UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 417-iHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFORETHE COMMITTEE OF PUBLIC ACCOUNTS
|
|
1. |
This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
|
|
2. |
Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.
|
|
3. |
Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.
|
|
4. |
Prospective witnesses may receive this in preparation for any written or oral evidence they may in due course give to the Committee.
|
|
5. |
Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935
|
Oral evidence
Taken before the Committee of Public Accounts
on
Members present:
Mr Edward Leigh, in the Chair
Mr Richard Bacon
Mr Douglas Carswell
Mr David Curry
Nigel Griffiths
Mr Austin Mitchell
________________
Mr Amyas Morse, Comptroller and Auditor General, and Mr Tim Banfield, Director, National Audit Office, gave evidence.
Mr Marius Gallaher, Treasury Officer of Accounts, HM Treasury, gave evidence.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL
ADAPTING THE FOREIGN AND COMMONWEALTH OFFICE'S GLOBAL ESTATE TO THE MODERN WORLD (HC 295)
Examination of Witnesses
Witnesses: Sir Peter Ricketts KCMG, Permanent Secretary and Head of HM Diplomatic Service, Mr James Bevan, Director General, Change and Delivery, and Mr Alan Croney, Head of Estates, Foreign and Commonwealth Office, gave evidence.
Q1 Chairman: Good afternoon. Today we are considering the Comptroller and Auditor General's Report on Adapting the Foreign and Commonwealth Office's global estate to the modern world. We welcome back to our Committee Sir Peter Ricketts, who is Permanent Under-Secretary at the Foreign and Commonwealth Office and Head of the Diplomatic Service. Would you like to introduce your two colleagues, please?
Sir Peter Ricketts: On my right is Mr James Bevan, who is the Director General in the FCO who superintends our estates and security work and on my left is Mr Alan Croney, who is our new Estates Director and a professionally qualified expert on estates management.
Q2 Chairman: Sir Peter, the Committee has before it the letter that you sent us on 19 February with your estate strategy. Of course this has come in quite late so members of the Committee may not have had time to familiarise themselves with it, so perhaps you could give us an overview of this letter.
Sir Peter Ricketts: Yes, of course, Chairman. We wanted first of all to update the Committee on some of the activities in our estates management over the last six months or so to give you a sense of the projects that we have been working on, some of which I am glad to say have been done on time or early and below budget, one or two have been more difficult and have gone over budget for reasons we can discuss, and to alert the Committee to some continuing issues we have with the estate; and also to foreshadow that in our FCO Board this month, last week, we took an estate strategy very much on the lines of the recommendation in the NAO Report. We had a long discussion on that in the Board. It is not quite finalised yet but we will finalise is it very rapidly and I will send it to the Committee as soon as we have it. That is a much fuller statement of the estate that we aspire to run for the FCO and the principles that will operate in doing that.
Q3 Chairman: For future reference it would be helpful to have this information a bit sooner before the Committee.
Sir Peter Ricketts: I apologise that it came late.
Q4 Chairman: Do you have the resources to implement this strategy in full?
Sir Peter Ricketts: No, I do not have the resources I would like to implement the strategy as fast and as comprehensively as I would want to. We are resource constrained. We can do the essential work, both in terms of replacing embassies that are not secure, refurbishing those that are old and out-of-date, and we are tackling a backlog of maintenance and security works and health and safety works, however, resources are a constraint.
Q5 Chairman: I was a bit surprised to read that you are basing this strategy now on OGC guidelines. I would have thought that you would have always have based it on OGC guidelines. There is nothing new about this, is there?
Sir Peter Ricketts: I think we should certainly be collecting the data the OGC
require. Technically OGC guidelines have
only applied to government buildings in the
Q6 Chairman: I understand that. You now have a specialist Estate Director sitting here. Is he now going to have the information needs? Perhaps he might answer. Have you got all the information you need to do your job?
Sir Peter Ricketts: I might pass the floor to Mr Croney but I suspect the answer is we need to work to get him the data but that is in hand now.
Q7 Chairman: Will you have the authority to drive through change in this far-flung empire?
Mr Croney: We do not have the data at the moment but we are already working to fill the gaps in the data set and also to collect additional information as well. Clearly, that will take some time, but I see no reason why we cannot collect that across the network and I certainly believe that the Board has empowered me and my colleagues to achieve collecting that data.
Q8 Chairman: And you will have the authority within the Office, will you?
Sir Peter Ricketts: I will certainly make sure that he has my authority in following this up. I think our heads of mission out and around the embassy network are keen to get on with modernising our estate, correcting the problems with it in terms of maintenance work or it not being a sufficiently modern environment in terms of IT and open planning and so on. I do not think we have a problem of incentivising people to get on with it. We do have a problem with resources and we have an opportunity now, on the back of the NAO recommendations, to do more centrally in our Estates Directorate, to give more direction out to people as to what we expect them to be doing.
Q9 Chairman: It seems to me that the problem is that we have a lot of unused space here, maybe for historical reasons and also because other government departments which are coming out to these places are often leasing their own properties. You are obliged to lease your property at commercial rates so they may think they can get a better deal by taking their own properties instead of using your unused space. As a result, we have the taxpayer effectively paying twice. What I want explore briefly with you and the Treasury is how we can get a commitment from other government department to use your unused space?
Sir Peter Ricketts: Thank you for opening up that area, Chairman. I think you are right. Our estate is not very flexible in the sense
that we invest a lot of money in the security, so moving from an embassy to a
smaller place is very expensive. Some
government departments have been changing very fast the way they operate around
the world for reasons that are perfectly rational for them. UKBA, for example, has stopped issuing visas
in a lot of places around the world and is bringing that work back to some
regional hubs. That has moved fast and
it has meant that we have a lot of empty visa offices and waiting rooms and
interview booths in our embassies around the world. Reconfiguring that into space that we can use
or slimming down our buildings to take account of that is an expensive and
quite time-consuming operation. That is
one problem - the speed at which other departments have been changing the way
they operate, leaving us with rather inflexible space. The second issue, as you rightly indicate, is
that from the point of view of overall value for money for
Q10 Chairman: Over to the Treasury now, how are you going to drive this process forward so that we can encourage other government departments to use this unused space?
Mr Gallaher: I believe there is a Shared Services Group of which the Treasury is a member and it works with the FCO and other key players overseas, and we are striving, where possible, to improve procurement, IT and property management together. We hope that this group will lay greater emphasis on departments using FCO space where appropriate and avoid going into commercial deals which may be cheaper but in the long run are more costly to the taxpayer.
Q11 Chairman: Do we have enough information that we need, Sir Peter, on the average space per person that you employ and the cost, compared to other government departments? Maybe it is not comparing like with like. The Treasury told us the Treasury had to do a lot more thinking than other government departments and they need more space. What is your thinking on this?
Sir Peter Ricketts: We can think in a very small space, Chairman. I do not think we do have the data that we
need, to be absolutely honest, to be able to show that. I think that is part of the requirement Mr
Croney is pursuing to get better management information so we have that sort of
information. Nonetheless, your general
point is right. In some cases we have
been able to agree, for example with DFID, to co-locate DFID back on to our
property. In
Q12 Chairman: I saw in your letter that
you had a bit of a problem with
Sir Peter Ricketts: Yes.
Q13 Chairman: You said it was to do with exchange rate
movements but could this not have been planned for? You opened new embassy
offices in
Sir Peter Ricketts: There was also a problem of terrorism and the domestic security
situation which did not help, the retrospective application of VAT certainly
added a lot to our costs, and exchange rate movements there and in other places
such as
Q14 Chairman: What is your overall strategy in terms of new buildings for your staff? Presumably you do not want to go down the American line of moving all your staff into fortified bunkers on the edge of town. You want to keep our traditional offices, embassies and residences as much as possible in the middle of towns and you cannot always be thinking they are more of a terrorist target. You see what I am getting at. What is your thinking on this compared to the Americans?
Sir Peter Ricketts: Exactly as you say, not to be building bunkers that completely
exclude all members of the public. I am
very much in favour of risk management.
We have to protect our staff.
That means we have to be secure but that does not mean to say we should
deny all public access and build a 20-foot wall around all our buildings. In some parts of the world we can still be
pretty open to members of the public where the risk is low. In places we have been building such as
Sana'a in
Chairman: Thank you very much. Richard Bacon?
Q15 Mr Bacon: Perhaps I can just continue
with the point you made a minute ago about the need for greater security in
certain places.
Sir Peter Ricketts: Yes.
Q16 Chairman: But also that you have asked your financial compliance unit to investigate and report, so it sounds like on the face of it there are concerns from the security point of view and that people have got their hands in the till. Is that right?
Sir Peter Ricketts: The second part is not right. I do not want to go too far into the security issues but I think the Committee will understand, yes, we came across a problem which seems to have meant that unauthorised access was allowed to the site when it was at a very early stage of being built, which has obvious security implications, which are very worrying. When we then dug into it and looked into the contracting arrangements, we were not satisfied with the way the contracts had been done and therefore we have asked our financial compliance people to look carefully at it. I do not have any evidence of fraud or corruption.
Q17 Mr Bacon: It is a security point.
Sir Peter Ricketts: There is a problem. I might ask Mr Bevan, who has looked in more detail at this than me, to say another word but there is both a security and a contracting problem.
Mr Bevan: There is a security problem in terms of operating in
Q18 Mr Bacon: This is the thing I do not
understand because that is what it sounded like. Surely - and this was my point at the
beginning - it is obvious before you start that somewhere like Damascus is very
high risk, just like Basra, just like Baghdad so why did you not get the
guarding right to start with? I think
this happened with the Americans. They
built an embassy somewhere, it might have been one of the old embassies in
Sir Peter Ricketts: You are right and we should have done, Mr Bacon. I have absolutely no excuse. I think it was a failure there.
Q19 Mr Bacon: How much is it going to cost us?
Sir Peter Ricketts: We do not know yet.
Q20 Mr Bacon: Will you tell us when you do?
Sir Peter Ricketts: Of course.
Q21 Mr Bacon: Can I move on to
Sir Peter Ricketts: Potentially, yes. This is our
new office building on the 40th floor of a brand new office tower in
Q22 Mr Bacon: So did somebody light up and have a cigar or something?
Sir Peter Ricketts: I think it was probably a power cut or something that triggered the
sprinklers that then put a lot of water down which then seeped down through
other floors of the building and therefore there is a potential claim against
us, I fear. Since
Q23 Mr Bacon: Is the liability to the owner of the building or to the other tenants?
Mr Croney: The liability applies to the building and to other occupiers and a range of other people.
Sir Peter Ricketts: This is very unsatisfactory because it is a wonderful new embassy in a brand new building but there seems to have been this fault with the fire alarm sprinkler system.
Q24 Mr Bacon: Perhaps you can update us on that when you know the liability. It will be interesting to know who it was you soaked.
Sir Peter Ricketts: We will. A number of other embassies below us and then I think some private companies.
Q25 Mr Bacon: So long as you were at the top.
Sir Peter Ricketts: I think we are.
Q26 Mr Bacon: Sir Peter, you used to be
ambassador to NATO. One of the other
points in your letter is about co-locating the British embassy in
Sir Peter Ricketts: Yes, thought was given to it.
First of all, this is an example of where we have been able to reduce
the size of our embassy. We had a
bilateral embassy in downtown
Q27 Mr Bacon: Is the same true in
Sir Peter Ricketts: I think I had better check that, unless somebody else knows
here. On the
Q28 Mr Bacon: The ambassador lives in a garret and having had personal experience of that I can say it is extremely good value for money.
Sir Peter Ricketts: Indeed it is and we had an exchange about this at my last
appearance. I think I then wrote. The
Q29 Mr Bacon: Mr Croney, it says in the Report that you are professionally qualified and indeed Sir Peter described you as that at the beginning. I have searched in vain for the nature of your professional qualification. Are you are Chartered Surveyor?
Mr Croney: Yes, I am a Chartered Surveyor.
Q30 Mr Bacon: Marvellous and you are Head of FCO Estates. This is very encouraging and first class. I remember when we saw NHS Estates a while ago and the chap in charge was not a Chartered Surveyor and I remember thinking it was a bit odd. This is most encouraging. Sir Peter, part five, which deals with working with other government organisations, has a number of references to the lack of information. In 5.4: "The FCO was unable to provide information on how the amount of other organisations are charged has changed over time or comprehensive figures on the number of staff from other organisations using the FCO estate", and then a bit later it says that the FCO is unable to assess whether co-location is successful and whether there is scope to extend the use of properties. It just sounds like there is an enormous information vacuum.
Sir Peter Ricketts: To be frank, Mr Bacon, I was as surprised as you that we were not
able to supply this information. The
fact is that we have not collected the information on that basis before and
therefore it is not available. I do not
have any difficulty in assessing whether co-lotion is successful. My view is that in almost all cases co-location
is better than having a British embassy and British government offices strewn
across cities. Like you I am frustrated
that we do not have this data. I think
part of the purpose of updating our management information is to make sure that
the next time we come to the Committee we will have that data and we will be
able to tell you more precisely the numbers of staff from other government
departments. My sense from going around
our embassies around the world is that there are increasing numbers of other
government department staff working in our embassies, as globalisation means
more and more departments have an interest - for example
Q31 Mr Bacon: When it says in the Report in 5. 3 that there were 175 teams identified by the National Audit Office from other government organisations that were operating in the same location as them but not within FCO offices, you can always find - and indeed some of them are set out in the Report - reasons why other government organisations might be separate, like business and security and diplomatic and legal status and so on. Presumably, most of those could be got round if it were essential for financial reasons, including, I notice, the British Council's status as a charity or commercial body in some countries precludes it from operating from the FCO premises. Surely that can be changed to suit in each location if required, could it not?
Sir Peter Ricketts: Yes it could and indeed in some locations they are co-located with
us. When you refer to the 175, I suspect
quite a lot of those are British Council offices. Over the years the Council has chosen not to
be part of the embassy, partly because what they want is maximum public access
and minimum security so they can get as many people in for English language
classes or using the library or the internet, and so what they are looking for
is a slightly different thing from what embassies offer. In high security places they are with us. I suspect it is mainly that and probably some
DFID offices which are still separate from us in parts of
Mr Bevan: The only thing I would add is another reason why the British Council prefer, if they can, to be away from our embassies is because they do not want to appear to be an arm of the British Government.
Mr Morse: You can see the breakdown there if you turn over the page. We actually give the breakdown of the numbers over the page and you can see them in figure 13.
Sir Peter Ricketts: It is indeed a large number of British Council offices that are operating by choice off our premises.
Q32 Mr Bacon: The point I was making was force majeure may cause various organisations within government financial constraints and what we expect of them to have to make changes. Would you expect to see the amount of co-location increasing in the next two or three years?
Sir Peter Ricketts: I think financial pressures will push in that direction, yes.
Q33 Mr Bacon: The FCO needs to consider
reputational issues when assessing the suitability of potential tenants. I am not sure if this is a question for the
NAO but does that mean the reputation of potential
Mr Banfield: Other private tenants.
Q34 Mr Bacon: You would be happy subject
to their business requirements to have any
Sir Peter Ricketts: Yes, I think so.
Chairman: Thank you, Mr Bacon. David Curry?
Q35 Mr Curry: Sir Peter, if I try and deconstruct the management structure for running the estate, I am not quite sure whether the thrust is to make the Foreign Office more expert at running buildings or to look more and more externally to people to run it who have their own expertise such as Mr Croney. If I joined the Foreign Office as a bright graduate, hopefully from Oxford, in my early 20s, what chances would I have of receiving some training in issues rather than the romantic bit of the Foreign Office, which I probably joined to do, in the mucky business unromantic bit, like running the estate, and how important would that be to my promotion to do well in that if it existed?
Sir Peter Ricketts: You would probably have joined to be a diplomat and running the estate probably would not have been your top priority. I will come back to the specific point in just a second. My feeling is that we should turn to professionals for the delivery of specific functions like finance, like estates, like human resources, like IT. We should not pretend that diplomats can become amateur surveyors, so I think a cadre of professional staff to ensure that we are delivering to the highest standards is right. If you join the Foreign Office I think your responsibility is to develop yourself as a leader of the entire operation so that when you come to be an ambassador you are capable of implementing whatever the Estate Strategy is and to make sure that your team is producing the data, managing the projects well and ensuring that we do not overspend.
Q36 Mr Curry: This gets us back into the interface immediately, so we have Mr Croney and he has to design a strategy, and that strategy has to take into account some really quite difficult things, like the expectations of Britain's footprint in the world ---
Sir Peter Ricketts: Absolutely.
Q37 Mr Curry: --- for a generation, which is, after all, a question partly of political will, partly of political perception and partly accident, and I suppose a lot of it is to do with money, so he cannot run it like land securities. He is running a different sort of operation. He is then dependent upon Foreign Office people, is he, in the post to implement that? He does not have his own network of people capable of taking or instructed to take those decisions overseas?
Sir Peter Ricketts: That is right. We are
thinking about setting up a regional network of estates professionals so that
at least in
Q38 Mr Curry: Let's take
Sir Peter Ricketts: It is an excellent question and I shall nominate the answer to Mr Bevan.
Mr Bevan: Firstly, we do have an annual asset sales programme which we adjust according to a target in terms of millions of pounds' worth of capital that we want to bring in. We try through that programme to identify those properties that we can sell and we try to be intelligent salesmen and sell when we think we can get a reasonable return so we factor that in.
Q39 Mr Curry: So you are not trying to hit a target for sales which might lead you to selling in poor conditions in order to meet the target?
Mr Bevan: We are trying to hit a target each year which we need to sustain the business (because we reinvest the capital that we produce) but we try to make sure that the target we set and the specific properties that we sell takes account of the market conditions so that we get good value for money.
Q40 Mr Curry: That was the first part; what was the answer to the second part of the question?
Mr Bevan: The other part is on investment, so if you take Washington, Washington will have a certain mobility for the ambassador and his staff to take local moderate decisions about what they do with their estate which are a matter for them, but if we are talking about a big investment or big decisions to sell the residences, for example, or a big investment programme, those are things that need to be decided centrally by Alan and the team in London.
Q41 Mr Curry: To what extent are security issues a factor? I was quite struck that in Washington all the electricians and plumbers come out from the UK, they are not local people, and I assume that is for security reasons, and that is a huge added cost, presumably?
Sir Peter Ricketts: It is. Those who are working
on our embassy buildings have to be
Q42 Mr Curry: To come back to Mr Bevan, you have an inventory of what you want to sell?
Mr Bevan: Yes.
Q43 Mr Curry: To what extent is that a public inventory? Presumably not too public because otherwise you then do not get very good prices?
Mr Bevan: That is exactly right. We have a target for the coming financial year.
Q44 Mr Curry: Who sets it?
Mr Bevan: It is set by the estate committee that I chair and it is set in part in light of a calculation about how much capital we want to bring in that financial year in order to reinvest elsewhere in the estate.
Q45 Mr Curry: It is determined by an internal capital need. The Treasury is not saying you have got to flog so much?
Mr Bevan: We also have targets that we agree with the Treasury in terms of annual asset recycling so there is a joint decision-making process that goes on there. Then we have a separate list of properties which we believe we can sell in the course of the coming year to realise that capital. We do not make that list public in advance for the very reason that you have identified, Mr Curry, that that could have an effect on the market value.
Q46 Mr Curry: Now we are going to get a European Union diplomatic service, presumably there are real estate implications for that. Have you thought where the interface might be in terms of buildings in some of the overseas countries where perhaps they are not sufficiently prime targets, as it were, for everybody to have an embassy?
Sir Peter Ricketts: Yes. What is going to happen in the first place is that all the buildings that are currently for the Commission delegations around the world, we will put a new brass plaque on the door and they will become European Union missions, so there will not be much of a property implication. Over time I think there will be more EU delegations opening up around the world and if we have surplus property that we want to sell that could become interesting, yes, but what you identify is exactly the issue at the heart of the NAO Report: how much should we do this by central direction and laying down central guidelines and how much should we do it by giving initiative to our ambassadors to get on with it. Getting that balance right - and accept that we have not necessarily had it right up to now - is at the heart of it.
Q47 Mr Curry: What process do you go through at least to determine the paradigm?
Sir Peter Ricketts: That is what we are really doing with this estates strategy that we are now putting together on the back of the NAO Report. It will provide the paradigm and provide the principles and then Mr Croney's Directorate will enable the ambassadors to get on with it. For the major projects we will have to have a proper project sponsor, a professional surveyor and architect, but for the smaller projects we would hope to be able to get the embassies on them.
Q48 Mr Curry: Do you really need support staff in central
Sir Peter Ricketts: We have fewer and fewer of them.
We are moving more and more of them out to our new hub around
Q49 Mr Curry: I must not denigrate
Sir Peter Ricketts: At
Q50 Mr Curry: When the Pope said there is no such thing as purgatory he clearly
had never tried to drive through
Sir Peter Ricketts: Quite! I do not think I could comment on that, Mr Curry.
Q51 Mr Curry: Secondly, if there is anything that keeps you awake at night might
it be the building in
Mr Bevan: I think it would be fair to say that a year ago when we were
thinking about the Shanghai Expo, there was concern that we might not have the
right building at the right place to represent
Sir Peter Ricketts: It is going to be a great building actually, if I may say. It is about the most popular of the pavilions
in
Q52 Mr Curry: And the sprinkler system is under control?
Sir Peter Ricketts: I hope so.
Mr Curry:
Well I am delighted to know that the spirit
of the old
Q53 Chairman: On that point, have you seen
figure 11 where it says on page 29 that the National Audit Office assessment of
your response in
Sir Peter Ricketts: The problem with China is that we cannot move out of our existing embassy offices, in effect, because it would be enormously expensive to try to re-create what we have there in the boom market that is China, and we have been desperately trying to get our hands on another building nearby where we can spread because our embassy in Beijing grows all the time. We have been in discussion for some time with the Americans who have just vacated a property more or less across the road from us and we are trying to buy that off the Americans to give us more space. Our problem really is that we are straining at the seams of our existing property and in the circumstances of Beijing I do not think it is realistic to move to a completely new one, so that is more a question of supply of adequate buildings that we can use for an expanding embassy.
Q54 Chairman: This of course is an absolutely essential marketplace for us and we read here that, "We found current office spaces were of poor quality with few facilities." It is the question I have already asked of you, Sir Peter: has it had an impact on our representational ability with a hugely important and more and more important marketplace?
Sir Peter Ricketts: No, I do not think so, Chairman.
I think we have been able to fund
Q55 Mr Mitchell: Why can you not bring in more government departments and perhaps trade associations and groups interested in exporting? Why can you not make the embassies British centres for all-purpose business and representation and education and all the other things that could be brought in? You seem to have a lot of surplus space; why not use it?
Sir Peter Ricketts: Indeed. The UKTI offices are in our embassies so the official British trade and investment effort is in our embassies. People who want space that they can bring members of the public into easily tend not to be very keen to come into embassies because embassies always have security and guards and you need passes and metal detectors and so on, and so they are not very convenient places for public access. Residences are better.
Q56 Mr Mitchell: Those can be made partial. You could subdivide parts of it which are less security conscious.
Sir Peter Ricketts: Some of them you can. Indeed there are places in the world that I have been to where the Visit Britain office, the British Council and the BBC are all in the same premises, but there are many where security does that make that difficult. I would love to get more people into our unused space to use it, and every time we can, we do, but security is a constant obstacle.
Q57 Mr Mitchell: Would you bring businesses and trade associations in?
Sir Peter Ricketts: I do not think they want to be there. They want to be in modern downtown offices where it is easy to get your clients in and out. They tend not to want to be in embassies.
Q58 Mr Mitchell: They also want to use the expertise of the embassies and the business representatives there.
Sir Peter Ricketts: They want it available. What they love to do, and we are doing it more and more is use the residences for business promotions. Our ambassadors now have business in their houses all the time.
Q59 Mr Mitchell: You do that?
Sir Peter Ricketts: Absolutely, and indeed we charge for it, which is a useful source of revenue sometimes for hard-up embassies.
Q60 Mr
Mitchell: One of the problems I see from the Report is
that other organisations, the British Council,
Sir Peter Ricketts: Perhaps I will ask Mr Bevan, who is the great expert on that, to respond.
Mr Bevan: We are bound by the principle agreed with the Treasury, which we do not contest, that we should be charging the full economic cost to other government departments when they want to base in our embassies. When you calculate that full economic cost it will always be much more expensive than a commercial rate because we are often in a premium location, we are providing a secure location which in some places is extremely expensive. We are not just charging them the marginal cost of providing accommodation, we are charging them the cost of the invisible support that we also provide to them, so making arrangements for their accommodation and managing their staff.
Q61 Mr Mitchell: Let me stop you there and ask the Treasury, why are you insisting on such high charges? Why not insist on marginal rent?
Mr Gallaher: We are insisting on the full economic cost to be charged.
Q62 Mr Mitchell: Why?
Mr Gallaher: They are not necessarily high charges; they are the costs of the service that the Department is providing.
Q63 Mr Mitchell: If it is a prestige premises with high security charges, which have got to be borne in mind, why insist on the full economic cost?
Mr Gallaher: Because we have always insisted that departments charge the full economic cost for their services to other government departments.
Q64 Mr
Mitchell: In this case you are assisting organisations
which are exporting for
Mr Gallaher: There is currently a Shared Services Group looking at these issues working with the FCO and other main players who operate overseas and we are looking at the issue, which I mentioned to the Chairman, that there is an obvious tension between the full economic cost and the cost to the taxpayer. We are looking at it. At the moment we do have this rule which is if we start being lenient on one department in one area others will want the same treatment and it will be hard to police.
Sir Peter Ricketts: Could I add one point, Mr Mitchell? Subject to agreement with Treasury, in some ways it would be quite attractive to cut our costs and get more people in. The risk to me is that leaves a hole in my budget because I have the fixed costs of the embassy that stay. If we go to reduced costs for other departments I am left with the rest, so that is not all that attractive from my point of view. I would much rather get the overall cost of our operations down overseas if I could and, therefore, the more of us in embassy premises the better actually.
Q65 Mr Mitchell: Let me approach it from the other angle now. We see that the EU is now building up its own framework of embassies and representation, its own effective foreign service. Why can they not either hire out space to them or muck in with them in common premises?
Sir Peter Ricketts: I think we may muck in with
them in time to come. As I said, right
now what is happening is offices that used to be Commission offices are
becoming EU offices, so not much is changing in terms of the buildings, but
over time, for example in somewhere like Africa in small countries, if there
was an EU operation there I would be very interested in putting one British
diplomat or two British diplomats into a wider operation. I think that would be very cost-effective. Maybe, as you say, we can make space for an
EU representative. I think we have done
that in places like
Q66 Mr Mitchell: Perhaps it is a bit churlish for MPs who tend to be lavishly entertained in embassies around the world, and certainly I have been, to start then coming home and attacking them for waste. When you see many of the embassies, it does seem that they are there for prestige reasons, we have got those buildings in areas for prestige reasons, and this is a kind of relic of the great power status which we once had but no longer have. Perhaps you could give us a note on how many of the premises that we are now in we were in in 1950 when we were a much bigger power.
Sir Peter Ricketts: Yes, we could, Mr
Mitchell. I am a bit in trouble because
at your last session I promised Mr Bacon that we would not sell any of our
prestige residences that do so much for
Q67 Mr Mitchell: Does that apply everywhere?
Sir Peter Ricketts: No.
Q68 Mr
Mitchell: Or just in places we want to be particular
mates with, like the
Sir Peter Ricketts: I think we look at every
different capital on the merits. There
are some times when we have got a building which is obviously too big for us
any more, obviously no longer relevant to what we need to do, and then we can
look at selling it. I did promise, and I
am sure all foreign secretaries would agree, that we should retain the big
prestige properties we have often owned for 150 years, let alone 50 years,
which we can use every day to promote
Q69 Mr Mitchell: Why do you not collect data on space and its use? I see in paragraph 3.2 there is a system called Pyramid which is a database to record and monitor overseas properties.
Sir Peter Ricketts: Yes.
Q70 Mr Mitchell: "Of the 188 posts who responded to our survey", say the NAO, "almost a third did not use Pyramid and most posts we visited only updated Pyramid twice a year... A number of Pyramid records were inaccurate... Property suitability assessments have not been updated since 2006... Details of office net internal areas were inaccurate and incomplete...". Why do you not have accurate data for all your embassies?
Sir Peter Ricketts: We must have. This is not adequate, it is not acceptable. I think it has been useful actually, if I may say, for the NAO to do this Report because it has been a wake-up call for us. We are determined that we will get these returns on our database up to 100% and we have got an action plan to achieve that. To be fair, we do have a good sense of the properties that we own. I think that many of the weaknesses in the database are properties that we rent, and sometimes we only rent them for two years, three years, four years, and they do not get properly on to the database and properly counted. Even that is not good enough, I agree. I agree with you that we must get this database properly up-to-date and it must have all the facts on it about usage of space and so on.
Q71 Mr
Mitchell: Why do your chaps need more space than is
provided for public servants in the
Sir Peter Ricketts: Fewer and fewer of them come from public school, Mr Mitchell, I promise you.
Q72 Mr Mitchell: We have not got Mr Davidson to ask you the proportion of public school chaps.
Sir Peter Ricketts: Indeed.
Q73 Mr Mitchell: It was my vision.
Sir Peter Ricketts: The highest morale embassies
I have been to are the ones where they are working in open plan, in modern
offices, as if you were in a high specification office in the
Q74 Mr Mitchell: Are open plan offices universal on the estate?
Sir Peter Ricketts: No, far from it. When we have got it, it is really good. We are moving in that direction whenever we can. There are some of our grander buildings that are expensive to convert like that and there is only a limited pool of manpower to do it. We are only moving slowly. The aim is to be working in functional modern offices, even if it is inside an old historic building.
Q75 Chairman: As you know, Sir Peter, in response to Austin Mitchell, our Committee has a settled policy that we should not ask you to sell our historic residences for narrow cost grounds. I do want to return to the point Mr Mitchell was making to you, Treasury. This is about the full cost recovery that you require. I still do not think we are at the bottom of this. It does seem absurd to us that some of our Foreign Office buildings, prestigious buildings, are lying half empty because of a narrow full cost recovery mechanism, a bureaucratic mechanism that you are asking of the Foreign Office. Something is better than nothing, is it not? You should be doing some more joined-up thinking with the Foreign Office and other government departments to ensure better use of this office space so that you get more use of it and Sir Peter is not compromised by it in any way.
Mr Gallaher: We are certainly working with the Foreign Office and part of this Shared Services Group to try to bottom out this issue and this problem. We are certainly not sitting on our hands. We are actively engaged in this Group at the moment.
Chairman: Thank you very much.
Q76 Mr Carswell: One or two people have touched on this, Sir Peter. The Lisbon Treaty obviously allows the EU an overseas diplomatic presence and this means, as you say, there will be a physical EU global estate. You have said that you are willing to offer to share some of our estate. You might say that having pooled our sovereignty the FCO is happy to try and now pool our embassies. Could you tell me when and where you are looking to pool our embassies with the EU?
Sir Peter Ricketts: I think in response to Mr Mitchell I was speculating in the future. I have no plans at the moment at all to let out any of our space to the EU. My main point was that if there was an EU mission somewhere where we were not represented and there was an opportunity to put one British diplomat into an existing EU operation, that is something we might consider. The answer to your question is we have no current plans to do that.
Q77 Mr Carswell: I think you used the phrase that there may be instances where we would be happy to "muck in" with them and you talked about small African countries where there is a limited presence where we would be happy to have some pan-EU presence. Is that right? Which African countries did you have in mind?
Sir Peter Ricketts: I would not exclude it. For example, in
Q78 Mr Carswell: At the moment you do not plan to pool any of our embassies?
Sir Peter Ricketts: I have no plan to do that.
Q79 Mr Carswell: If you were to pool our embassies, what would be the advantages in doing so? You said you would be interested in looking at it. What would be the advantages? Cost obviously, but what else?
Sir Peter Ricketts: If I may say, "pooling our embassies" is your phrase, not mine, I do not think I have ever spoken about that. What I can see as a possible advantage is if there is an EU delegation office working in a country where we are not represented it could be cheaper to have one British diplomat working there sharing common support services with that delegation rather than establishing our own separate embassy.
Q80 Mr Carswell: So where we are represented you see no advantage in us pooling resources with the European Commission?
Sir Peter Ricketts: No. As of now I have got no plan to do that. I cannot immediately envisage why we would do that. I think it would only be to increase our coverage in countries where we are currently not represented. I do not know whether Mr Bevan has got anything to add.
Mr Bevan: The only thing I would add is
that there is a slightly different scenario which is where we own a building,
or we co-rent a building, where we are very keen to have the European Union or
another national embassy in the building because it reduces the costs. In
Q81 Mr Carswell: If you do have to share costs, are you keener to have the EU as a partner or other Anglosphere partners? Is there a preference as to who to team up with in the FCO?
Sir Peter Ricketts: We are in hypothetical territory because I do not think we have seen opportunities like that. No, I think we would look case-by-case to see where it made sense. I would be delighted to co-locate with Australians, New Zealanders or Canadians, or indeed French or Germans, if that made sense in the individual place concerned.
Chairman: Mr Curry has a supplementary.
Q82 Mr Curry: Just a couple of things. On asset sales, are they sold in the currency of the place where they exist?
Sir Peter Ricketts: Yes.
Q83 Mr Curry: Do you then try and use those to reinvest in that same currency area? What is the accounting principle? I assume you do not have to translate everything back into pounds for accounting purposes and then if you want to invest overseas you have to translate them back into dollars or renminbi or whatever it is.
Sir Peter Ricketts: We might have to come back to
you with the detail of that. An example
was our embassy in
Q84 Mr Curry: Then, first, you are exposing yourself to foreign exchange costs and, secondly, to charges.
Sir Peter Ricketts: Yes, indeed.
Q85 Mr Curry: If you do not have to repatriate the value of your sales and can reinvest in that same currency area you get more bang for your buck presumably.
Sir Peter Ricketts: Indeed.
Q86 Mr Curry: I would be interested to know what the accounting principle is there. Last time you were here we talked about the foreign exchange implications, did we not, and that is still a significant issue.
Sir Peter Ricketts: If we may we will write on that subject.
Q87 Mr Curry: I am sorry to come back to full economic cost, but the water bill is the water bill is the water bill. You mentioned that you made a charge for the services you provide. Do you have the autonomy to determine how that cost is arrived at or does the Treasury have some form of parameter model by which you calculate the cost of the services that you provide? Is there some flexibility at that end of the market?
Mr Gallaher: There is a fees and charges guide which is issued by the Treasury which sets out all the factors that should be taken into account by any department in reaching a figure called the full economic cost. That can include pay costs, overheads, procurement costs, all sorts of costs.
Q88 Mr Curry: We were talking about what you might call invisibles, were we not? We were talking about advice, the presence of security.
Mr Bevan: There are three components of the costs that we charge other government departments. One is the water bill, so the direct costs. The second is the local management and support that we provide for them, so the time of the management officer who helps.
Q89 Mr Curry: Those are management charges.
Mr Bevan: Then there is a central
overhead, which is the third component, which is an imputed cost of the amount
of time that the Foreign Office in
Q90 Mr Curry: That imputed cost is formula-based, is it?
Mr Bevan: Yes. As our Treasury colleague has said, we have to calculate all of those within the principles.
Q91 Mr Curry: What would be interesting is to see whether we agree with those costs, would it not? I remember we had a public sector comparator when we did the London Underground, Chairman, and we never, ever managed to get to the bottom of how anybody had calculated the public sector comparator. Do you remember that? In a much smaller way this is something else it might be worth trying to deconstruct, I think.
Sir Peter Ricketts: We can certainly send you
further information. May I show the
Committee one exhibit, Chairman, if you will allow me just in terms of the
repatriation of funds and so on. When I
went to
Q92 Chairman: You are not trying to bribe the Committee, are you!
Sir Peter Ricketts: I am not trying to bribe the Committee, Chairman, I am simply saying it is quite difficult sometimes to operate in some cases ---
Chairman: A bit of light relief! There are a couple more supplementaries from Mr Mitchell and then Mr Bacon.
Q93 Mr Mitchell: Paragraph 3.7 indicates that of 42 capital projects completed since 2002 29 were late and 14 exceeded their initial budget approval by 14%. Did you use British contractors on these or locals?
Sir Peter Ricketts: Do you want to answer that, Mr Croney?
Mr Croney: The situation as to what
contractors we use will vary country-by-country dependent on the security
situation. In many countries we will use
UK-based contractors, but in some we will subcontract non-sensitive areas to
local contractors. That is judged on a
case-by-case basis. Invariably we will
be contracting in local currency, but the comparison and the feedback to the
accounts goes back to the point that when it hits us in
Q94 Mr Mitchell: Which is more likely to overrun and be more expensive, the locals or British contractors?
Mr Croney: It is difficult to judge. I think there is just as much overrun with local contractors as there is with British contractors.
Q95 Mr Mitchell: Exchange rate fluctuations could be part of this?
Mr Croney: Yes.
Sir Peter Ricketts: Also, I think it depends on
the difficulty of where we are building.
Of that £57 million overrun since 2002 in the Report, £40 million of it
is accounted for by building in
Mr Bevan: The
Mr Mitchell: That is unusual.
Q96 Mr Bacon: Is there a cheap uncompleted building that you could buy there?
Mr Bevan: Half completed.
Q97 Mr Bacon: I would just like to ask about the rescue package that the Chancellor of the Exchequer offered the Foreign Office three weeks ago, which was reported as being £75 million made up of £35 million of cash in the Treasury Reserve and £25 million from the ability to keep capital receipts. I understood you to say earlier that you kept your capital receipts anyway to reinvest them. Is that not wholly true?
Sir Peter Ricketts: That is true, but there was a limit. The Treasury put a ceiling on annual capital receipts that we were allowed to realise and the Chancellor lifted that by another £25 million, so he offered us the chance, if we could sell another £25 million of assets, that we could then keep that for our capital needs.
Q98 Mr Bacon: What was the limit beforehand?
Sir Peter Ricketts: There was a three year limit applied in the Spending Round of, I think - I would have to confirm to you - something in the area of £50 million or £60 million.
Q99 Mr Bacon: Perhaps you could write to us. What is being said here is that if you can sell an extra £25 million worth of property you can keep that money, not to reinvest in better capital assets and modern offices but to pay for the foreign exchange costs you have encountered. That is right, is it not?
Sir Peter Ricketts: I think we are entitled to keep it for whatever we judge we need.
Q100 Mr Bacon: The point is, and it was reported as arising from the foreign exchange problems that you have had, essentially you are selling capital assets and using them to fund your current expenditure because your current expenditure went up because of a foreign exchange hit. That is right, is it not?
Sir Peter Ricketts: We are entitled to do that if that is what we choose to do. We could equally plough it back into the capital programme if we judged that was a higher priority. Yes, it is open to us to switch capital into administration to pay for the running costs.
Q101 Mr Bacon: One other point that was referred to at the time was the fact - the Foreign Secretary said this - the BBC World Service and the British Council had been making a contribution to help manage these pressures. What did that mean financially in each case?
Sir Peter Ricketts: It meant that we agreed with the BBC and the British Council, reflecting the fact that they are part of the overall FCO budget, that they would help us with the pressures we are facing for one year only next year.
Q102 Mr Bacon: Let me put it more bluntly: how much?
Sir Peter Ricketts: I think the total between the two of them was £9 million.
Q103 Mr Bacon: The BBC World Service comes under the Foreign Office and is audited by the National Audit Office. That is correct, is it not?
Sir Peter Ricketts: I believe so, yes. The grant-in-aid that we provide through our budget is, I am sure, audited by the NAO.
Q104 Mr Bacon: In your experience, the fact that the BBC World Service is audited by the National Audit Office might by some be thought to represent a problem in terms of the editorial independence of the BBC World Service, have you ever found that to be the case in practice?
Sir Peter Ricketts: No, and I would say it is comparable to the fact that the money comes through our budget, so I am the accounting officer for the grant-in-aid and that has never, so far as I am aware, prejudiced their independence. I think both the auditors and the accounting officer can maintain a distinction between proper and appropriate spend of the money and the editorial line of the BBC.
Q105 Mr Bacon: It would be possible for the National Audit Office to be the auditor and at the same time to have the highest standards of editorial impartiality and independence?
Sir Peter Ricketts: I see no inconsistency between those two things.
Mr Bacon: You can stop there.
Q106 Chairman: You do not know, Sir Peter, how grateful we are for that answer. That is another campaign that we are waging. Why do we read in paragraph 3.9 that in 2008-09 you were £11 million over budget on your capital project programme?
Sir Peter Ricketts: Indeed, for the previous year we were almost exactly the same amount under budget, so I think over two years we were pretty well spot-on. I think it reflects the difficulty of trying to build in places like Baghdad, Basra, Harare, Sana'a, Algiers, and then having unexpected events like floods in Madrid or whatever it may be.
Q107 Chairman: Can you send us a note about the floods and the total costs?
Sir Peter Ricketts: When we have them, yes.
Q108 Chairman: Despite this, Sir Peter, we read in paragraph 4.7 that 40% of the estate no longer complies with legal and FCO standards.
Sir Peter Ricketts: In terms of health and safety work, for example, which is unacceptable and a worry for me all the time because I am personally responsible in the end and partly reflects our budget pressures in recent years. All expenditure, including on health and safety work, has been trimmed back. We have put extra money into the budget specifically for health and safety work this year and next year and we must catch up with that, but it is difficult.
Q109 Chairman: If there was another government department in front of us where one in three of its projects go over their budget and two-thirds of them were late you would have had a roasting this afternoon, Sir Peter, but we recognise the difficulties you are under in terms of security, terrorism, difficult markets. We do want to see a better managed estate with lower costs, better outcomes, better use of space and so on. Before we part company, will you give a commitment to report back to us in 18 months on the progress that you have made. Is there anything further that you wish to add on any of the questions we have asked you to convince us that you are now fully committed to the full use of this estate?
Sir Peter Ricketts: I think there are no further comments, Chairman. First of all, may I say I think this NAO Report has been helpful to us in focusing us on areas of shortcomings and weakness. Secondly, I am very confident that with our new estates director, our new strategy and governance arrangement with Mr Bevan chairing a dedicated estates committee, we will improve our performance. I absolutely accept that we need to improve our performance both in terms of overspending and in terms of project management and the data and in due course driving down this unnecessary space that we have in our embassies around the world. I am confident that if we come back to you in 18 months we will show an improvement, as I believe we did in the financial management area, that extra focus and extra attention will drive and improve performance. That is my commitment to the Committee.
Chairman: Thank you very much, Sir Peter. That concludes our hearing.