The Implications of Cuts to the BBC World Service - Foreign Affairs Committee Contents

Written evidence from the Foreign & Commonwealth Office

As promised by James Bevan, here is our working on the 10% cut to the core FCO over the SR10 period.

The cut to the FCO family as a whole is projected to be 10% in real terms by 2014-15, taking account of UK inflation and removal of funding for BBC World Service (BBCWS) in that year. (This 10% figure is accepted. It is HMT's not the FCO's, and in the settlement letter)

Within that the effective cut to the FCO itself is also around 10% real:

As we understand it, the FAC's calculation is as follows:

  • The FCO's core resource budget for the SR10 baseline is £981 million. The working is: £1,491 million less £100 million depreciation gives £1,391 million cash, less £229 million for the BBCWS and £181 million for the British Council (BC) gives £981 million.[4]
  • This baseline of £981 million will rise to a core budget in 14/15 of £1,016 million. Here the working is: £1,289 million Resource Budget[5] (ie excluding capital) less £124 million depreciation gives £1,165 million cash, less £149 million ring-fenced for the BC, gives £1,016 million.
  • On the projected level of inflation for the SR (roughly 10%), that £1,016 million equates to around £925 million at today's prices, which equals a real terms cut (£981 million to £925 million) of around 6%.

That is factually correct. But the real situation is also more complex than that. Within the core figures are allocations in the FCO budget to fund the UK's subscriptions to International Organisations. They are ring fenced by HMT and the FCO is legally obliged to pay them. The allocations for the FCO for this purpose for each year of the SR period are £102 million pa. We will have to pay the whole £102 million pa and (increasingly) more out of our budget as subscriptions rise over the SR10 period. This Financial Year the bill for the FCO is expected to be £132 million and we expect it to be around £150 million by 2014-15. (Under the SR agreement with HMT we split costs above £102 million, with HMT paying 60% and the FCO 40% from elsewhere in our budget.) When you take these anticipated costs of subscriptions to International Organisations (IO) into account, the predicted cut to the core FCO budget which we actually control (ie less IO subscriptions) is just under 10%:

The FCO budget after removal of IO subs (which are a legal obligation) goes from £849 million in the Spending Review baseline (£981 million-£132 million)[6] to an effective £764 million (that's £1,016 million less 10% for inflation, making £914 million; less £150 million makes £764 million) in FY 14/15 after inflation. That is a drop of £85 million from £849 million which equates to a 10% real cut.

The other point that you covered with James Bevan was about the BBCWS's share of the FCO family budget. As James confirmed, the Foreign Secretary was making a comparison in the hearing last week between the BBCWS's share of the FCO Resource budget in 2007-08, at the time of the previous Spending Round and what it will be at the end of the period about to start. (The Foreign Secretary referred to "the full period in which the FCO has had to make spending reductions, which started under the previous Government".)

So in 2007-08, the BBCWS grant in aid was £222 million against an FCO family Resource Budget excluding depreciation of £1,565 million. That is 13%. The share has grown to 15% of our budget this year. In 2013-14 it will again be £222 million out of a Resource Budget (excluding depreciation) of £1427 million. That equates to 14.4%. Even 2014-15 figures—hypothetical since BBCWS funding will be transferred to the BBC Licence Fee for 2014-15—would produce a figure of 14.1%. Hence the point that the BBCWS share of the FCO Family Budget will still be equal (in fact more than equal) to where it was in 2007-08. (And these numbers do not factor in the significant impact on FCO purchasing power of foreign exchange losses.)

I hope this information will be useful for the committee's inquiry.

25 March 2011

4   We have used Baseline, because that was the basis for SR comparisons. The estimated 10/11 numbers are very similar. Back

5   RDEL-the figure in the FCO Settlement Letter Back

6   The equivalent figures forecast for Financial Year 2010-11 are almost identical: £983 million-£132 million = £851 million. Back

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Prepared 13 April 2011