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It would help if the Minister said whether he is aware of any major UK ally that requires its Foreign Office to bear the full brunt of foreign exchange movements, or whether the UK is alone in that respect. The US State Department, for example, has a buying power maintenance account to ensure that it does not suffer from adverse currency fluctuations.

The fact remains that the change happened on the Foreign Secretary's watch, and I hope he will be prepared to come to the House at the earliest opportunity, in Government time, to address the concerns about the state of the Department over which he presides.

Let us look at what we know of the consequences. In 2008-09, the first year without the OPM, the FCO budget for embassies took a hit of £59.2 million. In the current year, the hit on embassies is estimated to be £80 million. In the next financial year, according to Sir Peter Ricketts, the hit will be £120 million out of a budget of £830 million for the UK's embassies overseas.

In fairness, 190 British missions have had to receive extra money to compensate for the reduction in the spending power of their local budgets, but one head of mission complains that their local budget has been effectively cut by 25 per cent. The Minister of State, Baroness Kinnock, said last week that

She described

She said:

Sir Peter Ricketts said:

It seems staggering that the work our embassies can do in a particular country depends not on our intent but on the strength of the pound against the local currency. That must affect morale and make consistent planning exceedingly difficult. Is there not a risk that diplomats are being posted overseas without the important training they would normally have? Is that not likely to have a knock-on impact on the effectiveness of British diplomacy? Ministers have been extremely coy about saying what training has been stopped and how many diplomats have been affected. It would be a matter of particular concern if the language training that has distinguished our diplomats for so many centuries were being affected. I hope the Minister is in a position to assure us that that is not the case.

Such is the incoherence that the cuts are eating into the new priorities established by the Foreign Secretary himself. In January 2008, he rewrote the FCO's strategic priorities, identifying four new policy priorities on which the FCO would focus. Three of those priorities were counter-terrorism, conflict prevention and climate change-the very programmes that have been cut.

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The Foreign Secretary said that

However, according to Baroness Kinnock, jobs and funding in those areas are now being cut.

The FCO has stopped its contribution to peacekeeping and conflict prevention in Latin America entirely and cut back its contribution in nearly every quarter of the globe. That must cause serious concern, and it seems likely to affect our international reputation, especially given that our major ally, the United States, is dramatically increasing its spending in those areas. It must also distract FCO staff from the business of diplomacy, which is supposed to be the FCO's core function. FCO senior management must now oversee highly complex hedging operations, receiving advice from HiFX Financial Services costing £41,000 a year.

What of the future? Sir Peter Ricketts has warned starkly that

and that the closure of British embassies overseas cannot be ruled out. It is time for the Government to tell us.

I hope the Minister will answer the questions I have raised, respond to the following specific points and write to me with any answers he cannot provide today. First, the Foreign Secretary took over in June 2007, and the OPM was withdrawn that October. Will the Minister clarify once and for all whether that was a decision overseen by him, an act of his outgoing predecessor or just an oversight?

Secondly, did any FCO Minister oppose the decision to remove the overseas price mechanism? If not, why not? My right hon. Friend the shadow Foreign Secretary has tabled a written parliamentary question on the subject to the Foreign Secretary, but has been stonewalled. Which Minister oversaw the decision? Did the Foreign Secretary personally raise the issue with the Treasury? Was he briefed on it by his officials?

Thirdly, will the Minister account for the discrepancy between what Baroness Kinnock said to the House of Lords last week-that FCO counter-terrorism programmes in Pakistan have been cut-and what the Foreign Secretary said in a letter to my right hon. Friend the Member for Richmond, Yorks yesterday? The Foreign Secretary said that there had been and would continue to be a rise, year on year, in his Department's spending in Pakistan.

Fourthly, why is the FCO budget still taking such a huge hit from adverse currency movements-over £100 million by the end of the year, according to Sir Peter Ricketts-two years after it implemented its own mechanism to hedge against currency movements? Are Ministers satisfied that the new system is working sufficiently well? If not, what are they doing about it?

Finally, Sir Peter Ricketts said in December that the FCO was in discussion with the Treasury about the budget crisis. What was the outcome of those discussions? The hedging strategy is clearly not enough to compensate fully for the absence of the OPM, and the permanent under-secretary is warning that embassies may have to
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be closed as a result. Are Ministers asking the Treasury to step in and fill the gap, or are a string of UK embassies about to be axed?

It really is not a sensible proposition to run foreign policy on the basis of exchange rate movements. The nature of the threats that this country faces requires pre-emptive diplomacy in extremely dangerous and volatile parts of the world, where it tends to cost more to intervene and where the exchange rate risk is likely to be much higher because the place is riskier. There is a risk that the FCO will have to bear that in mind as a pre-eminent condition in determining whether diplomacy is feasible, rather than as a cost that must be borne as a matter of course in the pursuit of this country's national interest.

Sir Peter rightly described this country's overseas network as

It is a valuable human and physical resource, a significant factor in our country's ability to continue to punch above its weight and a platform used by every Department overseas. That network, or parts of it, really is in jeopardy, and we need the Government to explain how cuts to it can be prevented and how the vital skills and training of UK diplomats can be preserved. We need Ministers to reassure Parliament and the public that the country's ability to project its influence overseas is not being limited. In today's challenging environment, the Government should be working to build our influence in selected areas, not presiding over its decline.

1.16 pm

The Minister for Europe (Chris Bryant): It is a delight to serve under your chairmanship, Mr. Caton. I congratulate the hon. Member for Gravesham (Mr. Holloway) on securing this timely debate.

I should say from the outset that the most important thing in the Foreign Office is not the buildings that we own or the places where we are, but the job that we do-it is not about being, but about doing. That reflects one of the significant changes that have taken place in diplomacy over the past 50 years. In the past, people said, "Let's have the biggest building we can, to show that the British empire still rules the roost," but nowadays people are far more interested in being effective in the countries that we talk to.

The hon. Gentleman is right that we have had to make our priorities clear in recent years, and we have had to focus our spending clearly on them. When my right hon. Friend the Foreign Secretary arrived in post, he was right to say that he wanted to make sure that the whole Foreign Office network was clear about what its point was and which priorities it had to pursue with absolute diligence.

Other countries in Europe face difficult issues about their representation in different parts of the world. Yesterday, I was in Brussels with Europe Ministers, and some of them were complaining that Sweden has just closed five embassies in European Union member state cities but opened 10 new places elsewhere-ironically, we have just reopened our office in Malmo. That is a constant process, which the Foreign Office and every country in Europe will have to engage with throughout the years ahead. We have no specific plans for closures
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at the moment, but we always have to make sure that all our money is focused on the job in hand and on getting things done.

The hon. Gentleman mentioned the overseas pricing mechanism and he is right that we have seen much greater volatility over the past few years than in previous years. In the four years up to 2007-08, when the mechanism still existed, there was never a movement of more than £20 million in one year, whereas this year and last year have seen much more significant changes.

There is clearly a difficult set of issues to resolve in the Foreign Office and, for that matter, in the Government. In that respect, I can absolutely reassure the hon. Gentleman that the Government have no intention of diminishing our presence in the world or reducing the work that we do. However, in our estates policy-the Foreign Office owns a large amount of estate around the world, which has quite often been gifted to us by generous Governments and sometimes by British citizens abroad-we will always want to make sure that we use every pound effectively. That is why we have been going through a series of good housekeeping measures over the past few months. One relates to what allowances should be paid to diplomats and UK staff based abroad, another relates to how we organise our travel and another relates to the estate. Thirty or 40 years ago, many members of staff in an embassy would have been expected to entertain in their embassy-provided flat, but that is much rarer today. In many cases only the ambassador would be entertaining at home; so matching the estate to the needs of a modern diplomatic service is important.

The hon. Gentleman referred-rather disparagingly, I thought-to laptop ambassadors. It is certainly true that in some places we must be nimble and light of foot. For instance, in Laos we do not have an ambassador in Vientiane. We are accredited to Laos, but the Australians have taken over our embassy-they are based in it-and they provide much of the consular support to us. However, the British ambassador in Bangkok regularly visits Laos. We must have a presence at the appropriate level for each country. In the past 10 years Foreign Office staff have been far more imaginative about how we can do that creatively, so that in the Baltic states, for instance, rather than having an expert on every issue in every post, we have tried to work together in the region, not least because the countries in question also tend to work as a region. We can get more bang for our buck-or pound, depending on the exchange rate.

It is worth pointing out that roughly 50 per cent. of our posts have fewer than four members of staff. That is not particularly new; it is just a fact, because sometimes that is the appropriate level of representation. I want to focus more on the outcomes that the Foreign Office tries to achieve, which we have been good at in the past few years, than on just the practicalities of how many people we have around the world, and how many buildings they are in.

One of the key things that we want is to protect the United Kingdom from threats from around the world. The EU Operation Atalanta, off Somalia, in which we targeted the piracy that has plagued many British shipping companies, is a vital part of our work, and we are leading the effort. Likewise, we provide training to increase counter-terrorism work in many parts of the world, and that, too, is an important outcome. We obviously try to promote the UK economy-UK Trade
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and Investment takes the lead on that-through our embassies. We reckon that that has brought in £3.6 billion of additional profits to the UK. In addition, we try to lead in international organisations on a series of key issues for the United Kingdom. I would particularly mention our work on the cluster munitions and land mines conventions. Our leadership played an important role in bringing those about. I look forward to taking forward the Cluster Munitions (Prohibition) Bill in the next few weeks; it has already been through the House of Lords.

I disagree with the hon. Gentleman, therefore, about his characterisation of where the Foreign Office stands today. My experience, having visited many embassies, in Latin America, Australasia and Europe, is that our presence is well placed and well met. It is highly resourced and people can do a good job because of the quality of the people that we recruit and because there is phenomenal pride in working for the Foreign Office.

The hon. Gentleman asked some specific questions, which it is only fair that I should try to answer. He asked about counter-terrorism spending in Pakistan. I do not think that he was in the Chamber on Thursday when I answered an urgent question on that. I tried to make it clear then, as I want to now, that it is not true that less money will be spent next year than this year or last year on counter-terrorism in Pakistan. Some of the newspaper reports that have suggested, for instance, that there will be a £110 million cut to counter-terrorism spending in Pakistan are wide of the mark, not least because we have never spent anything like that on counter-terrorism in Pakistan. The figures are these: in 2008-09 we spent £35 million on counter-terrorism; in 2009-10 we shall spend £36.9 million; and we expect to spend about £38 million in 2010-11.

The largest proportion of that counter-terrorism budget, by some considerable distance, is spent in Pakistan; it amounts to some 28 per cent. of that budget. That means that we spent £3.7 million in 2007-08, £6.3 million in 2008-09 and £8.2 million in 2009-10, and we are projected to spend between £9 million and £9.5 million in 2010-11. It is certainly true that we would always want to spend more on counter-terrorism in Pakistan and we have had ambitions to spend more, but as I said last Thursday, we have had to curtail those ambitions.

The hon. Gentleman asked whether there are ongoing discussions with the Treasury on this subject. I have to say that the Treasury has been entirely helpful throughout the process of our having to deal with these issues. The discussions are far from complete and I very much hope that they will be successful. I know personally that the Chancellor of the Exchequer and the Prime Minister are very focused on the need to have a strong presence in the world. During the next two days, with the Afghanistan conference here in London, I think that we will see that Britain is well respected, not only because of the Foreign Office but because of the trilateral work that we do, in the Foreign Office, the Ministry of Defence and the Department for International Development. Those three Departments work very closely together and, of course, they are the three Departments that are most affected by exchange rate changes.

Mr. Holloway: I agree with much of what the Minister is saying. However, surely the substantial point here is that we are in a position where we have to expand or
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reduce our diplomatic operations in line with the movements of exchange rates. Is that really a way to run an effective foreign policy? Also, what is he doing to try to claw back what has been for the FCO the disaster of removing the OPM?

Chris Bryant: As I said last Thursday and as I have already said again today, this is a difficult time and we need to do every piece of good housekeeping to ensure that we receive value for money, especially in relation to our estate and the way that we recompense and remunerate our staff. Furthermore, we have not yet completed discussions with the Treasury on our financial situation for the next financial year.

However, I would just push back this point to the hon. Gentleman. Today, rather unusually for him, he has been something of a front man for his own Front Bench.

Mr. Holloway indicated assent.

Chris Bryant: Just for the record, the hon. Gentleman is nodding and he is obviously very proud of being that front man. However, I want to ask him whether the Conservative party would reinstate the OPM. Would the Conservatives increase the amount of representation in Latin America? I know that Baroness Rawlings, who speaks for the Conservative party, was boldly announcing last week that it had every ambition to increase the number of British embassies in Latin America. Therefore, would the Conservatives increase the number of our embassies in central America? For example, would they reopen the embassy in Tegucigalpa? Do they really have any intention to spend extra money-because if they do, we would like to know the figures.

Mr. Holloway: The Minister rightly points out that I am an extremely lowly and unimportant Back Bencher,
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so I cannot answer those questions. However, what I am sure of is that the Conservative party will not expand or reduce Britain's overseas footprint or our ability to project the country on the basis of foreign currency fluctuations.

Chris Bryant: That is not what I predict the Conservatives would do if they were to become the Government. I urge the hon. Gentleman, because he has spent a great deal of time talking about his correspondence with the right hon. Member for Richmond, Yorks (Mr. Hague), to speak to him and ask him to answer my letter of last week, in which I asked him a series of questions about how the Conservatives would finance the Foreign Office. Is it true that they would end up raiding the overseas development pot to pay for the extra embassies that they intend to open? Is the right hon. Gentleman making promises that he cannot possibly fulfil?

Mr. Holloway: Cut the politics. [Laughter.] No, seriously. It is not politics; it is actually really important. It is about Britain's diplomatic footprint. Is the movement of foreign currencies-foreign currency fluctuations-the basis on which to expand or reduce our presence abroad?

Chris Bryant: Well, I do not think of the hon. Gentleman as a minor player in the Conservative party. As he has already acknowledged, he is their front man for this debate today, so it is a bit rich for him to start accusing me of playing party politics. The truth of the matter is that I do not think that the most important thing in the world is just being; it is what we do and whether we are able to make a difference in different parts of the world. And I have every confidence that the discussions that we are having, between the Foreign Office and the Treasury, will be able to move this issue forward.

Mr. Martin Caton (in the Chair): Order. We must now move on to the next debate.

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