversed, following pressure from the Committee. We now receive quarterly reports from the FCO, listing the properties that have been sold.

123. The FCO's overseas estate consists of some 4,300 properties, including embassy buildings and staff accommodation.[181] Of these, about 60% by value are owned and the remainder are leased. The highest proportion by value (over 70%) of owned assets as against leased assets is in Africa and the lowest (under half) is in Central and South America.[182] The value of each part of the overseas estate is calculated with reference to the value of buildings put to similar use in the vicinity. The FCO itself recognises this is "not ideal" and it therefore has an agreement with the Treasury to maintain an 'impairments reserve' to absorb the negative financial effects of revaluations.[183] This reserve has fluctuated from £198 million in 2000-01 to £20 million in 2004-05 and has been set at £50 million for 2007-08.[184]

124. The FCO's Estate Strategy Unit (ESU) administers 857 of its overseas buildings. The remainder, which are mostly staff accommodation, are managed directly by Posts.[185] In financial year 2004-05, the following disposals were made by the FCO:[186]

Total gross income from property sales in 2004-05 was thus £10,574,000. It is, of course, important to bear in mind that there are costs associated with property sales; the FCO estimates its transaction costs at about 6 to 8%.[187]

125. The Departmental Investment Strategy 2004-07 records that the ESU's estate sales or 'asset recycling' programme "has shifted into a lower gear. There are fewer under-performing properties to sell, and the reduction in the [Treasury's] Test Discount Rate from 6% to 3.5% has shifted the value for money in favour of owning property."[188] However, the FCO's Capital Plan for the period 2005-06 to 2007-08 projects a consistent annual income from estate sales of £10 million.[189] It appears from the Efficiency Technical Note published in November 2005 that £4 million of these receipts may be cashable.[190] The FCO intends that all of this income will be reinvested in the estate[191]—a list showing the considerable number of building and refurbishment projects overseas scheduled for financial years 2005-06 and 2006-07 was published in Hansard in December 2005.[192] The list includes a substantial sum for redevelopment of the estate in Warsaw, an increasingly important EU Post which a number of us visited recently.

126. The FCO has also developed an Estate Strategy for managing its home and overseas estate.[193] This strategy notes that "unless there are major changes of policy is respect of the nature and pattern of HMG's overseas representation, we judge that further large sales or other deals are unlikely. We note that high-profile sales can be difficult to carry through successfully, and can be controversial."[194] We welcome this statement, but we note that notwithstanding the new estate strategy the intention remains to dispose of not less than £10 million of assets overseas in each of the next three financial years. This will be a considerable sum to amass from small, low-profile sales.

127. We are therefore concerned to note that when the strategy refers to an unspecified number of "properties accepted as of special architectural or historical importance", including 40 residences, it suggests that the decision on whether to retain them may rest on a trade-off between the market value of the property and the "present importance of the country in question."[195] It is quite conceivable that the sale of a single historic property could deliver the FCO's entire 'asset recycling' requirement for a year or more. If the worth of the property is to be assessed on the basis of the "present importance" of the country in which it is situated, there is the danger that short-term priorities may prevail over long-term interests. The ESU has undertaken to consult Ministers on major decisions affecting the historic properties; it does not state whether these include Treasury Ministers.

128. We conclude that there is no clear basis for the FCO's projected receipts of £10 million from estate sales over the next three financial years. We recommend that in its response to this Report the FCO explain how it arrived at this projection, whether it regards the figure as a target, and if so how it expects to achieve it without "further large sales or other deals", particularly involving properties of special architectural or historical importance.

129. In last year's Report, our predecessors recorded their strong dissatisfaction with the FCO's handling of the sale of the residence of the Ambassador in Dublin—Glencairn—and the purchase of a new residence—Marley Grange—followed by the decision to retain the original residence, which left the newly-purchased property surplus to requirements.[196] The National Audit Office, too, reported its conclusions on this episode.

197

The FCO recognised that mistakes had been made, and undertook not to repeat them.[198] We sought an update on the position with respect to these properties and were told by the FCO that "it remains our intention to repurchase Glencairn […] Pending completion of the re-purchase, we have not marketed Marley Grange."[199] We asked for a further update when Sir Michael Jay appeared before the Committee in November 2005. Sir Michael wrote that "Work continues on the repurchase" of Glencairn, but that meanwhile the residence is occupied free of rent.[200]

130. The Foreign Affairs Committee has been paying close attention to the FCO's management of its overseas estate for some years now. Over that period, despite serious lapses such as the mishandled sale of the Dublin residence, we have begun to see some signs of improvement, particularly in the scope and quality of information presented to Parliament. We conclude that the provision of information on the FCO's management of its overseas estate has improved in recent years. We welcome the quarterly reports which the Committee now receives from FCO, and we will continue to scrutinise these and the policies which underlie them closely.

155 Foreign & Commonwealth Office, Foreign and Commonwealth Office Departmental Report 1 April 2004-31 March 2005, Cm 6533, June 2005, p 158 Back

156 Ibid Back

157 Foreign Affairs Committee, Eighth Report of Session 2003-04, Foreign and Commonwealth Office Annual Report 2003-04, HC 745, para 50 Back

158 Foreign & Commonwealth Office, Government Response to the Foreign Affairs Committee's Eighth Report: Foreign and Commonwealth Office Annual Report 2003-04, Cm 6415, November 2004, p 3 Back

159 Q 119 Back

160 HC Deb, 11 October 2005, col 22-23WS Back

161 Ev 7 Back

162 Ev 7; Q 60 Back

163 Foreign & Commonwealth Office, Government Response to the Foreign Affairs Committee's Eighth Report: Foreign and Commonwealth Office Annual Report 2003-04, Cm 6415, November 2004, p 3 Back

164 HC Deb, 19 January 2006, col 1534W Back

165 'Rio Tinto hits hout at closure of embassy', The Times, 10 September 2005, p 65 Back

166 Ibid Back