Supplementary written evidence from Simon
Fraser CMG, Permanent Under-Secretary of State, Foreign and Commonwealth
Office
Thank you for the constructive and positive FAC hearing
last month on the "FCO's Finances and Performance".
I very much wish to maintain that positive relationship in future.
In the time available for the hearing the Committee Members were
not able to ask a number of questions they had in mind, and I
said I would write.
Three of these questions were in relation to the
£55 million in-year cuts required as the FCO's contribution
to immediate deficit reduction. You asked how and when we will
decide to deliver them and what their impact would be on front-line
services.
These were spending cuts to be achieved in this financial
year. Our Parliamentary Main Estimate, published in June, was
net of this £55 million cut. Effectively from the start of
the year our Budget was reduced by £55 million. FCO Ministers
set out to Parliament on 7 June how these reductions would be
achieved. They said that the £55 million would be delivered
by cutting waste and inefficiency, and reducing lower priority
spend, including through:
- ¾ reduced
spend on consultancy and support functions;
- ¾ more
collaborative procurement with other Departments who have a presence
overseas, such as the Department for International Development;
- ¾ increasing
asset sales in less-used parts of Foreign and Commonwealth Office's
(FCO) overseas estates;
- ¾ a
review of the FCO's programme spend. The results of the Programme
review, which was the only front-line impact of these cuts, were
that we reduced our planned programme expenditure by 18 million
in this financial year. The details of the break-down of this
£18 million were set out in a Written Ministerial statement
on 29 June.
You also asked a question whether the Winter Supplementary
Estimate was consistent with these £55 million cuts. The
FCO Main Estimate not only included the £5 million reduction
in plans but also included the previous reduction of £20
million to the CSRQ7 plans for 2010-11.
As a general rule, Main Estimates reflect agreed
plans and changes to baseline expenditure across years rather
than in-year adjustments. However our Winter Supplementary Estimate
allowed us to make required ad-hoc budget transfers with governmental
partners, eg the costs of the Papal Visit which were shared between
several departments, the HMT share of the annual costs of International
Subscriptions, along with non-baseline expenditure such as the
in-year modernisation money for the FCO and the transfers from
DFID for conflict prevention.
The Committee asked about the modernisation work
that the additional £30 million included in the Winter Supplementary
Estimate would pay for, and why it had not been included in the
Main Estimate. The £30 million for modernisation consists
of £15 million agreed by HMT as part of a package of exceptional
measures in spring 2010, and a further £15m for modernisation
work within our Corporate Services Programme (CSP). It was not
included in our Main Estimate as HMT do not approve drawing down
money in advance of need. We have used this sum to fund the early
retirement of nearly 120 British staff, to enable some restructuring
in our Consular network, and to reduce the number of LE staff
employed in addition to the Corporate Service Programme's (CSP's)
localisation/FM agenda.
Mr Roy also asked about the savings from the Corporate
Services localisation agenda (Q203-204 on the transcript). The
Foreign Secretary expects us to find further savings and create
a reinvigorated Foreign Office, at the heart of government, playing
a more leading role than has been possible in recent years. Localising
positions in our overseas network is one of the ways we can make
further savings in support areas in order to ensure we continue
to deliver value-for-money and free our diplomatic staff to concentrate
on front-line diplomacy.
The FCO's localisation initiative is forecast to
save approximately £12 million annually from 2012-13. In
addition to the clear financial savings, localisation of certain
roles is also delivering other benefits through recruitment of
talented local staff. Where appropriate, the localisation programme
has allowed us to increase the level of professionalism in the
way we deliver management and support functions and take fuller
advantage of local knowledge.
Mr Roy also mentioned a Parliamentary Question (PQ)
he asked recently about the admin cost of foreign transactions.
We spend over £800 million a year in foreign currency in
thousands of transactions. Across our global network, our staff
pay bills and salaries in local currencies. To calculate the administrative
cost of this process globally would incur disproportionate cost,
which is why we answered as we did. If Mr Roy, or any Member of
the FAC, is seeking more specific information, we would of course
do our best to provide it.
Mr Ainsworth asked about the timetable to allocate
the four separate programmes within the Conflict Pool. The allocations
will need to be decided collectively by the three Departments
concerned, now that we know the detail of the conflict settlement.
The settlement covers both the Assessed (ie the obligatory) Peacekeeping
Costs and the Conflict Pool (which funds discretionary UK conflict
activity). The Treasury will provide £374 million annually
for the Assessed Costs. This is the same amount provided per annum
in CSR07. We expect the actual costs of our international peacekeeping
obligations to be more than £374 million in each year of
the Review period. Therefore money from the Conflict Pool will
need to be used, as at present, as the first port of call to top
up the peacekeeping budget.
The Conflict Pool funds five programmes aimed at
achieving our objectives for conflict prevention: Wider Europe,
Africa, Middle East, South Asia and Strategic Support to International
Organisations. The tri-departmental Stabilisation Unit will also
be funded from the Conflict Pool. Departments are currently preparing
advice for Ministers on Conflict Pool allocations for 2011-12.
These will be announced to Parliament.
I also need to clarify an area related to peacekeeping
and conflict funding that we discussed in the hearing. To help
improve the coherence, transparency and simplicity of the Government's
spending documents Parliament has agreed some changes under the
new Clear Line of Sight (CLoS) budgeting regime. One of these
is that Departmental Net Resource and Capital budgets will be
voted in Supply Estimates rather than the specific Request for
Resources (RfRs) 1 & 2 as the present. The effect for the
FCO is that, from 2011-12, there will no longer be an RfRl for
FCO family and a separate RfR2 for tripartite Conflict Pool and
peacekeeping expenditure.
We will continue to have separate lines in the Estimate
for the FCO, BBC World Service (until end 2013-14), and the British
Council, and we will also include lines for both the Conflict
Pool and Peacekeeping tripartite funds. We will draw down our
Conflict Pool funding from DFID, on whose baseline this budget
will sit and Peacekeeping money from HMT as we do now. We will
continue therefore to present Conflict Prevention and Peacekeeping
expenditure explicitly in Supply Estimates and will need Treasury
approval to move money between lines in the Estimate. We plan
to show the FAC a dry run CLoS Main Estimate before the Christmas
recess.
Finally, you asked me about the core FCO cut in SR10.
The Treasury makes an allocation to the FCO family (the FCO, the
British Council and the BBC World Service) and the Foreign Secretary
then further allocates that overall budget within the family.
The cut to the FCO family as a whole is projected to be 10% in
real terms in year 4, taking account of estimates of UK inflation
and the removal of BBCWS by that fourth year of SR10.
Within that the effective cut for the FCO itself
by year 4 is also around 10%. The FCO will go from a core resource
budget this FY of £981 million to a core budget in 2014-15
of £1016 million. On the projected level of inflation that
equates to £925 million at today's prices—a mathematical
real terms cut of around 6%. But those figures give only part
of the picture. Within them there is an amount of ring-fenced
HMT money to fund the costs of the UK's International Organisations
membership subscriptions and a cost sharing agreement for additional
costs. When this formula, and the best forecast of costs in the
final year, are taken into account the predicted core FCO cut
is a shade under 10%.
The difference between the cut to core FCO budget
and those of the British Council and the BBC World Service was
a decision by the Foreign Secretary designed to ensure long term
proportionality and fairness across the whole FCO family. It took
account of the impact of different pressures faced by its members
and their ability to mitigate them. In particular the Foreign
Secretary took into account that:
- ¾ the
British Council can, and increasingly does, earn income from commercial
work to supplement their Grant-in-Aid; and the BBC World Service
can also do so to a lesser extent. The FCO cannot;
- ¾ the
FCO took a particularly hard hit over the loss of the Overseas
Pricing Mechanism, harder than the British Council—which
has a natural hedge in its commercial operations—and World
Service, which spends mainly in the UK. That hit cost the FCO
10% of its purchasing power since 2008;
- ¾ the
FCO leads the UK's global presence and network on which the British
Council's work in particular, but also that of the World Service,
depend;
- ¾ the
core FCO is taking the brunt of the steep reduction in capital
allocations compared to SR 07;
- ¾ further
increased costs, which will fall particularly on the FCO over
the corning years, will come from differential inflation, especially
in emerging economies; and
- ¾ a
decline in the costs we will recover from our Partners Across
Government (PAGs) for providing support to them on our platform.
In addition, as I have made clear, the FCO core budget
has in previous years declined as a proportion of the overall
FCO family budget as a result of ringfencing of the BBCWS and
British Council budgets.
I hope this letter provides answers to your outstanding
questions. May I take this opportunity to wish you and Members
of the FAC season's greetings.
13 December 2010
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