FCO Performance and Finances - Foreign Affairs Committee Contents

Letter to the Chair of the Committee from Simon Fraser CMG, Permanent Under-Secretary of State, Foreign and Commonwealth Office

I am writing to update you on the latest FCO management issues. This letter covers the period January to July 2010.


In July, following a strategy review, Ministers and the Board agreed with the Prime Minister a new set of priorities for the FCO, as follows:

"Britain will pursue an active and activist foreign policy, working with other countries and strengthening the rules-based international system in support of our values to:

  1. Safeguard Britain's national security by countering terrorism and weapons proliferation, and working to reduce conflict.
  2. Build Britain's prosperity by increasing exports and investment, opening markets, ensuring access to resources, and promoting sustainable global growth.
  3. Support British nationals around the world through modern and efficient consular services".

The new priorities will form the basis of the FCO future Activity Recording process. We are working to adjust processes and systems to capture and cost staff activity against these new priorities. We also developing an updated business planning system to support implementation of these priorities.


On 30 June the FCO 2009-10 Resource Accounts were laid before Parliament. For the third year running the FCO was the first major department to have laid its accounts. The FCO managed its expenditure well during the year, resulting in an underspend in our Resource Budget of less than 1% (£22.2 million). Against our HMT Capital Departmental Expenditure Limit of £203 million our underspend was £3.7 million (1.8%).

The Government has said its most urgent priority is to tackle the UK's record deficit in order to restore confidence in our economy and support the recovery. As part of this, the Chancellor announced that the government will save over £6 billion from spending during this financial year. The FCO family's share of this cut is £55 million (including £5 million capital); which represents around 2.5% of the departmental budget (including the budget allocated to the British Council and BBC World Service)

To live with this cut we have made savings from a number of areas including general efficiencies, reduced consultancy spend, savings on procurement, asset sales, reprioritisation and other adjustments to the FCO overall spending. Additionally a Ministerial-led review of our strategic programme activity identified over £18 million of in-year savings. Details of these were reported to Parliament in a Written Ministerial Statement on 29 June. (HC Deb, c37-8WS).

At the end of Qtr 1 we have identified and forecast a number of additional pressures we will have to manage on top of the cuts mentioned above. Nevertheless, we will rise to the challenges presented by the Government strategy, and intend to deliver a full spend this Financial Year within 1% of Parliamentary Control Totals.


Between January and July 2010, we carried out the work phase for 4.5* 'Far Flung Finance' to further improve how we manage resources. This focused on mainstreaming good financial management across the whole FCO. We successfully rolled out a new and improved budgeting and reporting system (Hyperion/OBIEE) to our overseas network. This is enabling improvements in the FCO Board Key Performance Report so that the management information can be built up on-line from the post level providing senior management with greater assurance and to better support Board discussion and decision-making. The NAO will assess the FCO's financial management performance in the autumn. We will build on their recommendations in planning the next phase of financial management transformation in the FCO.


On 8 June the government set out plans for this year's Spending Review, and in July we submitted the FCO bid to the Treasury. Our bid reflects the Foreign Secretary's belief that we must remain an effective global organisation capable of promoting and protecting our economic recovery and our national interests. He is equally clear that the FCO must play its part in cutting expenditure and delivering better value for money. We are now in discussion with the Treasury. The outcome of the Spending Review will be announced on 20 October.


The FCO overall results for the second year of CSR07 (financial year 2009-10) amounted to delivery of £148 million efficiency savings, against the forecast at the start of 2009-10 of £136 million. Where we have exceeded efficiency targets, the excess has been recycled to help us manage rising costs from the fall in sterling's overseas purchasing power. During 2010-11, we will continue to consolidate the work of the previous two years.


The Programme hit its 09/10 efficiency targets, saving £4.6 million and releasing 224 slots, and is on track to deliver £40 million of efficiencies by 11/12. The Programme continues to drive simplification and savings from improved Prism (ie Oracle) technology and the FCO's corporate functions, including the Corporate Services Centre in Milton Keynes. Our project to replace UK-based staff with talented local staff in some corporate services roles overseas is progressing well—over 30 jobs have been localised to date. And our project to outsource the running of our buildings in selected posts in Asia Pacific is now in the latter stages of the procurement process.

The FCO Board has asked the Programme to build upon this success and to look for further savings in light of the drive to cut public expenditure and deliver better value for money. The Programme has therefore expanded its scope to include some repatriation of corporate services processing activity overseas to the Corporate Services Centre, more localisation of corporate support jobs, reductions in the costs of the Central Units in London, and cuts in directly employed residence staff, drivers and support staff overseas.


Installation of our new IT System (F3G) is now complete in the UK and at all but two overseas posts. FCO staff are now realising the tangible business benefits of the new system such as: improved mobile working options, greater collaboration between colleagues enabling 'One Team' working, better information management tools and a greener, more secure and stable IT system. We are gathering positive case-studies from around the world and publicising them on our internal FCONet website and in our monthly 'Wire' newsletter. Focus is shifting to how Firecrest is working in practice and delivering performance improvements.


The risk register was updated in March. No change was made to the number of operational risks (Physical, Technical and Personnel Security; Resources; IT Systems; and UKBA) or strategic risks (Iran, Afghanistan, Pakistan, Terrorism, Middle East Instability, Horn of Africa, Overseas Territories, Litigation and the Economic Outlook). At the June update two further strategic risks were added: Turkey and the EU. The FCO Board continues to discuss individual risks in depth at its monthly meetings to make sure these risks are being effectively managed.


The FCO and UK Border Agency continue to work closely together to deliver and communicate overseas the government's migration policy, including the net migration limit and removals of immigration offenders. This work is set against a backdrop of efficiency savings and the impending outcome of the Spending Review.

The current phase of the FCO-managed quadrilateral (UKBA/FCO/DFID/Ministry of Justice) Returns and Reintegration Fund comes to an end in March 2011. The Fund has made a significant contribution to delivering Government targets for the return and reintegration of failed asylum seekers and foreign national prisoners. Funding for future years is dependent on the outcome of the Spending Review.

The simplified mechanism for charging the Agency for use of FCO resources resulted in early settlement of the cost charge for 2010-11. Significant progress has been made on a joint review of the overarching FCO and UK Border Agency Memorandum of Understanding and Service Level Agreements on Human Resources, IT and Finance which underpin our partnership. These have been brought into one document with a view to improved planning and delivery of the single global platform.


The FCO Board decided to retain, for the rest of this Comprehensive Spending Round period (CSR07), the existing charging framework for Partners Across Govt (PAGs) who use our platform. We have agreed and implemented a simplified charging model with the UK Border Agency (UKBA), our biggest partner, to provide budgetary certainty for both parties.

For other Departments, charges for central overhead costs will remain capped at last year's levels for the rest of this Financial Year. Work has begun on identifying how funding for the overseas platform can be improved for the next Spending Review (SR10) period (FYs 11/12-14/15) with a view to moving away from the current charging framework. We are engaging with PAGs and HMT to identify a more simplified charging framework to recover costs that will reduce bureaucracy whilst ensuring that the FCO is fairly compensated for the risks and contingent liabilities it carries for others on the platform. This will also facilitate work to improve the efficiency of the Government's wider use of shared services.


FCO Services, our Trading Fund, continues to focus on meeting the challenge of doing more with less. They have responded to the need for closer collaborative working with partners across government in order to deliver the best possible value for money and reduce costs for government as a whole.

I understand that you have received copies of their Annual Report & Accounts for 2009-10 which set out how they provided financial benefits by:

  1. keeping prices flat for the second year running;
  2. contributing a further £2 million savings to help us meet our current Spending Review obligations;
  3. delivering ahead of plan a discretionary cash dividend of £3 million;
  4. providing a statutory dividend of £450k;
  5. repaying with interest, £2 million of their working capital loan; and
  6. making procurement savings of £3.45 million.

Customer satisfaction remains high on their agenda and their improved performance has been demonstrated by an increase in customer satisfaction by 2% since 2008-09. However, recognising there is still more to be done, they are committed to working closely with us to deliver an even better service in future.

Given the current economic climate and the need to deliver greater public value, FCO Services is presenting opportunities to facilitate government savings through seeking efficiencies in secure services and by contributing towards the shared services agenda across government. Evidence of this collaborative working is highlighted in their performance where they report almost a 25% growth in wider market activity compared to the year before.

FCO Services set a prudent annual business plan for 2010-11 and we have agreed to the following six formal performance targets, which they will report on in their Annual Report and Accounts next year:

  1. An in-year surplus before interested and tax of at least £4 million.
  2. A return on capital employed of at least 3.5%,
  3. Wider market revenue growth of 10% on that achieved in 2009-10.
  4. A contribution to the FCO's current CSR commitments by delivering £12 million of cumulative savings (over the years 2008 to 2011).
  5. A utilisation rate for revenue earning staff of at least 76%.
  6. A customer satisfaction rating of at least 85% satisfied or very satisfied.


We have run a number of early departure schemes over recent years to keep our workforce numbers in balance and in line with our business needs. In Q4 2009-10 we ran a limited voluntary early departure scheme in which 36 staff left the FCO. In July 2010 we launched another voluntary early departure scheme, which is currently under way, under existing civil service compensation scheme rules. All bids will be rigorously assessed against workforce and business needs and value for money criteria, and staff selected will be required under Cabinet Office rules to leave the FCO by the end of October.


We continue to follow up and implement the previous Public Accounts Committee's recommendations[5] on our management of the FCO's global estate. In addition to the steps set out in the Government's response to the Committee's report[6] published recently, we have:

  1. identified two external, professionally qualified candidates to take up new posts as head of programme delivery and head of asset management;
  2. further improved the management information collected on our estates database (Pyramid) to bring it into line with central government requirements for the civil estate;
  3. reminded all heads of mission of the importance of accurate data entry, and re-started training for overseas staff on its use;
  4. continued to improve our adherence to government procurement rules.

The Committee will be aware of the flood at our Embassy in Madrid in late January. We will inform the Committee of any liability once any claims have been assessed and settlement reached. Whilst we will be defending our position robustly to minimise the FCO's exposure through our local loss adjuster, our financial exposure to this issue may remain open for a number of years.

Following the successful refurbishment of the UKRep building in Brussels last year we undertook a smaller scale refurbishment of the UK delegation office at the Justus Lipsius (Council) building which was completed to a high standard by FCO Services in January.

Our review of work to provide a new embassy in Damascus concluded that the project to convert a former villa into offices no longer represented good value for money, due to the Syrian Government's change of policy on the location of their planned new diplomatic quarter and to security issues at the site. We accordingly cancelled the construction contract on 31st March. We are in discussion with the Syrian Government concerning the acquisition of a suitably sized and well located plot of land on which to construct new, fit-for-purpose, premises.

The Moscow Residence was completed and occupied in March 2010 for £13.8 million (although disputed claims from the contractor are not finally settled).

A project to replace ageing, inefficient and potentially unsafe chillers, cooling towers and associated plant and equipment in the FCO Main Building is due for completion by end-September, below the original cost estimate of £4.8 million.

I attach at Annex A our report for properties sold and purchased in the second half of financial year 2009-10 and first quarter of financial year 2010-11.

1 September 2010


Sale DatePost Property TypeSale Price £
Oct-Dec 200917/02/2009 AbidjanOffice202,500
29/09/2009Gabarone Residential243,468
31/11/2009St Johns Residence268,178
15/10/2009Ottawa Residential196,056
30/10/2009Vientiane Residential1,219,680
03/11/2009Berne Residential1,315,860
Jan-Mar 201012/01/2010 AlmatyOffices147,000
03/02/2010Dar es Salaam Amenity328,548
03/02/2010Dar es Salaam Residential392,502
26/02/2010Paris Residential322,514
03/03/2010Colombo Residential2,047,500
26/03/2010Paris Residential516,083
26/03/2010Paris Residential467,294
Apr-Jun 201015/04/2010 The HagueResidential309,260

Purchase Date PostProperty Type Purchase Price £
Oct-Dec 2009No properties purchased in this period
Jan-Mar 201015/03/2010 CanberraResidential474,193
24/03/2010Canberra Residential474,193
Apr-Jun 2010No properties purchased in this period

5   House of Commons Committee of Public Accounts: "Adapting the Foreign and Commonwealth Office's global estate to the modern world". Twenty-fifth Report of Session 2009-10, 1 April 2010. Back

6   "Treasury Minutes on the Tenth to the Eleventh and the Fourteenth to the Thirty Second Reports from the Committee of Public Accounts Session 2009-10", July 2010. Back

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