The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Meg Munn): I beg to move,

Parliamentary approval of the draft order will enable FCO Services to become a Government trading fund of the Foreign and Commonwealth Office from 1 April 2008. It is already an Executive agency.

I wish to start with two general points. First, we are today following a well-established route pursued by Governments of both persuasions of creating a trading fund whenever it will generate clear benefits, greater efficiency and better value for money to the taxpayer.

Secondly, I wish to place the proposal in context. Setting FCO Services on a more business-like footing and strengthening the Foreign Office’s professionalism as a customer is one of the modernisation programmes under way within the Foreign Office. Completing such measures will greatly improve the Foreign Office’s focus and efficiency in delivering the Government’s objectives overseas. I shall concentrate on the role of FCO Services and the benefit to the Foreign Office from trading fund status; the extensive preparations that have been made to ensure success; the implications of the move, including for staff in FCO Services; and our confidence that the necessary assurances for the future are in place.

FCO Services is our in-house support organisation. It provides key services to enable our main London office and our offices overseas to function all day, each day, 365 days a year. It protects our staff, buildings and communications from the wide variety of threats that they face continually in many parts of the world. Let me illustrate that.

In Lashkar Gar, Afghanistan, FCO Services has built secure offices and living accommodation for staff involved in the vital reconstruction effort. The logistics were challenging and the timetable short, but FCO Services worked successfully with military colleagues and partners across Government to complete the project successfully in one of the most difficult environments in the world. The completed building met United Kingdom standards and has secure technical systems of the highest standard.

My second example illustrates the work of FCO Services in international emergencies, such as after the tsunami and the terrorist attack in Sharm el Sheikh. FCO Services deployed staff immediately to install the essential portable communications equipment necessary for the relief effort before replacing it with secure IT and telephone systems as post-disaster operations developed. It forms a vital ingredient of the Foreign Office’s rapid response teams. FCO Services is a substantial business. It employs nearly 1,000 staff and in 2006-07 delivered services worth £126 million to the Foreign Office. It also delivered £15 million-worth of services to customers, principally other Government Departments here and some friendly Governments overseas. That external business can grow, as I shall discuss shortly.

Why do we want to move FCO Services to trading fund status? The answer lies in what that status can offer. On the one hand, FCO Services will remain part of the Foreign Office under the overall strategic direction of the Foreign Secretary. The Foreign Office will be the owner and sole shareholder with an ongoing close and tied relationship with a trusted partner. The Foreign Office can be assured of the vital services that it needs to keep its network functioning wherever it operates now and in the future. On the other hand, trading fund status will introduce strong, commercial disciplines. In future, FCO Services will need to finance its expenditure exclusively by selling its services, instead of being funded directly through the annual budget granted to the Foreign Office through the Treasury. Its income must therefore be sufficient to meet all its costs. In addition, the Foreign Office will systematically test the value for money that it receives, with competing services when appropriate.

FCO Services must therefore operate like a business, with improved efficiency and customer focus, and a passion for service delivery and innovation. Alongside the increased disciplines, it will have the freedom to increase business with non-Foreign Office customers—already about 10 per cent. of its business—and to reinvest those surpluses in its own long-term development. An expanded customer base will deliver a more financially secure organisation as well as producing cashable benefits and economies of scale for services delivered to the Foreign Office.

Business growth outside the FCO is no pie-in-the-sky aspiration: FCO Services already has some notable achievements. In open competition, it was recently selected as preferred bidder for a contract with the UN International Criminal Tribunal for the Former Yugoslavia at The Hague, to strengthen security systems and access to its buildings. Closer to home, FCO Services is providing essential support to the international operations of our own law enforcement agencies. With expertise developed for the Foreign Office, FCO Services has provided those agencies with a secure, worldwide IT system that enables more effective collaborative working, so aiding Britain’s fight against organised crime.

Therefore, trading fund status will give the Foreign Office the best of both worlds: a secure and reliable supply of business-critical services, and better value for money than is currently obtained. A more arm’s-length management arrangement will free up Foreign Office resources to focus on the Government’s strategic priorities.

We are thoroughly prepared for this move: Ministers agreed to trading fund status in 2005, and secured HM Treasury approval in principle then. Comprehensive preparations began. The first major work towards trading fund status involved FCO Services’ move to Executive agency status in April 2006. That improved FCO Services’ business performance: it made a £4 million surplus in its first year. The Foreign Affairs Committee welcomed the benefits brought by that first step towards trading fund status.

Since April 2006, the extensive programme of change has gathered pace in both the Foreign Office and FCO Services, regularly overseen by Ministers. The Foreign Office has streamlined and increased the skills of its purchasing teams to engage with FCO Services more effectively. FCO Services embarked on a root-and-branch change programme to transform its structure, business systems and processes, and to develop the skills of its staff for the more commercial trading fund environment.

Throughout our preparations, we have worked closely with the Treasury, National Audit Office and Office of Government Commerce. In autumn 2007, the National Audit Office completed a fit-to-trade review, and the Office of Government Commerce ran a similar review on the Foreign Office side. Both concluded that the Foreign Office and FCO Services will be ready for a successful move in April 2008. The main Foreign Office board and Ministers took note of that assessment and the progress being made, and confirmed that we should go for a launch in April 2008. The Office of Government Commerce further commended the FCO’s preparations as an example of significant good practice.

As part of our preparations, and in line with the order, we have completed a public consultation exercise, seeking views from interested parties on the initiative overall. The initiative was important, and we provided reassurance to respondents on a number of points. However, no issues emerged to suggest that we should revisit our plans. An analysis of responses was placed in the House of Commons Library on 14 January and has been published on the Foreign and Commonwealth Office website. Further, we have completed an impact assessment of the move to ensure that we are fully aware of the effects of the legislation. Our assessment is that there will be no significant impacts; that has also been placed in the House of Commons Library.

An important part of our preparations has, of course, been continuous engagement with FCO Services staff and their trade union representatives. We have made clear that existing staff moving to the trading fund will remain civil servants. They will continue to be able to bid for jobs in the main Foreign Office and the home civil service, as now. We consider that the move to a more commercially-focused organisation will enhance their professional skills and open up greater career opportunities.

We have regularly sought feedback from staff during the preparations. The 2007 staff survey indicated that more than two thirds of staff understood why FCO Services is becoming more commercial, with over half in favour of the move. I understand that staff are at different stages of accepting the change. Naturally, some are uncertain about their ability to meet the demands of the new environment, while others are becoming more actively involved in making the change happen. FCO Services is proactively supporting staff by running training programmes to develop the new skills needed, and by keeping them fully involved in the change process through two-way, face-to-face and written communications. The trade unions are fully involved in preparations for the transition through the Whitley process, as well as through other informal briefings.

Finally, I want to confirm our thorough planning for the future. The governance of FCO Services is fully developed and in line with best practice. Ministers and the Foreign Office will maintain proper oversight of FCO Services work and receive early warning of any problems. FCO Services is properly constituted for trading fund status with, for example, its own audit and risk committee chaired by a non-executive director. The National Audit Office will audit its accounts annually and those will be presented separately to Parliament. Through, for example, the Foreign Affairs Committee, Parliament will be able to maintain a close interest in the future growth and prosperity of FCO Services.

To sum up, FCO Services plays a vital role in maintaining our overseas presence and capability. We must maintain and improve its expertise and encourage its wider use. Trading fund status is the best framework in which to do that. Our extensive programme of preparations and external assessments provides the necessary assurance of success, and I commend the order to the Committee.

Mr. Keith Simpson (Mid-Norfolk) (Con): What a pleasure it is to serve under your chairmanship, Mr. Benton, and what a pleasure it is to see the Minister here to discuss what appears to be a simple piece of legislation that does not require more than perhaps a few minutes. Alas, I may disappoint her. Foreign Office mandarins, being historians by background, will know that in “The Practice of History”, the late Professor Geoffrey Elton insisted that one should examine a document carefully, examining where it has come from, who drafted it and any outstanding questions. I will take the opportunity to do that.

I begin by looking at schedule 1—funded operations. It states:

and it goes on to list a series of important functions of one kind or another, giving a wide range from obvious ones such as IT and technology to something called facility management and procurement, security and vetting services. Obviously, many of those services are also required by other Government Departments, and I wonder whether there is any overlap. For example, the Ministry of Defence has a security and vetting agency that covers other Government Departments. Does it cover the Foreign Office, and if not, why not? That is in paragraph (a). Paragraph (b) mentions

The Minister gave two examples of activities overseas, and another example in support of a UN facility. Will she say who the other customers were within the UK? I realise that that might be sensitive if it involves Government departments associated with the Foreign Office that we do not normally discuss in Parliament.

Perhaps more importantly, as far as the Foreign Office is concerned, the Minister said that one of the strong rationales behind the setting up of the trading fund was to allow it to compete commercially. If the Foreign Office has to compete for business across the board, can she guarantee that it will have priority over other customers, given that there is this need to show a profit? Many hon. Members would be concerned if the Foreign Office had at some stage to play second fiddle to others.

The schedule then states that

Will the Minister describe operations that are incidental or conducive? What a wonderful adjective “conducive” is—it must have taken a lot of thought to come up with an adjective like that. What does “related or otherwise ancillary” to the provision of goods mean? I would be grateful if the Minister could expand on that.

In 2006-07, FCO Services as an Executive agency confirmed that security was the prime focus of its attention—secure environment, secure logistics and secure IT solutions. Will the Minister confirm that those will continue to be the three main priorities under the order?

My next point is about personnel. I assume that there will be a chief executive. Will the current chief executive continue, or will there be a new one? Can we establish what his or her salary is? Will it be within the civil service scale, or will it relate to the private sector? The Minister referred to staffing numbers being about 1,000— [Interruption.] I love it when we see the civil servants behaving like magpies, having to draft replies; it shows that Parliament is truly working. Does she anticipate that number remaining roughly the same, increasing or reducing?

Finally, I draw the Minister’s attention to the excellent document that was put on the internet, signed off by the right hon. Lord Malloch-Brown, with a good photograph of him looking determined. In paragraph 3.2, the strategic benefits of the move are set out, in particular, “Increased security of supply” of key services. Why will there be an increased security of supply? I cannot quite see the logic of that. I can perfectly understand the reference to “Improved value for money” in services.

The third point is:

What is “real value”? I know that it is a wonderful piece of management newspeak, but what does it mean in real terms for the Foreign Office and its men and women, many of whom are serving in dangerous parts of the world?

The fourth bullet point is:

It talks about the FCO’s

I am not being facetious, but does that mean that in the past it was a stupid customer, or is this just more newspeak? I do not blame the Minister for that, but when both the private and public sectors come up with this kind of management newspeak, we must tease out exactly what is meant by it.

The fifth bullet point, and this is a slight tease, is:

Does that mean that the Foreign Office admits that the Government have a problem on public expenditure pressure? Does it mean that the Foreign Office expects that there will have to be cuts? I hope not, but I would be interested to hear the Minister’s view, on a day on which nationalisation merely means—

The Chairman: Order. I am sorry to interrupt the hon. Gentleman. Can he tell me which document he is referring to?

Mr. Simpson: Yes, it is the consultation document, which provides explanatory background information on the order. The Minister has referred to it. Is that in order?

The Chairman: Yes. I ask about the matter for the record.

Mr. Simpson: Finally, the document states that there will be a

Given that it seems likely, from what the Minister said, that the majority of the current FCO Services work force will go into the new organisation, does that mean that they will become more professional and flexible through in-house training alone, or does the Minister envisage that people will be recruited from outside the Foreign Office, from other Departments or from the private sector?

I have asked a series of questions. The Opposition broadly support the order, but there are some questions that need to be asked.

Jo Swinson (East Dunbartonshire) (LD): It is a pleasure to serve under your chairmanship today, Mr. Benton. I will keep my remarks fairly short. As has been said, and as we can all agree, it is beneficial to move towards greater efficiency, effectiveness and value for money for the taxpayer in FCO Services, so I give the order a broad welcome. However, I have a few questions, which I hope that the Minister will address.

As the accompanying notes state, the mechanism in the order has been commonly used by Governments of both parties since 1973. I would be interested to hear from the Minister what the record is of other trading funds that have been set up. Obviously, the National Audit Office will play a scrutiny role before a trading fund can be set up: as the Minister said, it will audit the accounts annually. But has it also conducted an analysis of what makes such funds successful and how effective they have been? There is a concern about whether taking public money out of Ministers’ hands will lead to reduced accountability, and I would be interested to hear the Minister’s reassurances that there will be sufficient scrutiny of the accounts. She mentioned that NAO reports will be produced, but will they be presented to Parliament, placed in the Library for full public scrutiny and put on the record?

If, as none of us hope, the fund fails or makes a loss, the accompanying notes mention that ultimately the FCO will be responsible and the taxpayer would be liable. It is obviously desirable that that kind of situation is not allowed to arise and that if there are any difficulties, speedy remedies are in place. The Minister welcomed the early-warning systems and I would be interested if she could elaborate on those. Taking up my earlier point about the performance of other trading funds, could she tell us whether there are any examples of funds that have failed or made a loss and whether, in those circumstances, similar early-warning systems proved effective?

Finally, I want to pick up on the consultation responses. Obviously, there was a range of consultation responses, many of which were broadly in favour or fairly neutral, but the trade unions raised some concerns. Will the Minister explain in more detail what those were, and how and indeed if they have already been addressed by the chief executive of FCO Services? Are the fears of potential redundancies grounded? Are changes in pay and conditions expected for current employees? I hope that the Minister will address those brief points, but other than that, we broadly welcome the order.

Meg Munn: I shall try to answer all those questions. I have taken note of them and I have a sheaf of paper with many responses on. I am sure that the hon. Members will remind me near the end of my reply if I have missed out any issues.

The hon. Member for Mid-Norfolk asked about the issue of vetting services. The UK has more than 100 providers of vetting services. FCO Services is already a major supplier of that service in the UK. We are working closely with the Cabinet Office to transform service provision and ultimately reduce costs. As I sought to set out, it is important that we see the process of becoming a trading fund as a step that allows us to become more competitive and therefore to win a greater number of contracts. I would expect that to be the case.

Mr. Simpson: I do not know about other hon. Members, but I am flabbergasted that there are 100 organisations involved in vetting and security. Are those all Government organisations or are they from the private sector? How many Government organisations are involved in vetting and security?

Meg Munn: The hon. Gentleman has asked me a question for which I do not have the answer. Perhaps he would be happy for me to seek further information on that and subsequently write to members of the Committee. I am sure that it will be of great interest to a great many hon. Members and perhaps we will all learn something in the process.

The hon. Gentleman asked specifically about the chief executive. The present chief executive is Mr. Christopher Moxey who was appointed following an open competition in February 2006, initially for a four-year period. The competition attracted a broad range of applicants from both the public and private sectors. His salary details and any benefits are reported in the FCO Services annual accounts, so the hon. Gentleman will be able to keep an eye on that issue.

As for what other skills we have been putting in place for the process, we want to ensure that a fully qualified career-professional financial director, a fully qualified career-professional human resources director and a fully qualified career-professional chief information officer are appointed. We are currently recruiting a further three directors to deepen the FCO Services leadership and business capabilities in 2008. FCO Services has implemented a wide-ranging commercialisation training programme focusing on financial and commercial processes, which will continue to be rolled out throughout the organisation.

A work force plan has been developed. The hon. Gentleman asked several questions about staff, and the hon. Member for East Dunbartonshire sought some reassurance on that point. The work force plan has identified a likely aim to recruit in excess of 100 staff during 2008-09 to increase the range of skills needed for FCO Services to operate effectively as a trading fund. There are therefore no current concerns about redundancies. FCO Services is looking to recruit those with IT, security, technical, human resources and finance skills. The Serious Organised Crime Agency, the Home Office, No. 10 and customs officers deployed overseas have been other UK customers.

I want to set out the processes for the future. A comprehensive five-year corporate plan has been agreed with Ministers to direct the future business activities of FCO Services. I reassure members of the Committee that, through that regular contact, Ministers will continue to be involved and the FCO’s needs will be served. That will be overseen at director-general level so there should indeed be early warning of any problems. It is important that FCO Services maintains a strong, long-term strategic partnership with the FCO that will deliver value-for-money services and guarantee a supply of critical business services to the FCO—issues that the hon. Member for Mid-Norfolk rightly raised.

The hon. Gentleman sought to tease out a view from me about public expenditure. All I can say to him is that we obviously seek the best value for money for the taxpayer and we would not want to spend more money on any such issues than is necessary. The move to trading fund status will improve value for money and increase opportunities for competition. FCO Services will compete openly to deliver its core services to a greater extent, as will other organisations that are not connected to the Foreign and Commonwealth Office. We believe that that will strengthen the organisation.

The hon. Member for East Dunbartonshire asked for details of other trading funds. I anticipated such a question and I have two sheets of paper that list a number of them, such as, from the Cabinet Office, the Central Office of Information, whose business is publicity services to United Kingdom Government Departments. It is currently breaking even. Another is Companies House from the Department for Business, Enterprise and Regulatory Reform, which people like to refer to as the former Department for Trade and Industry. It has a significant turnover. The Driver and Vehicle Licensing Agency is another trading fund and is making a profit of £10 million.

As for oversight, the annual report of FCO Services will be laid before Parliament and, as I said earlier, the Foreign Affairs Committee can continue to inquire into that issue. It is a trading fund, not a privatisation issue.

Jo Swinson: On the lengthy list of various funds that have been in operation, does the Minister know if any of them have failed in the past? Can she give us reassurances on that score?

Meg Munn: That was a helpful intervention. I am informed that some trading funds have had some difficulties, while others have done exceptionally well. That is as much as I can tell the hon. Lady on that. We are clear, regarding the accountability framework in the FCO, that the chief executive, as accounting officer, is responsible to Ministers and, ultimately, to Parliament for all aspects of FCO Services’ performance. I am confident that the process and structures we have put in place mean that while the FCO Services trading fund will be able to operate in a more commercial way, it will still have the same accountability and oversight that it has enjoyed until now.

If the hon. Lady refers to what I said at the beginning of the Committee, she will see that we have not rushed into this. The initial decision was taken in 2005, and there was a move to Executive agency status to test it out. We have been given a positive go-ahead from the report of the Office of Government Commerce and the National Audit Office, so we can be confident that this step forward is right and will continue to deliver what we need.

The hon. Member for Mid-Norfolk asked whether the FCO will have priority over other customers. I assure him that that will be the case. The service level agreements that will be part of the framework underwriting the whole process will bind FCO Services first and foremost to the FCO.

The hon. Gentleman also discussed, in some detail, increasing the security of supply of the services. I can tell him that we will continue to focus on them. This comes back to the term “intelligent customer”. He knows that I am a fan of plain speaking, and although I might not have used such a phrase, I understand it to mean that precisely because the fund will be a trading fund, it will seek to have the best possible commercial arrangements and will therefore expect clear specifications and processes from its customer—in this case, the FCO. We expect the process to improve the relationship, ensure that the services we want are put in place and that there is continued benefit for all concerned.

The hon. Member for East Dunbartonshire asked about trade unions. There has been extensive and ongoing dialogue with the trade union side, which represents all three recognised unions. Formal meetings between the chief executive officer, human resources and the trade unions will continue to take place on a six-monthly basis, with informal meetings and specific briefings in between. We are content that the processes have enabled concerns to be addressed to ensure that staff are not disadvantaged by the process. As I set out at the start of the Committee, existing staff will remain as civil servants within the civil service management code, and their pension will continue. Of course, any future changes will need to be negotiated.

I think that I have answered all hon. Members’ questions, so I will sum up by pointing out that there are significant advantages to the change to trading fund status, including gaining better value for money for services procured from FCO Services for the Foreign Office. There will be a range of other financial benefits such as the release of more resources for core activities. Other Departments will have greater access to the expertise and experience of FCO Services and, importantly, the taxpayer will receive better value for money. Most importantly, we are confident that the extensive programme of work that FCO Services and the Foreign Office have carried out leaves both organisations in excellent condition to take full advantage of the opportunities that trading fund status will bring. I hope that I have demonstrated that this afternoon. I am pleased to have had the opportunity to explain those benefits, and I thank you for chairing the Committee, Mr. Benton. I also thank hon. Members for their interest and thoughtful interventions.

Question put and agreed to.

Resolved,

Committee rose at five minutes past Five o’clock.