House of Commons - FCO Performance and Finances

FCO Performance and Finances - Foreign Affairs Committee Contents

3 The British Council

74. The British Council and the BBC World Service are the two major non-departmental public bodies associated with the FCO. The official purpose of the British Council is to "build engagement and trust for the UK through the exchange of knowledge and ideas between people worldwide".[96] It is funded by a mixture of direct grants from the FCO and revenues gained from the British Council's commercial activities, chiefly teaching and examinations operations. In 2009-10, the British Council received just over £200 million from the FCO for its public diplomacy activity, which equates to around 30% of its turnover (£705 million in 2009-10). The majority of its income comes from sources other than direct FCO grants: for every £1 of Government grant the British Council receives, £2.50 is earned from other sources.[97] The British Council also receives grants from other government departments. For example, it received £10.5 million in 2009-10 from the Department of Children, Schools and Families to fund education projects.[98]

75. Our predecessor Committee looked at the British Council in a Report published in January 2010. It concluded that financial year 2009-10 would be a difficult period for the Council which had undergone a "fundamental change to [its] business model". The Council's planned restructuring included a voluntary redundancy programme during 2009-10 which will "see a reduction in UK posts by 500, equivalent to one-third of the UK workforce." This was part of a package that was estimated to save the Council £85 million by 2013-14.[99]

76. The Spending Review confirmed that there would be cuts to the direct grant received by the British Council from the FCO. Between 2010-11 and 2014-15, the value of the FCO's grant would fall from £180.9 million to £149 million. Allowing for inflation, this represents a real cut in the region of 25%. Martin Davidson, Chief Executive of the British Council, told us that this was a settlement that "will secure the British Council's global network" and which "confirmed the value of the British Council's cultural relations work as a major contributor to the UK's international relations".[100]

77. The table below was prepared for us by the House of Commons Scrutiny Unit. It details the grant funding that the British Council will receive from the FCO over the length of the Spending Review period.

Resource budget Capital budget

Grant funding

£m
Grant restated in 2010-11 prices

£m
Real-term change in grant since 2010-11 baseline Grant funding

£m
Grant restated in 2010-11 prices

£m
Real-term change in grant since 2010-11 baseline

2010-11 (baseline) 181 181 - 5.4 5.4 -

2011-12 173 170 -6% 7.0 6.9 27%

2012-13 165 158 -13% 6.0 5.8 7%

2013-14 157 147 -19% 5.0 4.7 -13%

2014-15 149 136 -25% 5.0 4.6 -16%

78. Vernon Ellis. Chair of the British Council, told us that the Spending Review settlement meant that the Council would have to act in three areas:

Further efficiency savings including the further rationalisation of functions away from the London headquarters to India;
The cutting of some programmes, and
Reducing geographic coverage, especially the closure of sites in smaller countries.[101]

Martin Davidson said to us that greater commercialisation and partnerships with commercial organisations would be a key part of the Council's future.[102]

British Council efficiency savings

79. The 2007 Comprehensive Spending Review committed the British Council to generate £20.8 million of savings on its grant by March 2011. Savings announced to the British Council's budget in the Spending Review will be in addition to this programme. In January 2010 the British Council told our predecessor Committee that it was on target to meet the £20.8 million target by 2011. To meet this target the Council had reduced its physical overseas network,[103] introduced certain services for paying customers only and cut its UK staffing by one third (around 500 posts). The Council's Annual Report also stated that the number of overseas staff would be reduced by "several hundred". Martin Davidson told us that the savings programme initiated as a result of the 2007 savings programme and scheduled to finish in 2011 had caused "real pain within the organisation" and led to a radical change in how the Council operated. This change had included the outsourcing of finance, IT and human resources work away from the UK to Delhi. In addition, and as a result of this change, staffing in the UK, which is split between the London head office and regional offices providing Council services, was planned to be reduced from 1,250 to 800.[104] Currently there are 825 full-time staff employed in the UK. Mr Davidson was confident that the "balance [of staff reductions] will be gone by the end of the financial year".[105]

80. At the time of our evidence session, the Council was unable to inform us exactly what effect the 2010 Spending Review would have on staffing levels; however, it is clear that there will be some further reduction. Martin Davidson called it "inevitable" that there will be staff reductions in the UK, but "given that the reduction in income for the organisation is a fairly straight line in terms of trajectory, I wouldn't expect a huge change in a very short period of time. I would expect the change to take place over the next two years".[106]

81. There appeared to be some disagreement amongst our witnesses from the British Council as to whether the renewed programme of staff reductions would impact on service delivery. Martin Davidson told us that "there is a lot of bureaucracy and administrative overhead in the organisation which we will need to strip out, but also there will be a reduction in services, absolutely".[107] He added that "part of that we will look to replace through our income-generating activity, but it certainly won't be possible to replace all of it".[108] Vernon Ellis, however, told us that "at the moment we have an organisation designed to support [a] rather complicated way of doing things. It [the Spending Review] isn't going to be all our savings [...] and I don't think that that will reduce service at all." Instead he restated his commitment to preserving the UK service element of the programme—an "important part of our service" which is provided via the regional offices—but reducing unnecessary overheads in the form of UK head office functions.

Reducing costs and increasing turnover

82. In addition to further reductions to staffing in the UK and continued efforts on outsourcing back office functions, Martin Davidson told us that 35% of the new cuts announced in the 2010 Spending Review would be from reducing the Council's overheads and changing how the Council operated overseas. Both Mr Davidson and Mr Ellis told us that the Council would have to look further at its geographic coverage and examine ways to cut costs by reducing the Council's presence. Mr Ellis spoke of rationalising operations in smaller countries by introducing a 'hub and spoke' model.[109] Mr Davidson suggested that "there will probably be a number of places where we will have a virtual rather than a physical presence in the future".[110]

83. According to the NAO, the British Council intends to:

make savings by finding greater efficiencies and enhancing the commercialisation of their operations. The grant given to the British Council will reduce by 25% in real terms over the next four years, which reflects the Council's projected doubling of income by 2014-15.[111]

Around 70% of the British Council's revenue is currently earned through commercial activities, mostly through the provision of English language courses and exams. Income from commercial activities increased by 9% in the last year.

84. The Permanent Under-Secretary at the FCO, Simon Fraser, stated that one reason the British Council had faced deeper cuts than the 'core FCO' was precisely because the Council had the capacity, which the core FCO lacked, to supplement its Grant-in-Aid through commercial activities.[112] We queried with our British Council witnesses whether this increased emphasis on commercialisation would adversely affect the reputation and role of the Council around the world. Vernon Ellis accepted there was a potential danger that the Council might focus on, "for example, places in Europe, where it is nice and easy and profitable", at the expense of diminishing its wider global capability.[113] Martin Davidson spoke of a "double bottom-line"—financial and reputational—with regard to undertaking commercial work.[114] He also drew our attention to the Council's increasing capacity to work in partnership with commercial organisations: about £50 million had been raised through such partnership in financial year 2009-10. He cited the example of co-operation between the Council and the Microsoft learning network over school-linking in sub-Saharan Africa. Both he and Vernon Ellis argued that maintaining the 'brand' and cultural reputation of the British Council was desirable for commercial as well as other reasons, as its existence was one of the principal reasons why commercial partners wanted to work with the Council.[115]

85. We conclude that the British Council faces great strain on its budget over the next four years. A 25% reduction over this period may well trigger some fundamental rethinking of the role and work of the Council. We appreciate that the Council, like other public-sector bodies, has had very little time to prepare its response to proposed reductions in expenditure. Nonetheless, we note that there was a lack of clarity from our British Council witnesses on the important issue of whether cuts would necessarily entail service reductions. It is difficult to conceive that some service reductions will not be necessary. We further conclude that the extent to which the British Council can maintain anything like its current levels of service and geographic coverage will depend on its ability to increase its income from commercial activity and partnership. That in turn will entail a difficult balancing act in which the Council must seek to maximise its income from the sale of English language teaching and other services, whilst not compromising over the pursuit of its primary purpose, to "build engagement and trust for the UK through the exchange of knowledge and ideas between people worldwide".

86. We recommend that in its response to this Report, the British Council should supply us with a report on the progress it has made towards developing a detailed strategy for implementing the overall 25% cut, including details of further staff reductions and of the measures it has taken to ensure that the British Council's unique 'brand' will not be damaged by this strategy.

96 British Council, Annual Report 2009-10, page 43 Back

97 British Council, Annual Report 2009-10 Back

98 National Audit Office, Memorandum to the Foreign Affairs Select Committee, November 2010; http://www.nao.org.uk/publications/1011/foreign_affairs_committee.aspx Back

99 Ev 82 [British Council] Back

100 Ev 80 [Martin Davidson] Back

101 Q 5 Back

102 Q 8 Back

103 Information centres in Berlin, Thessaloniki, Vienna and Brussels were closed. Outreach centres in Romania and Bulgaria were closed and walk-in public access had been reduced in Israel, Estonia, Lithuania, Hungary, Russia and Slovenia. Back

104 Qq 20-21 Back

105 Q 27 Back

106 Q 31, 33 Back

107 Q 28 Back