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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1371-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE Foreign Affairs Committee
Foreign and Commonwealth Office Annual Report 2005 - 2006
Wednesday 28 June 2006 SIR MICHAEL JAY GCMG, MR RICHARD STAGG CMG, MR RIC
TODD and Evidence heard in Public Questions 1 - 108
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Foreign Affairs Committee on Wednesday 28 June 2006 Members present Mike Gapes, in the Chair Mr Fabian Hamilton Mr John Horam Mr Eric Illsley Mr Paul Keetch Andrew Mackinlay Mr John Maples Mr Greg Pope Mr Ken Purchase Sir John Stanley Ms Gisela Stuart Richard Younger-Ross ________________ Witnesses: Sir Michael Jay GCMG, Permanent Under-Secretary, Mr Richard Stagg CMG, Director-General, Corporate Affairs, Mr Ric Todd, Director, Finance, Mr David Warren, Director, Human Resources, FCO, gave evidence. Q1 Chairman: Good afternoon, everybody. Sir Michael, can I welcome you and your colleagues to this Select Committee. I think this will be the last time you will appear before us. I would like to thank you for your co-operation with us over several years. Perhaps you could begin by introducing your colleagues and then we will start on the questioning. Before you do so, can I also say welcome to the Members of Parliament from Iraq and Australia who are watching us today. It is very good to see that we are an internationally-known committee and that you are so interested in our work, thank you very much. Sir Michael Jay: Thank you very much, Chairman. May I also, on behalf of the Foreign Office, say how glad we are that the Members of the Parliaments of Iraq and Australia are here, I think that is an excellent innovation. On my left is Mr Stagg who is the Director-General of Corporate Affairs, on his left is Mr Warren who is a Director of Human Relations and on my right is Mr Todd who is the Finance Director of the Foreign Office. Q2 Chairman: Thank you very much. Can I begin with questions about your co-operation with Parliament in terms of the degree of openness that there is with regard to information that is given to this House and to our Committee. Do you think that the current position is satisfactory and do we now have a policy of full openness? Sir Michael Jay: I do not think the position is satisfactory because I do not have the impression that the Committee think the system is satisfactory, and if you do not think it is satisfactory, it is not satisfactory. What I would like to do is talk through a little bit ways in which we might be able to make it more satisfactory. What we would say to begin with is that we very much value the relationship with this Committee, both at home and abroad. I have been very pleased when I have been abroad, particularly when I was ambassador in Paris, to receive the Committee many times for visits there. We have every interest in working closely with you. We also understand your terms of reference and your interests and try to keep up with what your interests are so that we can respond to those. In the last few months we have sent you a good deal of information covering a wide range of issues, some of which has been volunteered by us and some of which has been in response to requests and we would like to continue to do that. For example, I hope to be able to send you a report on our consular work in relation to the World Cup as soon as it is over and we have won! I do think, as I think does the Committee, that this needs to be put on a more systematic basis than it is at the moment. We have undertaken to put systems in place which will enable you to get information on a more systematic basis and in particular you should be able to see key management papers which are of interest to you because of your role in overseeing the management of the office. I hoped to be able to write to you on those lines before this hearing. That has not been possible because there have been a number of things which have been, inevitably and understandably, delayed by ministerial changes and the need for ministers to get to grips with a lot of new dossiers, but I hope to write to you soon on that. A couple of other things, if I may, I would like to say. First of all, we have to accept that there will be some limitations on what we can send you. In managing the Foreign Office, like managing any large and complex organisation, we are required to do a certain amount of things in confidence. We have to have regard to our duty of care to our staff and to operational efficiency so there are bound to be constraints on sharing information on, for example, individual staff issues, negotiations on pay, conditions of service and the consideration of some structural and management issues which would have an impact on staff. There are some issues of that kind, and I think this is also a point which is important it does seem to me which will become less sensitive over time so there may be a question here of sending you things as soon as we feel able to do so even if they are sensitive at a particular moment. I hope, as I say, that the new systematic approach will help but in preparing for this session I was thinking back over the last four or five years and wondering whether part of the problem that we have is that the annual departmental review exercise is a rather formal and cumbersome exercise. I know we have to continue with that, there are all sorts of reasons why we must continue to let you have the departmental review but I do wonder whether, for example, we could supplement that by letting you have, say once a quarter, a report for publication on the main management issues that have been at the top of our agenda in the previous three months so that we get away from looking at these things once a year. I would also like to offer further informal briefings to the Committee of the kind that we had last October which we found helpful and we would hope that you found helpful and if there are occasions in which you would like to do that, I know we would like to do that too. What I would hope is that arrangements of this kind might enable the Committee to get a more rounded and consistent view of some of the management challenges that we face which are very considerable and quite complicated and lead thereby to a more constructive relationship. I know that Peter Ricketts has been thinking on these lines as well and would, I think, hope to be able to develop a relationship along those same lines. I put those forward as ways in which I hope we might be able to get the relationship on to a more constructive basis because I think the answer to your question at the beginning is no. Q3 Chairman: Can I ask you how many times your board has met this year? Sir Michael Jay: The board meets every month except in August. It meets on the last Friday of every month. Q4 Chairman: How many reports or papers has it considered in that time? Sir Michael Jay: I cannot answer that off the top of my head but it would normally consider two or three papers for decision and two or three papers for information at every meeting. Q5 Chairman: How many of those have you sent or considered sending our Committee? Sir Michael Jay: Again, I cannot answer that without checking back but one of the issues in the correspondence or the letter, which I hope to be able to write to you shortly, will be on precisely this point, about which papers, whether they were board papers or not, we would be able to send you more proactively than we have in the past. Q6 Chairman: I understand, because your website lists some documents which have been mentioned as being considered, that you have had discussion on issues like policy on whistleblowers, top risks register, key performance reports, finance function review, review of performance and IT, freedom of information issues and capital underspend issues. We have not yet received any of those committees' papers before us and I raise it as an issue of the kind of things which we, as a Committee, are interested in and we would welcome access to information on those areas. Sir Michael Jay: I hope that we would be able to send you some of those papers and some of them would fall into the categories that I described earlier on of being sensitive, at least at the time, and would not necessarily be appropriate, certainly for publication. If, for example, they are dealing with issues which could affect the structure of the office, could affect people's jobs, could affect people overseas and their livelihoods, those are the sorts of things we would need to decide on first before it was right to share them outside those who were considering them. I would hope that we could send you some other papers of that kind but I would hope also that we could contribute to filling the gap that you clearly see by having, as I say, some kind of quarterly report of the big management issues that have been before us. Q7 Mr Keetch: Sir Michael, your relations with Parliament are not just about this Committee although they are, of course, principally about this Committee also about how you have relations with other Members of Parliament who serve and represent this Parliament abroad. I am specifically talking, for example, about the NATO Parliamentary Assembly which I am a member of, Sir John is a member of and the Chairman is a member of. Certainly when you compare the liaison that members of that international committee have with posts overseas for British embassies compared with other NATO countries, I have to say it is rather low. For example, last week three Members of this Parliament representing the three main parties were in Washington and San Francisco on a NATO Parliamentary Assembly visit, none of us was contacted by the British Embassy in Washington, none of us was advised on what the Government's, or your office's view was on a whole range of issues that we were discussing. I would suggest to you strongly that with those Members of Parliament who are on other committees representing this country abroad at international meetings and on other visits, you ought to liaise more closely with what there are doing and offer them advice and support because I will say to you, with all candour, that compared with other countries certainly in NATO, as I say, the amount of support that we get from our offices overseas is minimal compared with the amount of support that other countries in NATO get from their delegations. Sir Michael Jay: I will certainly look into that particular case. I am very surprised to hear what you say. I know certainly when I was in Paris we used to have very close links with the WEU Parliament Assembly and the British delegation to that on a regular basis and I would have expected that to be the norm elsewhere. I know the embassy in Washington has a very large number of select committees that visit it and it looks after those, as far as I am aware from the reports we get back from them, very satisfactorily. Let me look into the particular case. I entirely take the point that you make, Mr Keetch. Q8 Mr Illsley: Returning to this Committee, one of the areas where we have had clashes with the Foreign Office management and with ministers over the past ten years is when we have requested intelligence documentation. There has been a tendency over the last few years for successive ministers to make a ruling that intelligence information should only go to the Intelligence Committee and not to this Committee, despite the fact that we are a select committee and the Intelligence Committee reports directly to the Prime Minister. I wondered whether the board or the senior management had discussed this issue, whether maybe it is in your consciousness as to whether there is a tendency to move away from allowing us to see intelligence or whether you will give any advice to your successor for future discussions on this issue when he takes office? Sir Michael Jay: I do not think the board has discussed that issue. That is an issue that has been very much a minister's own view and own decision and I do not know what Mrs Beckett's view is on that issue. Q9 Chairman: Sir Michael, you mentioned your successor in your earlier remarks, Peter Ricketts, what advice would you give to him about how to deal with this Committee? Sir Michael Jay: To be as helpful as is consistent with the proper management of the Foreign Office. Q10 Mr Purchase: More importantly, has he asked you for advice? Sir Michael Jay: Yes, he has. I know he is looking forward and hopes to have a chance to meet members of the Committee informally before he meets you formally. I spoke to him yesterday before I appeared before you today. Chairman: I am sure he is watching us live on Parliament Live at this very moment. Q11 Mr Horam: Coming on to the question of the management of the Department, you had an employee engagement survey conducted by ORC International recently. It is commendable that you carried that out and I noticed that the results were a bit patchy. The good result was that a high proportion of the FCO staff said they had a good understanding of their role and were highly motivated, which is excellent but, on the other hand, the number who agree with the statement that the FCO as a whole is well managed was only 28 per cent as opposed to 38 per cent who thought it was not well managed. You also had a survey of the FCO board itself, as I understand it, in which less than half of the board members themselves agreed that the board is good at managing the FCO so there seems to be a problem at the perception of how the FCO is managed. Do you think there is a problem of the size that these two surveys indicate and how do you think it should be addressed? Sir Michael Jay: I think that the Foreign Office is better managed than it has been in a number of ways. I think, first of all, its purpose is clearer. I think the strategic priorities that we have developed over the last couple of years have given it a clearer focus and I think we have been better than we have been in the past at diverting our resources towards those priorities though we are not yet good enough at the allocation of resources, that is one of the things which comes out in all the various reports that we have. We are better integrated with other government departments in London, I think we work better with government departments than we have done in the past and I think another survey which we have had recently, the Stakeholder Survey, shows that. We are more adaptable and responsive as our consular response shows and we are better managed in the sense that we focus more on development and on training than we have done in the past. It is a good thing that the office at home and our overseas network have received investors in people accreditation in the last year or so which is an indication of a better managed organisation than has been the case in past. We have also been focusing more on collective leadership, which I am happy to come back to. There have been some marked improvements and those come out from the surveys that you have quoted, Mr Horam. I do not think we are there yet. This is not just a Foreign Office problem. We have had collective discussion among permanent secretaries about how we square the circle between the number of government departments in which people seem to feel they are doing a good job but do not feel that the leadership is of the quality that it should be, and I think this raises a problem for a number of us and I do not think we have quite got to the bottom of it. People feel that their line management is quite strong but the higher up you get, the less confidence people seem to have in the overall management. I think this is partly because we are operating at a time of change, people feel uncertain of the changes which are going on and they tend inevitably to see the leadership as responsible for the uncertainty they feel. The management is improving, it has got further to go and I take a good deal of comfort from the surveys that you have mentioned but I am also conscious that they provide me, the board of management and our successors with lessons to learn. Q12 Mr Horam: When you talk to your colleagues at permanent secretary level, what do you collectively feel is the nature of this problem? This clearly is a problem, you are acknowledging that, despite the improvements that have been made there is still a problem and perhaps it is a problem about managing the changes in their Civil Service lives or their Foreign Office lives. Sir Michael Jay: Our staff surveys show a number of things. They show that people have a very clear sense of how they fit into the organisation as a whole. I think that is a strong point and that is a result of the strategic focus we have given. They feel that they have a purpose, that they are contributing, I think that is a good thing. 91 per cent said they would go the extra mile if asked, which shows a degree of commitment to the Foreign Office which is admirable. Something else which I personally feel very pleased about is 74 per cent feel that they are secure and when you think of the nature of the world in which they live and the conditions in which they live around the world now, I think to have that proportion of people feeling secure is good. What they do not feel is that they are getting a clear rationale communicated to them for why things are changing. Q13 Mr Horam: What sort of things when you say "why things are changing"? Sir Michael Jay: Let me give you some examples. First of all, one example is the efficiency programme we have. Our efficiency programme, which was agreed as part of our spending round in 2004, requires us to reduce our staff and also reduce our support staff. That means reducing the HR operation, that means changing the HR operation, that means changing the support that people get around the world in managing their careers. Q14 Mr Horam: And people say, "Why is this necessary"? Sir Michael Jay: Why is this necessary? Why is there not the support mechanism that we have had and got used to?, that is one thing. Also, the nature of our business is changing. Quite a lot of parts of the world that people have to go to these days are not very nice, you cannot take your wife, you cannot take your partner or you cannot take your kids. That causes a degree of family dislocation, people wonder how that is going to affect their expected pattern of life in the future. There are a number of uncertainties about life which were not there, let us say, five or six years ago which are there now. We have not done enough to communicate clearly the rationale for change and what these changes, partly generated internally, partly because the world has changed, what that means for individuals. That is the challenge that we have. Q15 Mr Horam: You recently instituted this new body called the Senior Leadership Forum, is that part of your answer to this problem? Sir Michael Jay: It is part of my answer to the problem because one thing I have tried to do in the last few years is to get away from the sense that there was a leadership in London which was all of us sitting around this table who make a whole lot of decisions which affect people overseas who have nothing to do with it and that builds up an adversarial relationship between those of us in London and those of us abroad. Q16 Mr Horam: Is this leadership forum a decision-making body or is it a dialogue? Sir Michael Jay: The purpose behind it is to get a sense of collective leadership of the leadership in London and our senior ambassadors overseas so that they meet together to form a collective leadership which will then discuss and take decisions as necessary on how the office should be run. We get away from the sense of them and us and get a clearer sense of collective leadership. That has been going now for about - I think we have had three meetings, every six months - 18 months, we have got another one in a couple of weeks time. I believe that is proving genuinely useful in getting a sense of collective leadership for the organisation as a whole. It is new and it is positive and it is changing things. It is making our ambassadors abroad be part of the collective leadership and responsible for communicating the change to their people. Q17 Mr Horam: They have to buy into what you are doing. Sir Michael Jay: It is very difficult to do that communication sitting in London, however much you telephone, email and have video conferences. People on the spot want to hear this from their own managers and their own leaders and that means their own heads of mission and that is what we are trying to get across to people and through the leadership conference, which I know Mr Mackinlay and the Chairman came to the reception of afterwards in March. Q18 Andrew Mackinlay: I think that leadership conference, in fairness to you, is a very sensible and welcome innovation. Listening to you carefully, and I made a few notes of what you said, it does seem to me that you are in denial, Sir Michael. In the surveys which have been referred to by my colleague only 28 per cent of the staff agreed with the statement that the Foreign Office is well managed, another 34 per cent were neutral or ambivalent but 38 per cent were unfavourable, that is your staff and includes, presumably, some senior ambassadorial staff. You said it is improving, presumably it has come down from something like 45 per cent where it was unfavourable. Your own board, in their Executive Summary, said "The board leadership is undermined by perceived weaknesses in managing the organisation and delivering the strategic priorities as well as a lack of clarity about the relationship with ministers". There are two points here, one relates to your stewardship of this - and this is your valedictory appearance here - and the second point and I would like to take it separately - is very interesting as well a lack of clarity about the relationship with ministers. There seems to be a problem which you might amplify upon but can we come to the second point in a moment. What about the first point because it does seem to me that if you are in private industry or any other public sector organisation, 38 per cent of your staff today say that things are unfavourable as regards their perception of leadership, I would be extremely worried. Sir Michael Jay: Clearly, there are lessons we need to learn from this, but you are picking out one or two figures from a survey which has a great deal in it, as I said earlier on, which is very positive. Overall, I take comfort from these reports, whether it is the Stakeholder Survey, the board report, or a separate survey we had of the new board structures or the staff survey because I think they do show, if you look at the trends, an improvement. They also show that it is difficult and complex to manage an organisation at a time of change. As I was saying earlier on, I do not think we have got that right. I believe that the Foreign Office is better managed than it was, I think it is on an upward trend. It is an extremely difficult job to do and I know there is a lot the board of management, I and my successor will have to do in the future. Q19 Andrew Mackinlay: What about this clarity of relationships with ministers, what is that all about? Sir Michael Jay: I do not know what that is about. Q20 Andrew Mackinlay: You do not know what it is about? I am quoting from the Executive Summary produced by the board of which you are a member. It was a straight quote, it was not me summarising. It says "Board leadership is undermined by perceived weaknesses in managing the organisation and delivering strategic priorities as well as a lack of clarity about the relationships with ministers", I did not put that, you put it. Sir Michael Jay: I did not myself put that, I did not tick that box when I filled in the form, which will not altogether surprise you, I suspect. That is referring clearly to a sense that there is a perception there which is, as that says, causing us some difficulties. That is clearly something which we need to address. Q21 Andrew Mackinlay: Can I come to Prism which is the technology relating to management information and accounts. I recently asked a parliamentary question, and I was told they were not able to answer it because it would cost too much and I think it related to businesses and small contractors not being paid by our missions because they could not pay them because Prism was not up and running which, as an aside I say, is rather disquieting because that information should be available and it is a very important issue to our missions who are embarrassed and contractors who are not being paid. I will return to that on another occasion. Can you give us a position statement this afternoon? Where is Prism not working? To what extent is it not working in geographical areas and in terms of what critical information is not available, such as I have cited? Sir Michael Jay: In a moment I will ask Mr Stagg who has been taking a very close interest in Prism to answer some of the detailed questions. Let me say that, as you know from the report which you have commented on from Norman Ling, first of all, Prism is extremely important, it is absolutely business critical that we have a proper management information system. It has been more complex than we thought it would be to roll out and we made some mistakes to start with and that was what Norman Ling's report showed and I think we have recovered from that. We now have Prism rolled out across the whole network so it is operating everywhere except in one or two posts where it is not feasible, and we are beginning to get the benefits from that. It is also operating in the United Kingdom and we are getting benefits from that. We are getting benefits in terms of greater efficiency in our operation and better management information. Where we still have problems, and I am conscious of this because they are raised with me each time I go abroad, is in the performance of Prism in a number of posts: it is too slow, it is too complicated and that we are working to address in order to speed it up because that is causing some difficulty for us. Overall, I think Prism started business critical, started badly, is going much better, is over budget but not by a huge amount, is delayed but not by a huge amount and is beginning to bring us real benefits. Perhaps I could ask Mr Stagg to answer some particular questions. Mr Stagg: Mr Mackinlay, on the question of the slow payment of bills, that is entirely right, during the process of moving from one system to the new system, there were glitches and posts did not have difficulties. I think it is fairly typical of these transitions that these things happen, we should not apologise for them, it is not unusual. As far as I am aware these things are working perfectly satisfactorily at posts. On the question of areas where it is not working, geographically it now is everywhere we want it to be because in some very small posts it does not make sense to provide such a complex system. In terms of the areas of the business, I think the only significant area where it is not working as it should as yet is in procurement where, I do not want to get too technical, we have not yet instituted a three-way match system in the UK to ensure that these ordering goods, authorising them and then receipting them are all properly sequenced. That has happened everywhere overseas already and we were going to introduce that in the UK from 1 October. That is an area which is not yet perfect but the present system is a lot better than it was before Prism came along when we had a very simple paper-based system. Q22 Andrew Mackinlay: On page 106 of the report there are five consultants, and perhaps you want to give us a note on this, but I notice Morson Human Resources is £2.1 million. Do you know what Morson do for us for £2.1 million? Sir Michael Jay: I think I know but I would rather write to you. Q23 Andrew Mackinlay: That is fine. Finally, I notice on the minutes of the board there is talk about compulsory early retirements for staff and I always bristle at this, because of my background as a trade union official, and also the abuse in the public sector of retirements, right across the public sector. I notice that it says here, "The board discussed applications for compulsory early retirements". That seems to me a contradiction in terms. You do not apply for having it, do you, it is something which is forced upon you. It suggests to me that there is a very attractive package for some of our staff who can get away, start a new career, start a second life. Whereas, in fact, in the interests of the public sector as a whole in terms of maintaining expensive qualified experienced staff, bearing in mind that your retirement age now rises to 65, which I think is right in every respect, why are we advertising saying, "Here, who wants to be compulsorily retired?" It does seem to me a nonsense. Sir Michael Jay: Because we have too many people, more people than we can afford to pay given our settlement, and we have a requirement under SR 2004 to reduce our staff by some 300 or so. Q24 Andrew Mackinlay: Turn the tap off. Sir Michael Jay: You can stop recruiting, in which case you very soon have an unbalanced structure. Q25 Andrew Mackinlay: As you would say. Sir Michael Jay: Or you can look at where the imbalances are in your existing structures and try to address that. What we concluded was that we had too many people at senior levels and the right thing to do was to offer people terms, which are the Cabinet Office terms, to take early retirement in order to reduce people from the top and also enable the extraordinary talent which there is in the organisation to move up through it. That was the rationale for the compulsory early retirement scheme. Q26 Andrew Mackinlay: Does it not occur to you that the public purse paying for these generous retirements is badly served in many cases? Of course, I was being slightly flip because I do understand we have got to have talent coming in, we want that for the next 20 or 30 years, but there is an abuse throughout the public sector, and I suggest it to you, of people being able to go too easily, suiting their purpose, often at senior level so it is often not extended to other people, and it should be reviewed. There should be a tighter grip and that people will have to stay longer and expect to serve to 65, and you adjust accordingly down the pyramid. Sir Michael Jay: You have a difficult choice to make and, as so often with these things, management is a question of difficult choices. Equally, you could argue, and I think I would argue, that it would be a waste of public money if you train up very able people, you equip them with expensive language skills, you send them to Beijing or Tokyo and then they look in their mid-30s and see that there is above them a kind of carapace through which they are not going to break because there are senior people who are going to stay there, and they leave. That also is a waste of public funds, so what one is trying to do is to get the balance right here and to have the right mix of skills, age and experience throughout the Office. Q27 Mr Purchase: It is a short question, but right at the beginning of this set of questions you said, if I recall it correctly now, that one of the important factors in the improvement of management had been a clearer sense of purpose in the Department. How can I understand that in recent terms or historical terms? What do you mean by that? Sir Michael Jay: What I mean is that the articulation of the strategic priorities as part of our strategy, which was launched in 2003 and then revised this year, has given the staff of the Foreign Office at home and abroad a clearer sense of what the purpose of the Foreign Office is. There are seven, eight or nine strategic priorities and people know they are working for that. When I was in Delhi recently, for example, and asked a member of our local staff, "What do you do?" she did not say, "I am an LU 1 in the commercial section" or whatever it was. She said, "I am working to deliver the strategic priority on ..." whatever it was. That is one of the reasons why I think there was a very strong answer to the question in the questionnaire, that a very high proportion of people feel they are contributing to the objectives of the organisation, and I do not think we have had that before. Q28 Mr Purchase: I am dismayed. I am literally dismayed that we have had a Foreign Office operating for a couple of centuries that has not been clear what its purpose is. You may dress it up in terms of modern management speak of strategic objectives, it means nothing to me. What does mean something to me is that people working on behalf of the British Government and the British people almost directly, and particularly overseas, did not have a clear sense of what the Foreign Office was for. I am absolutely dismayed. Sir Michael Jay: I think it is more complicated than that. I think there was a time probably 20 or 25 years ago when the role of the Foreign Office was much clearer than it had become, say, five or ten years ago when the nature of foreign policy was much clearer and when what foreign policy was was much clearer. Now it is less clear because we are living in an age of globalisation when Britain's external policy is as much about climate change, environment and economy as it is about the traditional security issues with which the Foreign Office has been concerned. We are also living in an age in which the services we deliver to our people, the consular services and visa services, are high up on our agenda. What we have needed to do is to respond through the strategic priorities with a set of focused priorities which our staff know in this rather complicated, confusing and difficult world are the ones which today's Foreign Office is focusing on. That is what we have given to them and that is what they appreciate. That shows and comes up in the survey. That is what I am saying, Mr Purchase, not that we have had 200 years without knowing what we were doing, but as the world has changed, so we have to change, and as we have to change, we have to give people a clearer sense of how they fit into this rather complex world. Q29 Ms Stuart: Can I follow up on this and try the same question but with a slightly different phrase. The world is changing, I accept that. Foreign policy is changing, I accept that, but we still require a definition of what our national interests are. Sir Michael Jay: Yes. Q30 Ms Stuart: If I were to go through this report, and say to you, "Could you please define for me what Britain's national interest in the European Union is?" could you give me an answer? Sir Michael Jay: What I would do would be to look at the strategic priorities. The report, which was launched at the end of 2003 and then revised in March, has a very clear section on the main objectives in the European Union along ---- Q31 Ms Stuart: No, not the main objectives, a definition of what Britain regards to be its national interest. I looked for that; I cannot find it anywhere. Sir Michael Jay: I would regard its national interest as being - I am afraid I have not got the strategy document in front of me - an effective, secure and prosperous Europe. I would need to check what the exact phrase is, but that is our national interest. The Foreign Office's role, through its embassies, its network overseas and through people here working with others, is to deliver that. Q32 Ms Stuart: But that is not a definition of the national interest. To have Europe prosperous is fine, that gives me the interest of the collective, but what is Britain's national interest? My contention is if I were to say to your French opposite number, "What are the French national interests within the European Union?" he could come up with a pretty sharp definition. Sir Michael Jay: Let me say two things to that, Ms Stuart. I think that building an effective and globally competitive European Union in a secure neighbourhood is a statement of Britain's national interest. I very carefully said the Foreign Office role is to deliver that along with others, but these strategic priorities were the result of a consultation with all other government departments, they were agreed in Cabinet, and they are, therefore, they are a statement of Britain's external foreign policy, but that is the policy which is our job to deliver. Q33 Mr Maples: Since this subject has been raised, I wonder if I could ask you a couple of questions about it. Your Annual Report has on the cover of it "The purpose of the FCO is to work in the UK interest for a safe, just and prosperous world". I think the first part of that sentence is a proper statement of the Foreign Office's purpose, that a safe, just and prosperous world is a hope and that is about it. I think that the strategic priorities you have set in the document published in March seem to me perfectly sensible. The foreword by the Foreign Secretary is all about values, whereas I think most of us would think the Foreign Office's job is mostly about interests. I realise that, of course, these things overlap and having the right values in place in some places serves our interest, but I do not think it always necessarily serves our interest to promote democracy, for instance, abroad, and we certainly decided it is not really a huge interest in Saudi Arabia to promote democracy. We have very close relations with a country which has got one of the worst human rights records in the world and we seem reasonably content with that because our interests are better served by having a good relationship with them than by worsening that relationship to promote our values. The Foreign Secretary's foreword in this document, in which you set out the nine strategic priorities - none of which I would disagree with at all, they all seem to be perfectly sensible subsets of what is the UK national interest - does go on an awful lot about democracy and see the world in which freedom and justice and opportunity thrive and all of that, and we then go on to get some rather more pragmatic objectives here. I wonder where is this balance between interests and values? It seems that the two most recent leaders of the Foreign Office bang on an awful lot about values and I hope the Foreign Office is getting on with our interests, but do you see a move in one direction or another here? Do you see any conflict between what you say on the front of your Annual Report and what the Foreign Secretary says in his introduction to the strategic priorities? Sir Michael Jay: I think the answer to that question is clearly no. Let me take the question of Saudi Arabia, which I think is a very interesting example. We do need to find the right balance between values and interests. Clearly, we have very considerable interests in Saudi Arabia and we have an excellent ambassador who is doing an extraordinarily good job in promoting them. I think it is also in our interests that there should be - and we have worked with the Saudi authorities on this and are doing so - a programme of reform in Saudi Arabia which moves in the direction of the values which are discussed in the document as well, so the difference between the interests and the values I think will vary from place to place and you clearly have to try and weigh those up. I do not think you would ever find the Foreign Office now saying that the interests are so important we will cast the values aside. What we were trying to do was to find the balance between them and that is not always easy. Q34 Mr Maples: When this Government came into office there was a lot of stuff about ethical foreign policy as though in some way values had never been part of the equation and they did seem to get most of the attention for a while. I wonder whether in the strategic priorities, the bit that was not written by the Foreign Secretary, we are not coming back to looking after our interests more pragmatically and certainly in some of those cases they involve promoting our values. This Committee took an interest in several British subjects who were tortured, or alleged they were tortured, and you know all about this because you paid for counsel to go to the court and help the Saudi Arabian Government with its case. Sir Michael Jay: Let us be very clear about that. That case was on a very important principle of law which was entirely independent of the relationship of torture and I think it is a great pity the two did get confused. Q35 Mr Maples: In that case at the end of the day the Foreign Office did help to get those people released. I do not know everything that went on behind the scenes, but it was certainly extreme that the Foreign Office was far less critical of the Saudi regime than we would have liked and I suspect that it would have been had this been some no-account country with no oil in north Africa, so are we seeing here an absolute conflict of the values and interests question? Sir Michael Jay: I think there are conflicts and there are tensions. I was very much involved in that particular case three years ago and there was a very single-minded objective which was to get the British detainees released and the judgment was how do you best achieve that? That sometimes requires you not to say things that you were doing because if you were to say things you were doing, that might set them back. That is a good example of the difficult issues we do face almost every day. Q36 Mr Maples: I point out that I detect a slight difference in tone between the Foreign Secretary's introduction and the strategic priorities, but I hope the strategic priorities are the things you are following. Could I switch to a different subject for one question. Last year we took up with you the difference between what other government departments did in requiring professional qualifications or relevant career experience in some of the corporate functions that you do. We identified finance, human resources and estates management. I think the reason we picked estates management was because the year before we had some trouble over a couple of bad property deals the Foreign Office had got itself into and the other area because we were surprised to find that the director of finance the year before was between diplomatic postings. We found almost every other government department did require relevant experience or qualifications in these fields and the Foreign Office did not seem to. We pointed that out in our report and in your reply you said, "We are recruiting a professionally qualified director of finance through open public competition, and shall do so for our next chief information officer. We will continue to do this with the directors of human resource and estates management when their terms of office come to an end". You then drew a trade-off, I think would be a fair way to say it, between the qualifications and experience that are necessary to do the job and the need to have people towards the top of the Foreign Office who have experience of different areas of its activity. It seems to me that the corporate world is moving away from that generalist approach, particularly in those areas. Nobody would suggest you took somebody from marketing and gave them a shot as finance director for a while so their experience was broader. I would suggest those are three areas, the ones we picked on, where generalists cannot hack it and certainly at the higher levels you really do need direct experience. I wonder if you can tell us what has happened on the director of finance and chief information officer and what you do expect to happen on the HR and estates management? I do not know when their terms of office are coming to an end. Sir Michael Jay: Let me tell you where we are on most of those. On the question of the finance director, we did have an open competition earlier this year for finance director and it did not result in somebody who I felt I could really wholeheartedly recommend to my successor as the right person to be the finance director, so we have relaunched that competition. What I very much hope is we will have a professionally qualified external finance director in place by the end of the year, which is the Treasury's deadline for doing that. Q37 Mr Maples: When they come from elsewhere within the public sector, you say from outside, might they come from some other public government department? Sir Michael Jay: This will be an open competition, so I hope very much they will come from the private sector and we get the benefit of private sector experience. Q38 Mr Maples: Would it be open to somebody with financial management experience in another government department? Sir Michael Jay: Yes, it will be an open competition, which means that applications can come from anywhere. Clearly I cannot commit my successor, but I would expect the next estates manager also to be a professional with professional experience recruited from outside. Since the last time I appeared before this Committee, we have appointed a director of FCO services which is a services arm in the process of an important transformation towards agency status from the outside world, I think from the commercial world. I would expect the next chief information officer, the head of our IT operation, to be, again, an expert professional recruited by open competition. I know this is a slightly different area, but we had an open competition for our legal adviser. We have an extremely experienced international lawyer as our legal adviser making a big impact. As far as the HR director is concerned, that is where I think we have to draw the balance between HR experience which is very deep in the Office. David Warren, our HR Director, is not himself an HR professional, but nearly everybody else in the organisation is. I think we have been very well served in a period of very difficult change in the HR function by having an HR director who knows, and is seen to know, the Office well. Q39 Mr Maples: Does the public sector as a whole not develop people in these specialisms? You talked about recruiting them from outside, from the private sector, does the public sector not recruit and train up financial managers who can move around from one department to the other or HR professionals who might be interested in the public bodies? Sir Michael Jay: Yes, it does. We do recruit people from other government departments. For a finance director, for example, we would be looking for somebody with the relevant kind of financial and accountancy experience from outside the public sector. That might be somebody who is now working in the public sector but will have had that outside experience. Chairman: We have a vote. Hopefully, there will be only one and we will only be gone for 15 minutes. The Committee suspended from 3.18pm to 3.38pm for a division in the House
Chairman: Can I switch the focus, Sir Michael, to our representation in other countries and bring in Fabian Hamilton to start. Q40 Mr Hamilton: Sir Michael, when you responded, I think when we did an equivalent session to this for the last report 2004-05, you said to us on being asked whether you had any further plans for closures of posts or embassies that there are, and I quote: "currently no plans for further post closures". I wonder what rebalancing you foresee in the global network as the strategic priorities set out in active diplomacy change and develop? How can we do that without further closures? Sir Michael Jay: You can do that partly by rebalancing the operations within posts so they focus more on the new priorities, for example having more people operating on climate change as a new priority than we have had in the past. That would be one way of doing it. I think I was probably talking about sovereign posts there. We do, of course, still have a number of consulates general, deputy high commissions, and there is an option open there to try to reduce some of our subordinate posts and to transfer the resources from them to the priorities elsewhere in the network. That would be another possibility. Of course, these are issues we are looking at now very actively in the context of the Comprehensive Spending Review on which there is likely to be, as I understand it, an initial report before the recess. Under that Comprehensive Spending Review we are looking at a zero-based review of certain aspects of our operations, including our European posts. The issue there is are there ways in which we could release resources from within our European network by more efficient working, for example, perhaps by outsourcing certain operations which are now done within missions or perhaps by transferring resources from subordinate posts to other parts of the network. That is something we are considering at the moment. Q41 Mr Hamilton: The quote I have got says that there are "currently no plans for further post closures". It does not mention particularly sovereign posts, but I accept what you say. Can I ask you about a specific post though, because I think it is of some relevance. Do you know when we are likely to have an ambassador in Podgorica? Sir Michael Jay: At the moment we have one local staff member, I think, in Podgorica and he is likely to be replaced by a small mission with one permanent UK-based diplomat as ambassador. I do not know exactly when that will be, but a decision has been taken to do that in view of a judgment of the importance of our relations with Montenegro as it becomes independent. The rationale for that is we have invested huge amounts of resources in peace and stability in the Balkans and believe that it would make sense in that context to have a small mission led by an ambassador in Podgorica and also that we would expect there to be a substantial number of British visitors as that becomes part of the Adriatic tourist zone, so we would expect there to be quite important consular activity there too. Q42 Mr Hamilton: So pretty soon? Sir Michael Jay: Pretty soon. I do not know exactly when. Q43 Mr Hamilton: Within the next 12 months? Sir Michael Jay: Yes, I would certainly expect so. Q44 Andrew Mackinlay: Twelve weeks or months? Sir Michael Jay: Months. Q45 Sir John Stanley: Sir Michael, can you tell us of any other embassy or high commission in the world which is staffed by one UK diplomat? Sir Michael Jay: I would have to have notice of that, but there certainly are some. Q46 Sir John Stanley: Could I ask, when our one diplomat goes on holiday, who takes charge of the embassy? Sir Michael Jay: He would be supported by local members of staff who would take charge of it, that would be the normal practice. This does happen. It would be great to be able to have more people there, but we have to limit our representation to the number of people we have got available. Clearly, that would be reviewed depending on the nature of the operation or the nature of the work there. That would be how we would start. Q47 Mr Hamilton: Clearly, we could probably spend the whole afternoon talking about representation, but I want to move on to talk about asset sales because this Committee, as you know, has taken a strong interest over the last few years, and certainly our predecessor committee in the last Parliament examined it very carefully and, indeed, had a special session, I think it was a sub-committee of the Foreign Affairs Committee, to look into the specific sales in San Francisco. You may remember that controversy. For example, by selling off part of the compound in Bangkok, I understand you achieved five years' worth of asset sales by that one sale. I do not know if that is true of not. Are you going to stop selling off some of the family silver? Sir Michael Jay: I am going to
ask Mr Stagg to answer some questions on this, if I may, Mr Stagg: As Michael says, the Treasury, going forward, is very focused on asset recycling across the public sector and it is a particular issue for us as the Foreign Office. They have proposed to us that the right figure should be £140 million in the case of the FCO estate. In terms of our historical asset recycling, the target set in the previous spending round will now come to an end because the Treasury, through this process of the Comprehensive Spending Review, added on a year to the last cycle effectively in which we do not have a new target. Our view is whatever target turns out to be agreed with the Treasury in due course, and we will have to have a target just like other government departments, that should include the money raised by selling off part of the compound in Bangkok which raised, as you know, in the order of £50 million. From our point of view, it was a very good sale to make at a good time. Estate professionals were saying to us it was a good moment to have sold and we managed to hedge the sale so as to add £2 million to the value we got against a declining currency at the time. I think that we are going to be able to get all we want on the site in Bangkok for our effective embassy operations and the bit we sold off was one that was, for us, the least valuable part of the compound, so I think it has been a quite a good outcome. Q48 Mr Hamilton: Can I put this to you, that very often you can decide the value of a particular asset in monetary terms, in local economic terms and what it will fetch in terms of bringing that kind of revenue in, but sometimes you cannot really attach a value to the prestige that site gives us within that country for this nation's representation. I am thinking of, for example, Cape Town. Cape Town is not the main residence, is it, Pretoria is the main residence? Cape Town is absolutely valuable because when we were there we saw that half the government came to events that the British High Commission organised. If you had any other site, you simply would not get not just the kind of prestige but the attendance from useful, important people that we need to connect to. I wondered whether you took any account of the prestige value to this country of the site itself rather than simply its financial value. Sir Michael Jay: Yes, we do, very much so, Mr Hamilton. There are one or two other examples at the moment of places where we have indeed decided that the right thing to do is to keep and develop a prestigious residence because it is clear that in the years ahead in a country that is really important to us that is going to be an asset of unquantifiable but real value. That is part of the equation, but there will nonetheless be times when we have to make a judgment, as in the case of Bangkok, that it is better to realise part of a compound and then to use that money for investment, say, in somewhere like Podgorica where we may need a new embassy and a new residence. Q49 Mr Keetch: Sir Michael, can I turn to consular services because you mentioned earlier changes in the last five or ten years on foreign policy and Britain's interests. There has also been a step change in British travel overseas. It is now common for people to take gap years, which certainly when I was around we did not do, and people are travelling more and more and more, and in a dangerous world that is clearly making them more at risk from harm. Do you think that sometimes British citizens overseas have an unrealistic expectation of the kind of support that they may get or, indeed, their families back home might get when they run into trouble which perhaps they themselves should have been more aware of and more prepared to deal with? Sir Michael Jay: I think sometimes they do, yes. Let me say first of all that you are absolutely right, the nature of the operation in which we in the Foreign Office are engaged now has changed markedly over the last few years. There are now 65 million visits a year by British citizens and a proportion of those are bound to get into trouble and get into difficulties and will indeed require and deserve, and we are very keen to give them, our support. Then, of course, there are the terrorist attacks, the hurricanes, the natural disasters, which can strike at any moment and cause real difficulties for British citizens overseas. The nature of the operation has changed and we have responded over the last few years in order to meet that. I do think that there has been a risk of excessive expectations. It was against that background that the last Foreign Secretary published a guide called Support for British Nationals, which was a guide which was published on 21 March which was the first time the government had set out comprehensively what citizens can expect from consular services overseas, but also what they should not expect from consular services overseas, otherwise there was a risk of unrealistic and unrealisable expectations which would then cause people inevitably to be disappointed. That was as a result of very wide consultation, including with this Committee, and I think it has been a very valuable document. Q50 Mr Keetch: I certainly welcome that, and the Committee welcomed it at the time. There is clearly a difference between what you might expect to occur to you on your travels and an event, for example, like Hurricane Katrina or, indeed, the Tsunami or, indeed, a terrorist attack. There was some criticism of FCO officials after both Katrina and the Tsunami. When dealing with an incident like that where you have to bring people in from other posts to deal with a mass incident as opposed to an individual incident, do you think you are in a better position now to respond to an event like that than you were perhaps before those tragic events? Sir Michael Jay: Yes, I do. First of all, let me say that I think the criticism, particularly after Katrina, was wholly unjustified, and I want to put that on the record because I think our people did an extraordinarily good job in helping people after Katrina. It was very clear to us immediately after that hurricane season that we needed to change the way in which we responded in particular to hurricanes. What we have done, therefore, is to extend the concept of rapid deployment teams. We have a rapid deployment team now in the United States which will be able to go immediately to a likely hurricane zone, whether in the United States, the Caribbean or Mexico, so that we can get people pre-positioned more quickly earlier and make known that they are there in order to respond more effectively than we were able to last time. We are better placed to do that. I know this has come up in this Committee before, and I know Sir John Stanley had a very considerable interest in it after the first Bali bombing attack in October 2002. We have worked very hard to ensure that we are able to respond more effectively and more quickly to disasters of whatever kind abroad. We do now have rapid deployment teams based here in London, in Delhi, in Hong Kong and in the United States. We are learning with each emergency - every one is different, you learn lessons from each one - about how we should try to ensure we have got the right mix of skills in order to help people who get into difficulties. Q51 Mr Keetch: It will be very often the case, will it not, Sir Michael, that it will not just be the Foreign Office that will be the British department responding to an event such as that, you might require assistance from the Ministry of Defence, DFID, the Home Office conceivably in other circumstances. Are you confident that not only can you co-ordinate your own people to respond well but also that you can co-ordinate and take the lead to respond for other departments as well on behalf of UK PLC because it may well be that in response to an event like Katrina or, indeed, the Tsunami you will need to draw assets and people from other government departments? Sir Michael Jay: I think we are getting better at that. The rapid deployment teams, depending on the nature of the emergency, will include people from the Metropolitan Police, the Red Cross, medical staff, people from the Department for International Development, for example. The rapid deployment team that went to Pakistan after the earthquake there was a mixture of Foreign Office people and DFID people and others. One of the things that we are learning is this has to be a joined-up cross-government exercise and not just ourselves. Q52 Sir John Stanley: Sir Michael, I want to turn to the subject of the adequacy or otherwise of the Foreign Office's systems of internal financial control. I need to go back to the fraud at the Tel Aviv Embassy which the National Audit Office correctly described as "the largest identified loss by fraud in the Department's history". It revealed an extraordinary state of affairs where absolutely fundamental internal financial controls were not followed, it showed cash advances being made on the basis of handwritten receipts and your own Financial Compliance Unit, I quote: "found no evidence that invoices were ever demanded, seen or authorised by Embassy staff". The NAO report concluded that: "There were clear breaches of longstanding accounting procedures". I have in front of me the letter that your colleague, Mr Todd, sent round to all sub-accounting officers on 3 November last year, and clearly you have tried to take corrective action, although I have to say I was somewhat worried to read Mr Todd's comments to the sub-accounting officers: "You should ensure..." and he goes on, "...that the relevant checks are in place as far as possible". That seemed to me a very strange qualification. Surely the relevant checks should be in place full stop and not qualified by "as far as possible". The key issue I want to put to you is anyone reading this from any sort of financial background can only come to one conclusion, and that is that the Foreign office has not got in place a system of internal financial control and internal audit that begins to measure up to professional auditing standards. Do you agree that is the case? Sir Michael Jay: I do not agree that is the case, Sir John. I do agree with everything that you have said and that the National Audit Office have said about the fraud at Tel Aviv. That was a very straightforward and quite unacceptable failure over a number of years of some rather simple procedures and there is no excuse for that. That is why we have tried to ensure through a number of measures that that does not and cannot occur again. I would not draw the conclusion that that means we do not have adequate internal systems in place. I think it is a wake-up call for us about the need to be extremely vigilant about the risk of fraud anywhere in the world, particularly bearing in mind that we are operating in a large number of countries where what we would call fraud is the normal way of doing business. It does require us to have systems in place in each post, constant visits, some of them announced, some of them unannounced, by our internal audit people and our Financial Compliance Unit. It also requires us to ensure, and this is why Mr Todd wrote his letter and is something I attach a huge amount of importance to, that every Head of Mission as sub-accounting officer realises that it is his or her responsibility to ensure that these procedures are in place. The buck stops at the sub-accounting officer. That is something which I have been reinforcing every time I see a Head of Mission before he or she goes overseas. I refer specially to Tel Aviv and say, "This is what can happen. The simplest controls failing can lead to a very serious fraud and loss of public funds and that is not acceptable." Q53 Sir John Stanley: Sir Michael, I did not ask you whether in your Department's and your own subjective judgment you felt there was an adequate financial control system in place. I chose my words very carefully. I asked you whether you were satisfied that you had an internal financial control system and an internal audit system that came up to professional standards. Can I ask you further, in the time you have been the Permanent Under-Secretary have you at any point asked a professional firm of auditors to come into your Department to examine your system of internal audit and internal financial control and to produce a report to you on that? Sir Michael Jay: I do not think we have done that. I will ask Mr Todd to comment in a moment. What we have done is to strengthen very considerably the Audit and Risk Committee. When I took over this job we had something we called an Audit Committee and I expanded that pretty early on to be an Audit and Risk Committee. It is chaired by one of our non-executive directors at the moment, Alistair Johnston, Vice-Chairman of KPMG, who is bringing a degree of rigour to that Audit and Risk Committee which we have not had before. We work extremely closely on all financial management and fraud issues with the National Audit Office and if at any time we see weaknesses in our systems we work to strengthen them. Q54 Sir John Stanley: I would like to put it to you that from the evidence that is in front of us it certainly would appear to me to be glaringly necessary for your Department to commission a leading firm of auditors to examine your system of internal financial control and internal audit and to present you with their conclusions as to its adequacy. That seems to me to be an absolute minimum requirement that should be upon your Department. Sir Michael Jay: I will certainly consider that, Sir John. I would like also to discuss it with the National Audit Office to see whether they would regard that as something which we need to do given the state of our internal audit arrangements at the moment. Sir John Stanley: I look forward to you or your successor coming back to the Committee on the conclusions you have on that. Q55 Chairman: Sir Michael, I am surprised by your answer because to my own knowledge the Foreign and Commonwealth Office has insisted that non-departmental public bodies, like the Westminster Foundation for Democracy and other bodies which get money from the FCO, are subjected to more rigorous processes of audit with outside people as well as internal audit. If it is good enough for the NDPBs which are funded through the FCO, why is it not good enough for the FCO itself? Sir Michael Jay: That is why I would like to discuss it with the National Audit Office because the decisions that we have made in relation to some of our NDPBs were taken in consultation with the NAO and we should do that as far as our own internal arrangements are concerned. Q56 Sir John Stanley: Sir Michael, could I just ask you to consider a further dimension to this. The point I am putting to you is not one which is something that I think should most clearly apply to your Department, these sorts of arrangements to have professionally acceptable standards for internal financial control apply, of course, to every single company, whether quoted or not, in this country but, just as important, for example, there are the most rigorous requirements of this sort that apply to every single pension fund and, indeed, every single registered charity in this country, including very small charities. If these sorts of requirements of professional auditing, professional financial control, apply to charities, small charities, up and down the country then, for goodness' sake, surely they should apply to the Foreign Office. Sir Michael Jay: We do have professional --- Q57 Sir John Stanley: You have not had anybody in to tell you whether your systems come up to a professional standard. Sir Michael Jay: We have the National Audit Office whose job it is to give us advice on that. We are constantly in touch with them. We have our own Audit and Risk Committee. May I ask Ric Todd if he wants to add on this point? Mr Todd: We do have a professional internal audit department headed by a professional auditor who was hired from the private sector. We have a Financial Compliance Unit which contains people who are professionally trained in financial compliance. We have an Audit and Risk Committee which is chaired by a professional accountant, Vice-Chairman of KPMG. We have the NAO as our external auditor. We are very happy to discuss with the NAO whether they share your opinion that we need to be reviewed. Q58 Sir John Stanley: All I would say to you is if it was a satisfactory system of internal audit this sort of fraud committed in this sort of way, payment out of cash on the basis of handwritten receipts, could not survive any possible scrutiny by a professionally qualified and professionally performing audit system. It could not survive for at the most a calendar year, let alone survive for some ten years as happened here. Sir Michael Jay: I am not in any way defending what happened in Tel Aviv. Q59 Mr Purchase: It has been a very gentlemanly exchange, if I might say so. I have in front of me four instances and we are talking in excess of one and a half million pounds' worth of fraud. I speak as a humble representative of the taxpayers of this country and of my constituency. My first duty is to ensure the safety of the nation. My second one, surely, is to ensure the safety of the way in which its taxes are spent. I find that absolutely, completely unacceptable. I am amazed that there is no real sense of urgency and you are not able to say to us today, or any of your staff, "We have seen to it". Discussions with the NAO, I find that incredible, I really do. You should have seen to it by now. I think this Committee has to say today, Chairman, that this is an unacceptable position. I understand, I worked in the private sector long enough to know there is nothing the working man cannot beat - nothing - but you limit it and all around the world there will be opportunities for people to take bits and pieces out of it here and there, and that is why it needs to be tighter. In the case of huge amounts of money like this you should have attended to it immediately, never mind discussing it with anybody else. You are the senior manager, it should have been done. I find no excuse is acceptable that that has not been attended to. If you had told me today, "What a mess we had but we have done it", I would have been completely happy, but you have not told us, you have told us who you are talking to, who has done this, who has done that, and in the end, as far as we know, there is another one brewing somewhere else. Sir Michael Jay: I was responding to a specific question from Sir John Stanley about whether we should have external auditors. Q60 Mr Purchase: I said he was being too gentlemanly, I am not being gentlemanly. Sir Michael Jay: What you have not given me a chance to do is to answer the question which you have now posed, which is what we have done since Tel Aviv, and we have done a lot since Tel Aviv to absolutely minimise the risk of there being anything ---- Q61 Mr Purchase: Have you fixed it around the world in your offices? Sir Michael Jay: What we are doing is looking at the specific problems which arose. Q62 Mr Purchase: The answer is no, is it not? Sir Michael Jay: No, it is not no. What we are doing is working out what went wrong there and then ensuring, for example by moving away from cash payments wherever we can throughout the world, that that does not occur again, that we encourage suppliers to accept monthly payments by cheque or by bank transfers. We are improving our training for all our management staff. We have learnt the lessons from this and we have sent those lessons learnt to every one of our overseas posts. We have written to all sub-accounting officers telling them the importance of effective financial controls and we have also boosted the staff of the Financial Compliance Unit in the internal audit department with additional staff so that they can be more active in going out and carrying out spot-checks in places around the world to prevent this happening. We have taken a large number of measures after discovering this fraud. What I cannot tell you is that there will never be a fraud again because we are operating in a world which is prone to this. Q63 Mr Purchase: I understand that. Sir Michael Jay: After Tel Aviv what we have done is tightened the systems, learnt the lessons from that, and what Mr Todd and I have said we will now do is consider whether we should have an external auditor in order to check whether in the light of this our present systems are adequate, and that is an undertaking that I have given. Q64 Chairman: Can I ask you one final question on this section. Has any of the 790,000 from Tel Aviv, the 594,000 from the loss of satellite phones in Iraq, the 1480,000 taken by a fraud at a British Council in Bahrain in 2004, or the money taken by local employees in Ulaanbaatar, Mongolia, £20,000, been recovered? Is there any prospect of any of it being recovered? Sir Michael Jay: Our aim is always to recover as much we possibly can of any money which we lose. First of all, of course, we pursue criminal prosecutions against those perpetrating fraud, as we have done in a number of places in the world. We believe we may get some restitution from Tel Aviv, that will depend on the outcome of the court case, I think I am right in saying, which is still to come. We do not think we will get any money back from the satellite phone fraud in Iraq. We think that we will end up, in fact, in the black after Ulaanbaatar because as a result of the reconstitution of the local staff complement we will be saving money in the longer term. That fraud will not, I think, lead to a loss of public funds. We make the restitution and recovery of funds a very high priority after every fraud. Q65 Chairman: What about the British Council one in Bahrain? Sir Michael Jay: Could I ask Mr Todd to talk about Bahrain. Q66 Chairman: It was a lot of money. Mr Todd: The individual who perpetrated the fraud has been arrested and is facing prosecution in Bahrain. We have not yet obtained any restitution from them. What is interesting about the Bahrain fraud is that it is not actually clear to us how the person who carried out the fraud personally financially benefited from it. Q67 Andrew Mackinlay: If you take the telephone issue, nobody in the Foreign Office can be blamed for the draining of the money by the telephones but what is an issue is the competence of your diplomatic colleagues who never reported it. This is against the backdrop of basic common sense. It is your duty to say, "Here, the phones have gone missing". There is another matter which I have been trailing with you about competence of senior diplomats and how they conduct things. The people who lost these phones, have they at least been admonished, given a slap on the wrist or something like that because they failed in their basic duty to flag it up? They were negligent, they were indifferent, they could not care less presumably. Do you understand the point I am making? Sir Michael Jay: Absolutely. Q68 Andrew Mackinlay: It is a reasonable point to say, "You are big grown-up boys and girls, why did you not report it?" Sir Michael Jay: Just going back to Bahrain for a moment, I think it is an important point that it was a fraud by a member of the British Council and the British Council have accepted that they should be repaying us a substantial part of that so there will not be a loss to the FCO from that. On the Iraq mobile phones, there was a serious control failure in Baghdad. That, in a sense, is not altogether surprising since the conditions in Baghdad at the time were pretty appalling. What is more serious as far as I am concerned is that there were quite clearly serious control failures in London and, indeed, this has been fully investigated by the Financial Compliance Unit and misconduct proceedings are now being considered against certain FCO staff. Mr Todd: They are underway, in fact. Q69 Ms Stuart: Can I move to Public Service Agreement targets and take you back to your Departmental Report on page 13. I was slightly puzzled why when you go through the strategic priority that there are three headings against which there do not seem to be any SR04 PSA targets. One is Strategic Priority 2, protecting the UK from illegal immigration, SP7, security of UK and global energy supplies, and SP8, security and good governance of the UK's Overseas Territories. Would you like to explain to me why that is the case? Sir Michael Jay: Yes. I will ask Ric Todd to say something. You have hit upon an issue which has been quite a difficult one for us, certainly for the time I have been in this job, which is the need to get the PSA targets and the strategic priorities in sync with each other, and that has not been straightforward. At the moment we have PSA targets which were a result of SR 2004 and agreed there, which we are charged with fulfilling, but not all of the PSA targets agreed as part of SR 2004 do reflect the new strategic priorities. Do you want to say more, Ric? Mr Todd: It would be fair to say that the PSAs as a way of measuring what the Foreign Office does are tools which are changing. We started off with the first set, and we had 13 and something like 140 indicators, and in SR04 we moved, including partly on the advice of this Committee, to have fewer PSA targets, fewer indicators and to have fewer of them classified. All of those things we have done. When we negotiated, and ministers agreed, the PSAs under the SR04 it was decided that it did not make sense to have a PSA for every area of work, so that was a decision which ministers took in SR04. Q70 Ms Stuart: I think there is a problem with matching these performance indicators. Mr Todd: We also have the situation in which 2005-06, the report which we have here, was a so-called crossover year in that we were reporting both against the 13 PSAs from the 2002 SR and the nine from the 2004 SR at a time when ministers had also decided that they wanted to give us strategic priorities. In a sense, we have brigaded the PSA targets in SR04 - let me get my letters right - with our strategic priorities, but our suggestion to the Treasury that we very closely align the PSAs with the strategic priorities was refused by them on the grounds that there would then be a sort of sudden break in terms of PSAs. We think that in SR07, which is the next one - like buses they keep coming round - will actually give us an opportunity to look again at our PSAs and to make them much more closely related to the strategic priorities. I think that is a genuine opportunity for us. It is not a crossover year, unlike 2005-06. Q71 Ms Stuart: That assumes that the PSAs themselves are a meaningful tool and I wonder whether you want to say something more on your thinking. Just to illustrate that point, we had an exchange of correspondence in relation to some of the gradings, things were amber one year and then became red and nothing had really changed, and you very graciously said you were grateful to the Committee for the opportunity to correct errors. I am not sure that these were errors on your part. I am just wondering whether these tools serve any purpose from your point of view. If I take things like SP7, security of UK and global energy supplies, that has become immensely important. Are these Treasury tools serving you well? There must be some thinking on your part. Mr Todd: There has been a discussion about PSAs and their value and how you write them and how you measure against them since they began. I think the way in which measurement happens has improved. As you know from the length of the items in the last report, we have tried very hard to do the best we can with these because foreign policy questions are not always readily measurable. We are having a discussion with the Treasury now, all departments are in the context of the CSR, as to how PSAs can be made more effective and how they can be a useful measure for Parliament and citizens as to what departments are doing. Sir Michael Jay: I think the truth is that some are much more useful than others, to be honest. The ones which are readily measurable for our service operations, consular work, visa work, serve a genuinely useful purpose and that acts as a discipline and focuses resources and effort and there is a target by which you can judge your performance. It is much harder when you get on to the foreign policy issues where there is a risk of artificial targets and artificial measurements. Q72 Ms Stuart: May I suggest, Sir Michael, that as you write this famous letter which you hand over to your successor that ---- Sir Michael Jay: It is email now! Ms Stuart: That may be one of the areas where probably the constructive relationship between this Committee and your successor may want to look at. We do appreciate the Treasury is giving you tools which are not terribly meaningful and that may be a good basis for working together. Chairman: Can I go a bit further. When you have left your job, rather than in the transition, perhaps you could write something to the Treasury and just tell them that they need to look at foreign policy in a more sophisticated way than they have done in the past. Q73 Mr Purchase: Did you want that advice, by the way? Sir Michael Jay: We do have some quite robust and sometimes productive discussions with the Treasury on that kind of issue. In particular, I think it is an important point in this context and it is going to be an important issue in the Comprehensive Spending Review on the conduct of foreign policy overall so that when, for example, you are thinking about our operations in Afghanistan, which are hugely important, you do need to look at the diplomatic effort and the defence effort and the development effort in some way as more of a coherent whole. That is one of the things that I do feel as I look back on the last four years or so that we need to continue to work with other departments on in order to get a more coherent approach and, to be honest, more effective use of public funds overall. Chairman: I think we would agree with you on that. Q74 Sir John Stanley: Sir Michael, can I turn to another strategic priority, and that is the issue of security of your own personnel, both UK personnel and locally employed personnel around the world, but I want to focus particularly on Iraq. I would like to start by paying tribute, and I am sure the rest of the Committee would share in this, to the tremendous personal strength and personal courage of all our personnel, both UK personnel and locally employed personnel, serving in difficult and dangerous places like Iraq and, indeed, in one or two other places around the world. Could you tell us, and I am asking this deliberately only in very general terms, whether you are satisfied that your Department is taking all possible steps to provide for the security of our personnel in Iraq, and in particular our locally engaged personnel who arguably are at greater risk even than the UK personnel? Are you satisfied that you are providing for their security as best you possibly can, not merely in the short-term but also in the longer term as well? In your consideration of their security interests in the long-term, are you giving consideration as to whether it might be necessary in some cases to offer certain locally employed personnel the opportunity of being able to move, if it became necessary, to a third country? Sir Michael Jay: Thank you very much, first of all, Sir John, for your tribute to the courage and commitment of our staff, both UK-based and local staff in Iraq and, indeed, in other dangerous parts of the world, including Afghanistan. I very much welcome that and I know they will welcome that too. I would never say that I go to sleep at night satisfied that we have taken every precaution that we could because I know if I did feel that I would wake up in the morning and there would have been an incident. For our home-based staff we work on the basis of certain principles which I am very clear are essential. Those are that everybody who goes there should be a volunteer, everybody should be fully briefed and fully aware of the risks, that we should be doing all we reasonably can to reduce those risks to an absolute minimum, and we must be clear that our staff can operate effectively because we cannot allow our staff to be in Baghdad or Basra or Kirkuk if they cannot operate effectively. We abide by those principles and I am in regular touch with our Ambassador in Baghdad and our Consul General in Basra to ensure that those principles are being stuck to, and I am confident that they are. As far as our local staff are concerned, I have enormous admiration for their courage and determination. They take very great risks, quite often just in coming to work. They are aware, of course, of those risks, we make absolutely certain that they are. We also ensure that we enable them to vary their attendance, encourage them to come to work by different routes in order to reduce the risk of their being seen, spotted and identified as someone working for us and, therefore, perhaps be put at extra risk. That is something which is very much at the top of our minds at the moment. We have considered the question of relocation, perhaps to elsewhere in the country or to another country if that were thought to be the right thing to do, and I am sure if we judged that was the right thing to do, that is what we would do. Q75 Chairman: Thank you for that. Can I just tie up this area to do with the Public Service Agreements and so on to ask you about one specific area, we will probably write about some other issues. In the table which has been produced you have put in reference to weapons of mass destruction programmes. I have to say I was a bit surprised that seems to be in the amber category rather than the red category given recent developments with regard to Iran, with regard to the failure of the Non-Proliferation Treaty Review Conference last year to make any significant progress, what is happening with North Korea and so on. If you were writing it today would you still have it in amber? Mr Todd: There are two comments. The first is we would be very happy to write to you to follow up this particular point. The second one is to say the rating which we give is the product of a set of assessments against a number of indicators and statistical measurements and judgments and you put them together, build it up from the bottom up, review it from the top down and come up with a rating, and that was the one which we made at the time which we felt was justified. These things are never an exact science, as we were discussing earlier with Ms Stuart. I would say we had a set of good reasons why we chose the rating which we gave you, but we would be very happy to write to you about it again. Q76 Chairman: I am grateful. Perhaps you could also look at the Islamic world, PSA7, in they same context in terms of progress of reform. Because we are short of time, we have to move on to the financial questions. Can you just tell us whether you will be sending us your draft of the PSA report this year so that we can give you our own assessments of whether you should be putting things in amber, green or red before you produce it? Sir Michael Jay: What are our obligations? Mr Todd: I do not know the answer to the question what our obligations are, so we will have to write to you on that one as well. Q77 Chairman: That is fine. Sir Michael Jay: We do genuinely value the Committee's comments on these sorts of issues. As you know, I wrote to you in the hope that we might have your comments on the strategic priorities before we produced our revised version. Views from the Committee on the strategic priorities are very welcome. The difficulty for us on PSAs is the final result on PSAs is often an inter-ministerial negotiation late at night as part of a broader debate, which is it is quite difficult to ---- Q78 Chairman: It goes back to our problems about the Treasury, I guess. Sir Michael Jay: Yes. Q79 Chairman: Can we move on to financial management and efficiency questions. I understand with regard to the Comprehensive Spending Review you are involved in some quite interesting discussions at the moment. Can you tell us which areas are going to have a zero-based review? Sir Michael Jay: The three areas on which we are at the moment conducting zero-based reviews are our IT spend across the board, our network of posts in Europe and our assessed contributions to international organisations. These are different categories of issues. On our IT spend we want to have a really hard look to see whether there are efficiencies which we can make, whether there are shared services we can perhaps introduce, whether we are realising all the benefits we need from them, and that is going to be very useful. Our review of our network of posts in Europe is, I hope, going to result in the release of efficiencies in particular from support service. We also hope that the review of our posts in Europe could lead to lessons which we can learn and transfer to other parts of our overseas network. The assessed contributions to international organisations is rather a different category. The point there is we need to look with the Treasury at the point that there are quite large chunks of our budget over which we have no control, or very limited control, because our contributions to the UN or other international organisations are based on negotiation amongst a number of other countries. Those are the three. I should also add that the British Council and BBC World Service will also be conducting their own zero-based review on aspects of their operations as part of the Comprehensive Spending Review, so they are included in this exercise. Q80 Chairman: Thank you. Can you tell us about your capital programme? I understand there is significant underspend in some areas. What is your latest estimate of your 2005-06 underspend? Mr Todd: Our latest estimate of the outturn we have not finalised yet. We think that our capital expenditure will be something like £39 million underspent. This is something like a 35 per cent underspend. The reasons we have identified so far for that underspend, and we will need to do some more work on this, are slippage on our ICT programmes, in particular our £350 million future Firecrest programme, and some delays on estate projects which are in any way inclined to this because they tend to be bigger lumps of expenditure. For example, you will set aside money to buy a plot of land in Indonesia and you obviously cannot spend it on anything else because you do not want to lose the plot but if for legal reasons it is delayed you have an underspend. Estates is quite a tricky one to manage. The principal cause of capital underspend is on IT. Q81 Chairman: Your Board has recognised, I understand, that underspends are as much an evidence of poor programme management as overspends. Mr Todd: Yes, that is correct. Q82 Chairman: What are you going to do about this poor programme management? Sir Michael Jay: What I would hope we were going to be able to do was to build in a kind of pessimism bias, if you like, rather than the optimism bias that you have when you expect costs to go up, to be a little bit less cautious in allocation of funds recognising that there are likely to be underspends on certain kinds of projects and that you therefore need, in a sense, to over-commit in order to ensure you are going to reach your target otherwise everything will always be shifting to the right, there will always be underspend, and that is not a good position to be in. This is obviously a risky business and we need to take the advice in particular from our non-executive directors about how we try to get this right. I think the Board concluded that it was not satisfactory that we were underspending our capital budget, though I think I am right in saying there was end-year flexibility so the money is not lost forever. Mr Todd: We can carry over the spend. Also, we discussed earlier our Prism management information system and part of the capital underspend problem is what the experts called "BUMF", which is budgeting, monitoring and forecasting, and if we get all those things right then you identify the underspends quickly enough to move them to other projects, so the FCO needs more BUMF. Q83 Andrew Mackinlay: Prism is not working. Mr Todd: Prism is working, Mr Mackinlay. Q84 Chairman: Can we look at a couple of other areas and then move off finance. You have got a target to reduce your UK-based staff but, as I understand it, it does not apply to entry clearance or consular staff. You also do not have a target to reduce locally-engaged staff at our posts abroad, which seems odd because they represent a considerable amount of your expenditure. Why do you not have targets in all those areas? What is the justification for this? Sir Michael Jay: On the first point, you are right, there is a distinction drawn between the two businesses we have, consular business and UK visas, which are self-funded. In other words, the staff who carry out that business are funded from the fees from carrying out that business. It would be wrong to include those in the reduction figure. The figure of 321, I think it is, applies to the rest of our UK-based staff in London and around the world. As far as local staff is concerned, we do not have a staff reduction ceiling, we have a figure of funds available for local staff from which each of our Heads of Mission abroad has to work out within the allocation he or she gets. Q85 Chairman: So are you paying them less because you put on 400 last year on your locally-engaged staff and it went up to 9,600, it went up by 400? Are you saying you have got 9,600 people for the same amount or less than you would have got for 9,200 the year before? Mr Todd: I can explain, Chairman. In the case of UK-based staff we have a ceiling on both numbers and pay bill, for LE staff the ceiling is only on pay bill. In both cases that does not apply to staff who are UK visas and consular, therefore the increase in the number of LE staff will be the consequence of rising demand for visa and consular services. The way in which Heads of Mission are able to give their LE staff a pay rise is by having fewer of them. Q86 Chairman: So if you are issuing more visas in a particular post then there is more income and that is then allocated back to that post, is it? Mr Todd: Exactly, to ensure there is sufficient money in the visa and consular business to deliver services in line with ministers' objectives and the PSA targets. Q87 Mr Purchase: Can I just make a general point in all of that. Your view that because it is self-financing the numbers do not have to be included, I do not quite understand why not. I would have thought if you have - you used the term "business", I would not - a profitable income-generating business it is just as important to minimise the costs of gathering that income and, indeed, it enhances the whole process. Looking for coherence across the piece, money generated there can be used in other areas. There is no reason to exclude a money generating activity from ---- Sir Michael Jay: We are looking for efficiencies in all our operations. The UK visa operation has become immensely more productive over the last few years because of new processes such as outsourcing. The increase in the number of visas processed is much greater than the increase in the number of staff. The business is becoming more productive as we go along. Q88 Mr Purchase: You mentioned outsourcing. You mentioned if you become more productive you outsource. Does this mean that outside staff are doing the job more cheaply, more effectively? Are you not counting them in the productivity score? Mr Stagg: Outsourcing is when we get a commercial partner, such as FedEx or DHL, to do the front end of the business. Q89 Mr Purchase: I understand that. Mr Stagg: Sorry. They do not count against our headcount, just as if DWP outsourced work in the UK the staff working for Capita do not count against their headcount, so there is a headcount issue. The separate one is a question of trying to make the business more efficient. Over the previous four years roughly demand went up 50 per cent and UK-based staffing went up 20 per cent in the visa operation, so we were getting more visas per fewer staff. Q90 Mr Purchase: For less money productivity was greater in the private sector than you were managing to manage within the Department? Mr Stagg: We are using the private sector where they have more skills and specialist knowledge than we do. They are good at processing, they have special processors who can do it better than we can. Q91 Chairman: Is this not also related to the fact that large numbers of my constituents now have their cases dealt with on a paper-based system rather than your previous system, so huge numbers of Indian and Pakistani citizens applying for visas to this country actually do it through a postal system and they might be processed somewhere in the Gulf or somewhere else rather than in Karachi or Islamabad? Sir Michael Jay: That is exactly right. We are trying to provide a better service and FedEx or DHL have offices all around India and we have four consulates, so we are giving people a much more convenient service. We are trying to focus the work of the people in the visa sections on the high-risk applicants, those are the ones where we are worried, rather than the regular visitors who are businessmen or students who come back and forth regularly that we want to give a simple, quick, effective service to. I think we are focusing effort where we should be worried and providing a simple, better service to the rest. Can I just make one point, Chairman, just to be clear. We cannot recycle money from the visa operation into other bits of foreign policy, there is a very strict Treasury rule that this money goes back to them if we make too much. Chairman: There is also an issue of people in this country feeling that their relatives might be paying too much for the visa to come to this country if you are actually making lots of money out of it. There are complaints that it is already too expensive. Mr Purchase: That is a disincentive to the Department acting efficiently and effectively and it is something we ought to take up with the Treasury. Q92 Chairman: I think there are different views on this. Can I ask you about your Board's minutes in February which referred to looking to make savings "to identify areas where efficiencies might be made, starting with gratis visas, Residence costs, facilities management and some elements of language training". How much do you hope to save under each of those headings in the remainder of this Spending Review period? Mr Todd: We have a number of targets for efficiency set for us by the Treasury for SR04 period. We believe we are on track to achieve those. However, it is prudent management to have a number of contingency programmes to cover any shortfalls in the ones we thought of in the first place. The ones you list were agreed by the Board as potential areas to work up efficiency programmes. We think we can make savings in all of them, but we have not yet become entirely clear on what the numbers are. Q93 Chairman: Perhaps you can write to us with some more information when it is available, that would be helpful. Finally, from what you said, Sir Michael, about the zero spending and the efficiencies you are going to be making, you gave a great emphasis to information technology. I understand that you are hoping to get a very large proportion of the saving and efficiencies for this financial year and the next financial year from savings from information and communications technology. How realistic is that given that you have made very little savings in the last financial year? Mr Todd: The savings listed for IT are mainly non-cashable savings, that is to say you get more output from the existing input. The non-cashable savings we were expecting from Prism, the information system, and future Firecrest, the mainframe, have moved to the right a little bit and that is one of the reasons why we have been looking for alternative ways of delivering the efficiencies, but we will deliver the efficiencies. Q94 Chairman: Basically problems with the IT systems mean the savings you thought you were going to make in the past might now theoretically be made in the future, is that what you are saying? Mr Todd: It is not that the savings are not going to go away but if you remember, as Sir Michael explained earlier, our Prism programme was delayed by a year but is going to last for a year longer, so in this case the savings generally are moving to the right. Also, there are an awful lot of savings, both cashable and non-cashable, which Prism will deliver for us. Q95 Chairman: The Risks Register, what are your greatest risks that you face at the moment? Sir Michael Jay: I have not got our latest Risks Register with me. I think there are different kinds of risks. There are clearly the political risks that we face and there are the operational risks. Some of the most important operational risks - many of them have been discussed around this table today - are clearly questions of financial management and fraud, which is at the top of our concerns because of the need to safeguard public funds. Another that is quite high up is avian flu and are we properly prepared for an avian flu outbreak transferring into a flu pandemic. I would always put at the top of the Risks Register the question of security of our posts as well. Those are some that I would say are at the top of our Risks Register but I have not seen the latest version. Q96 Chairman: If you could write to us and give us the full list, we would be grateful. Sir Michael Jay: We are happy to do that. Chairman: Thank you. Can I now switch to public diplomacy. Mr Maples: I think we all feel it is generally a good idea and a good policy but, correct me if I am wrong, is it right that we spend the vast majority of money on the BBC World Service and the British Council? £239 million on the World Service and £186 million on the British Council, being less than half their income, I think they generate the rest from their language teaching activities and things like that. Very often when we go abroad we go and take a look at the British Council office and it is a huge generalisation but it would be fair to say that we have been very impressed with some, which tend to be the smaller ones, and wonder what the hell the people are doing in some of the larger ones. We tried to get our heads round this, and I certainly speak for myself when I say I have failed, I do not know how to evaluate whether the money that we spend on the British Council is well spent or not. In fact, I think in our last report we suggested to the Committee of Public Accounts that they might like to get to the NAO to have a look. When we consider that we are spending £24 million on the Arabic TV service, is it 20 or 24, something in that range ---- Mr Hamilton: A lot. Q97 Mr Maples: Well, is it a lot? We had to cut back the Thai language service and various other things to do it and yet we have got this huge chunk of money going to the British Council when we can very clearly see the need for an Arabic TV service that might counterbalance Al-Jazeera and the other one. How do you evaluate how we are spending this money? How do you within the Foreign Office evaluate value for money in this public diplomacy area, the BBC World Service, the Arabic TV service, the British Council, the £2.3 million Public Diplomacy Challenge? How do you evaluate that and how are you confident that the £186 million we are spending on the British Council is getting really good value for money because I think there are big question marks about this in the minds of quite a lot of us? Sir Michael Jay: We have fairly well developed systems and relationships with both the BBC World Service and the British Council. With the BBC World Service, for example, there are regular contacts at director level and there is also an annual meeting, which took place last week, between the BBC and our Public Diplomacy Minister, Lord Triesman, at which we were examining exactly these questions, what is the right balance between the Arabic service, a possible Farsi service, the BBC World Service radio. We do it mainly through the reports they have to make in accounting for the money they get and of course it is looked at in each Public Spending Round. Q98 Mr Maples: When you are talking about the BBC World Service the Foreign office directly commissions what it wants from the BBC World Service, as I understand it. Can we talk about the British Council more because it seems to me there we are giving a block grant. I wonder how you measure the effectiveness of the spending of that money. You could open an awful lot of embassies, hire an awful lot more staff, put a lot more money in the Public Diplomacy Challenge Fund without making a big hole in their budget. I just wonder how we have come to the conclusion that is £189 million well spent and how we can be sure of that. Mr Stagg: They are very fair questions. The way we have done it historically has been through two exercises. One has been through the British Council itself doing survey work on those who go to their libraries, their functions, who attend the events they organise overseas or come on visits to the UK and trying to assess their perceptions as a group against a sort of cohort of typical people from that country. How effective that is as a tool is a very fair question to ask in that if you are brought to the UK on a visit you probably should have a fairly positive view of the place. It may not necessarily be so much to do with the particular way in which your visit was organised or by who but there has been an effort made to try to develop an opinion polling survey-based analysis of how far British Council expenditure leaves people with a warmer, more positive view of the United Kingdom than typical fellow citizens. Separately, and in terms of the overall impact of all our public diplomacy work, we started two or three years ago a tracking survey to try to see how opinion of the UK was changing over time in a range of important foreign countries. That did not carry on seamlessly because there was concern amongst ministers about the value for money of this exercise but my understanding is that Lord Carter would now like to see more effective tracking and metrics of the work that is done by both the Council and the World Service and, indeed, the FCO, so I think that will come back into focus initially through using commercially available tracking information but probably, I suspect, moving towards using more dedicated specific tracking information in which we will set the questions and establish the parameters of the inquiry. Q99 Mr Maples: Perhaps we could return to this at some point or maybe you could let us have something. Presumably these exercises measure the bang for our buck that we are getting from different ways of spending money on public diplomacy. One that I know is not within your budget, at least I do not think it is, is the education of foreign students at British universities. I think there is a very well established body of evidence that that sends those people away with an extremely good impression of, and relationship to, the United Kingdom for the rest of their lives, so if they go back and work at a high level in their government or in one of their country's businesses there will be a predilection for doing things with the UK and, therefore, that money would seem to be well spent. Again, how exactly one would evaluate that is quite difficult. I would like to feel that the money we are spending on the British Council, about which I have some doubts I cannot quantify, that we really are evaluating that against things like educating foreign students here or spending more on the Arabic TV service. Mr Stagg: I think it would be very good to do that. There are some very important and interesting questions about a large amount of FCO expenditure, both internal to the FCO and money spent by our NDPB partners. I think it would be very good if we could write to you about how this money is spent and how we evaluate its effectiveness. Sir Michael Jay: I think this would be extremely timely as well, if I may say so, for the Committee to be interested in this issue because the Public Diplomacy Board, which was set up as a result of Lord Carter's review, does have these issues very much on its own agenda. I think there have been a couple of meetings of the Public Diplomacy Board and this is going to be an issue for it to consider in its meetings ahead. It would be very good to have an input from the Committee on these points. The only other point I ought to make is that the budgets of the British Council and the BBC World Service have been, in the last I do not know how many Spending Reviews, ring-fenced, so the prospect of money leaking from one to the other, as it were is not something which is open to us. Mr Maples: This Committee might be prepared to support you on that. Q100 Ms Stuart: Can I just return to the British Council. I think I need to declare an interest here that I am a board member of both the Westminster Foundation for Democracy and the British Association for Central and Eastern Europe. On the British Council, when Lord Carter came here I asked him what was the point of the British Council and he admitted this was a question that exercised him greatly and I do not think he came to a very definitive answer. When we go abroad one of the things that always strikes me is why is the British taxpayer paying for English lessons? Why is the British Council paying for English lessons? Mr Stagg: No, it is not. Q101 Ms Stuart: Quite often when we go and meet British Council staff in terms of their good perception we are being told, "It is because we are teaching English". I think there is a confusion between its function and its purpose, which we are still struggling with, but there is also institutional confusion. Part of Lord Carter's recommendations, and also this Committee's recommendations, was that we should bring to an end the dual role of the Permanent Secretary being on the Boards. I am trying to get a sense of your thinking. Have you reached a point where you think we should separate that position? Also, if I were to put the question to you "What is the point of the British Council?", what would you say to me? Sir Michael Jay: I would say that the British Council, I believe, does an extraordinarily good job in most of the world in presenting aspects of Britain and British society in ways which embassies quite often cannot. It does that in different parts of the world in different worlds. I have seen recently what they have been doing, for example, in Pristina, what they have been doing in Tirana, and that is a very, very good and useful projection of Britain and Britain's educational system, culture and science in ways which it is harder for us to do. I think that is a good function, that is a legitimate function for the British taxpayer to fund. On the question of the composition of the British Council Board of Trustees, the view of our ministers at the moment, the evolving view, along with this Committee, is that the Permanent Under-Secretary should not be a member of the Board of Trustees, and that is a view which I share myself. I have very much enjoyed the last four and a half years being a member of the Board. My own view, which I expressed at the last meeting of the Board, is that it does cause a degree of confusion in the Board to have a representative of the sponsoring department, as it were, present, and it is better to have the relationship between the FCO and the British Council through a separate series of relationships at ministerial and senior official level, including the question of ensuring that we are getting value for money from the money we are putting into it, and for the Board of Trustees to be looking at the overall management of the British Council, at its relationship with the Foreign Office and other stakeholders, as would be the case for every other NDPB of, for example, the DCMS. That is the direction in which I think we are going. Q102 Mr Purchase: I would like to bring together a couple of strands that we have been considering for some time now. One of the Public Service Agreement targets was to promote a moderate version of Islam in Islamic countries. I want to ask you about the relationship with the BBC World Service. How do you work on an issue like that with the World Service in what you are trying to achieve? The World Service are contemplating bringing in an Arabic service, just a few hours a week, but how do you bring that together into a coherent train of thought and then a promotion? Mr Stagg: I used to be responsible for it in my past. The way it worked when I was responsible was that I had regular meetings with Mark Byford, who was then the head of the BBC World Service, and to avoid the impression which may have come from some of the earlier exchanges, and we did not control what they do and how they do it in any detail, all we are involved with is the balance of coverage they are delivering between the various regions of the world and in particular the vernacular services and how they are working. In terms of the focus of their work, if we felt, as we have felt over the last couple of years, that there was scope to use television more in the Arab world in order to try and correct some misapprehensions that are very deeply embedded as a result of media coverage there, the BBC were a very natural vehicle for doing this given they have got a well-regarded Arabic service already and journalists working in the language. So we began a process of talking with them, which involved Mark Byford coming to talk to our Board, which he did once a year and now I think his successor does as well, to talk about their plans, and in that discussion we talked about our political priorities and how their work interlaces with our strategic priorities and political goals. Q103 Mr Purchase: Was my colleague, John Maples, wrong when he said that you buy the service from the BBC World Service? Is there not a contractor-client relationship here? Do you not tell them what you want and say, "This is the result we want"? Mr Stagg: No, that is not how the relationship works. Q104 Mr Purchase: You amaze me. Mr Stagg: Whether that would be desirable or not is another question. Clearly, we want to ensure first of all that they are seen as a genuinely independent editorial organisation otherwise if they became like the Albanian State Television Service they would not be much use to it. Secondly, the area that we have been involved with up until now has been in trying to decide where they can give us most value for our money. The discussion about Arabic TV really revolved around whether we as FCO, and ultimately the British taxpayer, would get more from a television service Arabic broadcast by satellite around the Arab world than a range of existing vernacular radio services, particularly those going to Central Europe where people were increasingly able to get free media of their own locally and/or access other media in other languages. We are involved in that range of areas, not in terms of a more direct relationship as maybe you thought. Q105 Mr Purchase: You may think I would fit very well into an Albanian style set-up but I am a bit more diplomatic than that. I am still struggling to find out what you do with the BBC. I understand that you need a high grade, well respected outlet but the purpose of having a high grade, well respected outlet is to get a message across, is it not? You do not leave that to the BBC, do you? Mr Stagg: It is a message about the nature of Britain as much as a message about particular political issues. It is a message that "This is the sort of society that we are which produces this sort of balanced, even-handed media coverage of difficult and controversial issues". The belief is that this is part of the British brand. Obviously we could become more direct but my personal view is we are right to treat it in this way, to be honest. We would not be gaining for the UK taxpayer over time if we damaged the brand. Sir Michael Jay: I think that audience levels are as high as they are, and the BBC World Service is as respected as it is around the world, because it is seen as being editorially independent from the British Government and I think that is a prize that is terribly important to keep. Q106 Chairman: I think that most Members of the Committee would probably agree with that approach, not all though. Can I take you back slightly to the British Council. John Maples referred to some posts which are very good. I had the benefit of visiting Shanghai and the British Council operation in Shanghai, which I think is absolutely excellent. They were doing some very good engagement with a publication in English and Chinese which was encouraging young people to get involved in higher education in this country and the education system. I think that is a good example. The other one is a publication they have just launched The Media Guide for Muslims in Britain, which the Foreign Office might consider getting some copies of and taking to all of our posts in the Arabic world because it explains a lot about Britain to other countries about the nature of this country. It is not designed for that purpose but I would just flag it up. I would like to ask you, in that context, the changes in oversight and governance that Lord Carter's review put forward also talked about changing the Board and having this Public Diplomacy Board with Lord Triesman chairing it. At the same time, and our Committee commented on this when we produced our report on public diplomacy a few weeks ago, the old structure, which was this advisory body, was still in existence alongside it. You were running a parallel structure of the two organisations, the one from the past and the new one. I just wonder what the purpose of having that is. Lord Carter also said he was going to come back, or at least he should come back to the issue and review the progress within the next 18 months to two years, as far as I can see. From what I have gathered, it seems to me that there were lots of behind the scenes negotiations going on, that the original draft that Lord Carter came out with last October was difficult for the British Council in particular to accept and as a result there was, in a sense, a fudge. What I would like to know is what the Foreign Office's ideal solution to this problem is given it is quite clear the report from Lord Carter did not come up with a definitive outcome and a definitive way forward. Sir Michael Jay: I think I would see the main priority now as to make the Public Diplomacy Board work effectively in the interests of a more coherent approach to public diplomacy overall. I know that is what Lord Triesman wants to do. I think the first two meetings of that Board have gone well. It is early days yet and it is difficult to judge how that is going to go at the moment, but I think the prospects are quite good. I am not, I am afraid, in the picture about the advisory body. Q107 Chairman: It is keeping the previous people on in a kind of advisory consultative capacity. Sir Michael Jay: Oh, I see, I am so sorry. You are quite right, that is happening. I am not quite certain at the moment how that is going. Q108 Chairman: Perhaps you can clarify that for us, no doubt we will come back to this issue. We all agree that public diplomacy is very important even if there are some differences about what we define it as. Can I thank you, Sir Michael, and your colleagues for coming along together. We will probably see some of you in the future but others are moving on. To you personally, can I wish you all the best for the future. Thank you for coming today. Sir Michael Jay: Thank you. |