Examination of Witnesses (Question Numbers
1-19)
SIR PETER
RICKETTS KCMG, JAMES
BEVAN AND
KEITH LUCK
9 DECEMBER 2009
Chairman: Gentlemen, welcome. Peter,
you have been before us many times. We have also known your colleagues,
Mr. Luck and Mr. Bevan, in different incarnations. This is obviously
the last time in this Parliament that we will have you before
us to talk about the annual report, so we may ask you some questions
to get an overview of how things are, as well as specific questions.
Sir Peter Ricketts:
May I thank the Committee for being willing to delay my appearance
here to allow me fulfil my Chilcot inquiry obligations over the
last couple of weeks?
Q1 Chairman: We
understood why you had to do that. It is not a problem. I shall
begin by asking you about the main purpose of having an FCO annual
report. We noticed that there is quite a large number of glossy
photos in this year's volume one, and that there isn't an index.
We wondered why that is the case. Is it because this is much more
orientated to presentational public relations than policy?
Sir Peter Ricketts: The primary
purpose of the report is to enable Parliament to hold us to account
for our stewardship of the Department over the year. That is why
we have striven now to publish the report with the accounts together,
so that there is a complete report on the work of the Department
for the year. It has a secondary purpose, which we have also tried
to achieve, which is a wider public explanation of the work of
the FCO. Over the years, as you say, it has become a bit more
glossy, with the intention of being a bit more accessible. I wrote
to you, Mr. Chairman, a few weeks ago, to suggest that in the
current economic climate and with pressure on budgets on all sides,
it was perhaps time to think again about that and to go back to
a rather simpler document that would have the same content to
the same standard, and would be serving Parliament's requirement
to have the report hold us to account. We could perhaps divert
some of the money that goes into this into a better web presentation
of the FCO. We print quite a lot of copies of this. I don't get
much impression that it makes the impact that we hoped outside
Parliament and the FCO.
Q2 Chairman: How many hard copies
do you produce?
Sir Peter Ricketts: I know we
spent £50,000 on it, so I think we probably produced several
thousand copies.
Q3 Chairman: Who is the audience
for the hard copies?
Sir Peter Ricketts: We have sent
copies to all our posts in the world for use in promoting the
FCO around the world, and we have used it with other stakeholders
in the UK who are interested in the FCO. I am not sure how much
impact it has, to be honest, which is why we were proposing to
move next year to a simpler version and to put more effort into
our website, which does attract a lot of attention.
Chairman: Thank you for that. I will
bring in Gisela Stuart.
Q4 Ms Stuart: Money. The 2007
comprehensive spending review sets out the budgets. In 2007-08,
the Government spent £586 billion; the FCO received £2.1
billion of that, and DFID received £5.4 billion. The following
year, 2008-09, Government overall expenditure went up by 7% to
£620 billion. However, what happens to DFID? It manages to
spend £5.2 billion, and the Foreign Office has a cut of 8%
down to £1.9 billion. To begin with, would you like to comment
on what seems quite a disparity between the spending of DFID and
the Foreign Office?
Sir Peter Ricketts: I don't recognise
the sharpness of the cut in the FCO budget in those figures, and
I would need to do some research on that. Essentially, over the
past two spending rounds, it has been flat or less than flat in
real terms. Our budget, if anything, has been slightly declining
in real terms. The Government have a commitment to increase the
budget for DFID to 0.7% of GDP, which means that each year it
goes up significantly towards 0.7% and there is still some way
to go. It is Government policy that DFID's budget should rise
pretty sharply, and in the past two spending rounds it has been
Government policy that the FCO budget should be slightly below
real terms, in cash. That is what we have had to manage with.
Q5 Ms Stuart: Can you think of
another European country that spends more on its international
development than its Foreign Office representation?
Sir Peter Ricketts: I can't produce
you a country immediately. Each country does it differently. Some
countries combine it in one department, some have one department
with two separate parts and others, like us, have a separate department.
I would need to research exactly how it compares, but I know that
this Government have a very clear commitment to the 0.7% target,
and you can see that in the DFID figures.
Q6 Ms Stuart: This Government
also have a clear commitment that international development is
not meant to be a tool of foreign policy. Can you think of another
country that is prepared to make such a huge financial commitment
abroad while avowedly saying that that has nothing to do with
foreign policy?
Sir Peter Ricketts: I haven't
looked at how other countries explain their development policy.
I am very familiar, however, with this Government's development
policy, which is, as you say, that it should be in a clearly separate
Department with a separate Cabinet seat. But the Departments are
linked together; I would not want to leave the impression that
DFID and the FCO operate in completely separate universes. We
are co-operating very closely, although we are separate Departments.
Q7 Ms Stuart: But would you say
that DFID's rather narrow definition of poverty relief has never
caused you any problems?
Sir Peter Ricketts: No, I wouldn't,
but I would say that, over the past five years, DFID has put a
lot more effort and time into the link between development and
security, and is working very closely with us, first in Iraq and
now in Afghanistan, on that spectrum between development and security.
Q8 Ms Stuart: So would I be wrong
in saying that, if we were to take another look at the definition
of DFID's primary purpose and widen it, that may actually help
the Foreign Office in doing its job properly abroad?
Sir Peter Ricketts: I don't think
it's for me to comment on DFID's purposes. I think that anything
that lets DFID and the FCO co-operate more successfully on that
spectrum between conflict, security and development is good.
Q9 Ms Stuart: Just one more question,
which relates to exchange rates. The National Audit Office states
that "the Treasury looks to [the] FCO to factor in exchange
rate changes as a part of resource allocation decisions."
There seems to be a clear assumption that that is something you
should do. I wonder, however, given the recent changes, or the
recent quite dramatic fall in the value of sterling, whether that
assumption is still justified. Also, can you tell us a bit more
about what kinds of problems that is causing you practically on
the ground?
Sir Peter Ricketts: I can certainly
tell you the sorts of problems it is causing us. That statement
by the Treasury is not one that I feel comfortable with, given
the volatility of sterling since the spending-round settlement,
which has seen it fall by 25% against many of the major currencies.
I think that is a very difficult degree of volatility to handle
in a budget such as that of the FCO; it spends more than 50% in
foreign currency, and it has one of the smallest budgets in Whitehall.
We have, as the NAO report describes, had a significant hit on
our capacity to operate abroad. In the first year of the spending
round, it was about £60 million; this year it will be around
£100 million; and in the next year, we forecast that it will
be something like £120 million out of a budget, to run our
posts overseas, of £830 million. That is a very significant
hit. We have had some partial help from forward purchasing of
currency, but, as we have discovered, that is not by any means
a panacea.
Q10 Ms Stuart: But you've stopped
doing that, haven't you?
Sir Peter Ricketts: No, we are
continuing to do it. The problem is that, if you buy for one year
in advance and sterling falls, the purchases you made a year ago
are now at a very low level. That is having an impact on our budget.
We have to stop a lot of activity this year in order to come within
our parliamentary control totals. I think the NAO report describes
some of the things we have done. We have stopped whatever programme
activity was not committed, stopped most of our training and cut
into our travel and our hospitality for posts overseas. Moreover,
local staff have not had overtime payments or, in some cases,
pay rises, and some are on involuntary unpaid leave or four-day
weeks. We have a real problem within the budget at the current
levels of sterling.
Q11 Chairman: Sir Peter, isn't
this absolutely deplorable? Do you expect any amelioration of
the situation from the Chancellor later today?
Sir Peter Ricketts: I don't know
what the Chancellor will announce later today. We are finding
it difficult. My obligation, as an accounting officer, is to run
the FCO with the money that Parliament gives me. We are having
to do what is necessary to do that. We are certainly in discussion
with the Treasury about the position in which we find ourselves,
and the Foreign Secretary has been in detailed discussion with
Treasury Ministers about that. I am not conscious of what will
be in the announcement to Parliament later today.
Chairman: We'll come on to some of the
specifics of this later on.
Q12 Mr. Purchase: I'll not be
specific, then, but clearly this is a time when Departments really
do have to live within their budgets. As the exchange rate phenomenon
is making life particularly difficult, can you assure us that
you have in place, or are beginning to put in place, plans that
would allow you to keep the front-line services moving while at
the same time achieving those reductions that are necessary to
stay within the budget?
Sir Peter Ricketts: Yes, I can
assure you that we are focusing very hard on that. Because we
have had the past two spending round settlements, which require
us to reduce our overall administration costs and spending, we
are already in the habit of looking very hard at every pound we
spend, and doing it as efficiently as possible. We absolutely
accept that there is pressure across public spending and that
we must be part of that, and we have done a lot in the past few
years, as the Committee will have seen from its travels, to make
posts more effective, find ways of saving money, sharing services
and reducing unnecessary spending. These additional pressures
are coming on top of a period of several years during which we
have already been making significant efficiency savings, and the
scope, therefore, to save the necessary money through efficiency
savings is limited. However, it is absolutely the case, Mr. Purchase,
that we are seeking to live within our budget, while preserving
what the Foreign Office does that is most important.
Q13 Mr. Purchase: Is it possible
at this stage to tell us whether your preferred philosophy is
to take out complete parts that you feel do not offer the best
return for our endeavours, or to make salami slices across the
service, bit by bit? Do you have a preferred approach to this
yet?
Sir Peter Ricketts: No, we don't
have a clear plan for this, partly because we are still in discussion
with the Treasury about the budget for next year, but I think
the board and Ministers would be absolutely clear that our primary
asset is our global network of embassies and consulates—our
capacity to reach every country in the world, either for foreign
policy or to help British citizens in terms of consular assistance.
That is what we will seek to preserve. That is, I think, our particular
asset, and I know that the Foreign Secretary would agree with
me that we should seek as far as possible to preserve that global
network. We therefore first have to look at our so-called back
office—our support functions—for savings, while trying
to preserve the embassy network.
Q14 Sir Menzies Campbell: Sir
Peter, you are not just cutting fat or muscle, you are cutting
bone, isn't that right?
Sir Peter Ricketts: I think we've
got rid of the fat, quite honestly.
Q15 Sir Menzies Campbell: In the
previous period of austerity to which you referred us a moment
or two ago?
Sir Peter Ricketts: We have been
living on pretty thin rations for at least a couple of spending
rounds, and we have, therefore, cut fat and are having to prioritise
our activities.
Q16 Sir Menzies Campbell: Does
that prioritisation take the form of identifying those countries,
and perhaps those allies, with whom we wish to be particularly
closely connected, compared to others whose relative importance
may be less now than it was, say, five or 10 years ago? Are you
having to make decisions about the importance of effort in a particular
part of the world, or indeed a particular country?
Sir Peter Ricketts: We have indeed
been doing that already. As part of the exercise we did a couple
of years ago, we have, for example, thinned out diplomats from
our embassies in Europe, not because Europe isn't important but
because there are other ways of doing the business in Europe,
and we have been expanding our embassies in China, India, South
Africa, Brazil and in countries such as Afghanistan. So, there
is already a shift in that direction. We haven't taken final decisions
about next year yet, but I think we will have to continue to take
those sorts of considerations into account.
Q17 Sir Menzies Campbell: We may
go into some more detail about this, but the Committee, as you
know, visited the United Nations and then Washington just a few
weeks ago, and I think that we were all rather taken aback by
the extent to which effort in the Washington embassy was being
directly affected by the sorts of considerations that you have
just described. How do you make an assessment of the point at
which that front-of-house effort is prejudiced, and what flexibility
have you to try to retrieve a situation? Let's take the United
States as a general illustration. Do you have any flexibility
at all to enable you to try to change the conduct of our efforts
in the United States?
Sir Peter Ricketts: We have a
degree of flexibility about the priority that we can give the
US network over other parts of FCO work. For example, Ministers
could decide that they wanted to devote more of the available
money to the US and that money would have to come from somewhere
else, which would imply that there would be less money for somewhere
else. Therefore, we would have to do that as part of setting the
budget for the next year. Those are very difficult choices because,
as I said, I think that we have already removed the excess. Therefore
a decision to give more money to one part of the overseas network
means a decision to take money away from somewhere else. There
are no obvious candidates for that. So our flexibility is limited,
Sir Menzies, if we are going to accept the current range of responsibilities
that the FCO has.
Q18 Sir Menzies Campbell: And
the final responsibility for that allocation of money and responsibilities
presumably rests with Ministers?
Sir Peter Ricketts: It rests with
the Foreign Secretary, yes.
Q19 Chairman: Peter, you referred
to discussions with the Treasury about the financial position
of the FCO. Do you think that the conclusions will be reached
in time for the start of the next financial year, or is it likely
that your discussions with the Treasury will take longer than
that?
Sir Peter Ricketts: I can't answer
that, Mr. Chairman. I think that it is possible that the discussions
will continue for some time yet.
| 
