Examination of Witnesses (Question Numers
100-110)
FOREIGN AND
COMMONWEALTH OFFICE
21 OCTOBER 2009
Q100 Mr Davidson: So you have figures
for disability and you have figures for social origin? No? Educational
background?
Sir Peter Ricketts: I am trying
to understand what you mean by social origin.
Q101 Mr Davidson: By educational
background, by geography?
Sir Peter Ricketts: No, we do
not collect that data.
Q102 Mr Davidson: I cannot think
of anybody from my constituency who has ever gone to work in the
Foreign Office. Nobody knows of anybody. There is not a role model.
If I thought there was a role model then I would wheel them out
round the schools in my area. I have managed to get some senior
policemen. I have managed to get some people who are Army officers
(because most of my constituents would join the Army at a different
level) to show people that these jobs are open to them. I could
wheel out lots of apprentices and so on and so forth. I have never
found anybody from the Foreign Office. I find that a cause for
concern. I am also concerned that is something that has not occurred
to yourself.
Sir Peter Ricketts: I am very
conscious that we should have as diverse a group of people in
the Foreign Office as possible, diverse from all parts of the
UK, from all sorts of educational backgrounds and all sorts of
degrees and qualifications, but I have not tried to quantify social
origins.
Q103 Mr Davidson: I find it interesting
because I remember having this conversation with Robin Cook when
he was Minister at the Foreign Office, and he was echoing the
concerns I had and indicating that he was going to try and do
something about it to make sure it was more socially diverse.
There was, I seem to remember, a brief effort at that time to
do so but that seems to have disappeared now.
Sir Peter Ricketts: I recognise
the word diverse and we are desperately trying to increase the
diversity of the Foreign Office. It is the social diversity that
I am struggling with.
Mr Davidson: Thank you, Chairman.
Chairman: Mr Bacon has a last question.
Q104 Mr Bacon: I have just a couple
of questions about the pattern of underspending because the NAO
Report tells us there has been a consistent pattern of underspending
over several years, which one might think highly commendable and
a cause for a reduction in your budget but it does not appear
to be that the underspend was deliberate. In fact the Report goes
on to say that you actually bid for extra resources. This is in
paragraph 2.59. "Part way through the year a predicted overspend
led to a request from the Foreign Office to the Treasury for additional
resources." Yet in that year as the financial year end approached
the forecast resource and capital expenditure outturn reduced
to an eventual underspend of £128 million. We are familiar
in the National Health Service with underspends and overspends
and deficits and so on and a year or so ago there was a surplus
of £500 million which was based on a budget of £100
billion. You are tiny compared to that and yet you have still
got £100 million sloshing around more than you thought you
had. How does that happen?
Sir Peter Ricketts: Mr Bacon,
I absolutely share your frustration at that tendency to underspend
we have had for many years. The NAO Report is right in what they
say in paragraph 2.50 where they list a number of reasons why
we were traditionally underspenders. We did not have the financial
skills and we did not have confidence in the budget. There was
an extreme keenness not to overspend and that was leading to an
underspend. I have made it a priority of mine to try to reduce
that underspend. The reasons why we underspent in that year 2007-08
are also set out somewhere in the Report.
Q105 Mr Bacon: At 2.60 and a little
of bit of it was due to the change in sterling. However, £64
million of the underspend was in part due to higher than expected
efficiencies in reducing expenditure. I have yet to translate
that into English in my own mind but higher than expected efficiencies
in reductions of expenditure led to a £64 million underspend.
You hire the brightest people. It is known that the Treasury and
the Foreign Office hire the brightest people out of universities
and although they will not necessarily be financial managers,
how difficult is it, notwithstanding the issue about the conversion
of currencies, to figure out here is a certain sum of money that
you have got to spend, no more and no less, and go and spend it
to achieve the objectives of the department? It is an extraordinary
gap for a department that is relatively small?
Sir Peter Ricketts: I share a
lot of your frustration. Can I explain to you where I think we
are on underspends. In that year you referred to, as you say,
a £118 million underspend on our overall resource budget,
5.7%, is absolutely unacceptable, and I share the Committee's
view of that. Some of it was because we were able to save some
money on our security costs in the Middle East. Some of it was
because we found that our UN subscriptions in those great days
when sterling was stronger cost us less. There were a number of
things like that. We should have spotted them. Half of that underspend
is in this mysterious category called annually managed expenditure
which is something I feel I have no control over as accounting
officer because it effectively relates to the valuations of our
buildings abroad and write-downs on those valuations when we occupy
the buildings, so if the valuation is higher the write-down is
lower and we have an underspend in our annually managed expenditure.
That was about half the total. The following year, the year that
has just closed 2008-09, we were down to £69 million in total,
3.2%, which is lower, and almost all of that was impairments on
annually managed expenditure. On the budget that I control, the
near-cash budget, we were within a whisker of a 100% spend. That
is largely because of having to absorb all the pressures of the
currency movements but we are determined to maintain that. I think
we have stopped being an underspending department—I am very
keen it should not be an overspending department either—as
a result of better financial management and also as a result of
the pressures on us from sterling that underspend has essentially
gone, except in this category of annually managed expenditure
which relates to movements that I do not control as accounting
officer.
Q106 Mr Bacon: Just a couple of other
areas. On information available to the board it says in paragraph
2.73 that the board is still having to get quite detailed information
to support the high-level data so that members of the board can
drill down to the underlying figures. At 2.74 it says: "Until
the Board has absolute confidence in how the high level figures
are derived, it is likely that the Report will remain a lengthy
document." Plainly, if the Board cannot rely on the figures
upon which it is being asked to make decisions then it cannot
be confident to make those decisions. How long is it going to
be before you have information that you can rely on? Can you give
me an example of one of these key performance reports, which are
the in-year financial information reports, that has formed the
basis for a significant board decision?
Sir Peter Ricketts: In terms of
reliance on the numbers, I think our confidence level is rising
all the time and we will be at Five Star Finance at the end of
our finance improvement programme when there is one set of numbers
universally recognised around the organisation, and I hope that
by next summer, which is the date we have set to be at Five Star
Finance, we will have got to that point. Then the board can perhaps
reduce the size of this key performance report. It is actually
full of very useful data but our confidence level is growing and
the sorts of things that are covered in it are set out in the
table on page 26 of the NAO Report. That gives you an idea of
the sort of ground we are covering in it at the moment. This key
performance report, the monthly report to the board, showed up
earlier this year that we were heading for an overspend in the
budget because of currency pressures on us and other pressures
that had arrived in our budget and it was the signal for us to
take some pretty drastic action to cut costs this year to bring
us back on to a profile to spend fully but not to overspend. That
was a signal to the organisation upon which we acted to start
looking at costs.
Q107 Mr Bacon: Finally you said earlier
in response to a question about the hierarchy of properties that
it was now much more egalitarian than it used to be. You will
know Belgium and Brussels well. When we were visiting Brussels
recently, among other things to see OLAF, the anti-fraud agency
in Brussels, we met Kim Darroch, and we went to the residence
which used to be the residence of the British Ambassador to Belgium.
A swap was done and the British Ambassador to Belgium was, from
what we understand, kicked out into a bungalow in the woods and
UKREP and the UKREP Ambassador went to this rather smart palace
is not too grand a word in the centre of Brussels. How does that
tie in with your egalitarian approach? How does the British Ambassador
to Belgium feel about being shoved out in the woods?
Sir Peter Ricketts: The Ambassador
who has most visits by Cabinet ministers, Members of Parliament
and other senior visitors is the UKREP Ambassador and therefore
it is right he should have a place to do honour to them and entertain
them properly. The Ambassador to Belgium has less of an entertaining
load, frankly and therefore can manage in a smaller, more modest
property. We are not entirely egalitarian in the sense that ambassadors
do get the residence but below that level the space you get depends
on the size of the family you have rather than the rank you are.
Chairman: I think Mr Davidson has a last
supplementary.
Q108 Mr Davidson: Could I just return
to the point I made about diversity before. I wonder if you could
give the Committee a note outlining the steps that the Foreign
Office has taken and any indication that you have of success,
not just in terms of gender and race but in terms of being more
egalitarian and less exclusive and elitist as an organisation?[4]
Sir Peter Ricketts: I will do
my best, Mr Davidson.
Mr Davidson: I am sure you will. Thank
you.
Q109 Chairman: My last question is
to the Treasury because I was a bit underwhelmed by the response
to the questions we were putting to you about our campaign to
get professionally qualified finance directors in place. You said
that you would take it up with the management group. I take it
that you are talking in terms of real action and not just talking
about this?
Mr Gallaher: Absolutely.
Q110 Chairman: Sir Peter and colleagues,
that concludes our hearing. Clearly you have a pat on the back
from the NAO which is richly deserved, but there is this worrying
underspend which we have talked about in the latter part of this
hearing which shows that we are still to make further progress
in better financial management, which I am sure you will achieve.
Sir Peter Ricketts: Thank you
very much, Chairman.
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