FCO Performance and Finances

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

FCO FINANCES AND PERFORMANCE

In advance of the formal evidence session on 24th November, I am submitting a memorandum which addresses the terms of reference that were published for this hearing. This memorandum will also act as a forward look in lieu of the FCO’s Annual Departmental Report. I am enclosing a copy of our new Departmental Business Plan Report. [1] Some of the input indicators are still subject to consultation with HMT.

This hearing has traditionally been used to examine the FCO’s Annual Departmental Report, but as the Committee will be aware, at the change of Government, a decision was taken across all Departments not to publish full departmental reports. HMT has also confirmed that Autumn Performance Reports will not be published this year. We do not expect them to ask for any further public reporting on our previous Public Service Agreements (PSAs) or Departmental Strategic Objectives (DSOs). Instead, for 2009-10, the FCO published "core tables" of key financial, administrative and policy performance data as an annex to our statutory resource accounts 2009-10, which were laid before Parliament on 30 June 2010. We were again the first Department to lay our accounts before Parliament.

The Committee’s terms of reference for this session covered five areas:

1. The FCO’s new performance framework: its three new official priorities, the development of the new ‘activity recording process’ against these new priorities, and the department’s new Structural Reform Plan;

The Foreign Policy Priorities

In July, the Prime Minister and the Foreign Secretary agreed new high level foreign policy priorities for the FCO to replace the 8 DSOs. Under these the FCO 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: safeguard Britain’s security, build Britain’s prosperity, and provide consular support to British nationals around the world.

More specifically, the FCO will work to safeguard Britain’s national security by leading work across Government on countering state threats and proliferation through our global diplomatic activity and on the security impacts of climate change and resource competition. With DfID, we shall also lead the Government’s work to build stability overseas, including through our on-going inter-departmental activity on conflict prevention. We shall take a key role in work to reduce the risk to the UK and UK interests overseas from international terrorism. The FCO will contribute to Britain’s efforts in Afghanistan including by working to create the conditions for a sustainable political process on the ground. We shall use our unique network of partnerships and alliances to achieve all of these aims.

The FCO will also lead a process across government to produce integrated strategies for key countries and regions to be agreed by the National Security Council. These will ensure support by all government departments and reflect agreed priorities. We will work with the MOD and Home Office to promote defence and security exports both for commercial reasons, and where this will build the capacity of our partners and allies, increase interoperability and reduce our own acquisition costs.

The FCO will work on prosperity to contribute to the Government’s top priority of reducing the deficit and returning Britain to strong sustainable growth by using our network and resources to promote the British economy, increase exports and inward investment, open up markets, ensure access to resources and promote sustainable global growth. In all of this the FCO will work closely with UKTI. A new joint FCO/UKTI Commercial Task Force was established in August 2010 to raise the standard and profile of UK commercial diplomacy and embed the necessary skills and culture with the FCO to deliver on this agenda. The FCO will lead a new whole-of-government approach to strengthening bilateral relations and elevating relations with emerging powers. The new National Security Council sub-committee on Emerging Powers, chaired by the Foreign Secretary, will drive this collective approach.

Under the prosperity agenda the FCO will also: work with UKBA to control migration in order to secure the UK’s borders and promote the UK’s prosperity; work with DECC to drive international action to tackle climate change; and work with other Governmental Partners to advance Britain’s interests and prosperity by proactive engagement on key internal EU priorities.

In our Consular services over the next five years, we will merge the FCO and Home Office passport operations by 1 April 2011, so that the Identity and Passport Service will take over responsibility for issuing passports to British nationals overseas as well as at home. We will implement the new 2010-13 Consular Strategy so as to improve the quality of service we provide our citizens.

Departmental Business Plan and Implementation Plan

These Foreign Policy priorities form the basis of the FCO’s Departmental Business Plan, which has been published on the No. 10 and FCO websites and is also included with this memorandum. [1] This document is not intended to be fully comprehensive, but it does cover key areas of focus for the Coalition Government. It also reflects the Foreign Secretary’s wish that the FCO provide the lead for all government policy overseas.

The FCO’s Implementation Plan, which flows from and underpins the Departmental Business Plan, is designed to help us manage and account for the full range of our departmental business. It enables all FCO staff to see how their work fits within the Foreign Policy Priorities. It is fully consistent with the Departmental Business Plan, but goes into more detail, and covers a broader range of our work, to enable our Directorates and Posts to plan their business.

Both the Departmental Business Plan and the Implementation Plan cover the four-year period of the Spending Review. This new system aims to bring greater transparency, accountability and cohesion to the UK Government’s activity overseas. Progress on the Business Plan will be monitored monthly and published on the No. 10 and FCO websites. The FCO Board will take stock of activity under the Implementation Plan every six months.

Business Activity Recording

One of the key tools that allowed us to monitor and plan our resource costs was Activity Recording. The FCO stopped full staff activity recording against the old DSOs in Quarter 1 of FY 2010/11, on the appointment of the Coalition Government and pending agreement of the FCO’s new Foreign Policy Priorities. However, Activity Recording is a necessary and important tool for capturing data both as part of the Government’s public accountability agenda and for our own internal reporting processes. Therefore we continued to collect activity data on the costs of the Management & Support we provided to Partners across Government, so that we could continue to recover the costs of that support.

We have now developed new Activity Recording headings, flowing from the three Foreign Policy Priorities and the FCO Business Plan. Fewer codes should reduce the burden on staff to complete activity recording returns. We have asked staff to re-start full activity recording from Quarter 3 of FY 2010-11. This will enable us to account for the resources that we allocate to each of the Foreign Policy Priorities.

2. The FCO’s Financial Management

The FCO achieved two key measures of effectiveness in our Resource Accounts for 2009-10. The first was that my predecessor as Accounting Officer, Sir Peter Ricketts, and his Board of Management, hit their target for the FCO’s final out-turn being within 1% of our allocation. In numerical terms this was an underspend of £22 million against a budget of £2,367 million and demonstrated taut budgetary control given how much of our spending can be affected by exchange rate movements. As part of the financial management progress made by the FCO, recognised by your colleagues in the Public Accounts Committee, the Board of Management now has better management information. As a result, we are able to take early steps to identify and mitigate forecast overspends. For example, in autumn 2009, the FCO Board took decisive action to reduce expenditure in order to eliminate the forecast risk of an overspend in 2009-10. Again at the end of June this year, the Board called for decisive measures to reduce the forecast overspend and implement the £55m cuts the FCO made as our contribution to the deficit reduction in this year. We still face financial pressures we must manage and will again aim to deliver an underspend of less than 1%.

The second measure of effectiveness was that for the third consecutive year, the FCO was the first major Whitehall Department to lay our accounts before Parliament, with an unqualified audit opinion. This is a demanding achievement given the geographical dispersal of the FCO’s network.

At a more detailed level, the FCO continues to achieve better results through its Finance and Prism Performance Measures (FPPMs), which are a form of internal benchmarking. These measures of financial performance focus on: the accuracy of accounts; the extent of compliance with the cycle of processes from purchasing through to payment; and the efficiency of invoice processing. By June 2010, all Posts and UK Departments were achieving an acceptable score of 85%. To sustain improvement, the bar was raised and the target acceptable score is now 95%. These measures underpin the reliability and integrity of financial management information, so the improving scores enable the FCO to reach a higher standard of effectiveness.

Much of this progress has been made under the 5* Financial Management programme. The 4.5* work phase of the Programme ended in July 2010, and the Programme team are now measuring the benefits and assessing the FCO’s overall financial management performance. The NAO, who have taken a close interest in our progress since early 2009, are doing an independent assessment at our invitation. On the basis of the assessments, and taking into account any recommendations made by the NAO, the FCO will design the next phase. This will focus on further embedding these improvements and continuing the FCO’s leadership in developing and sharing best practice with other Whitehall departments.

When the NAO reviewed our internal controls, they found we had a solid framework in place to oversee production of the Statement on Internal Control (SIC). All their recommendations have now been implemented and a more robust evidence-gathering process adopted. We are reviewing the wider risk management framework to make sure it remains relevant and effective as the FCO evolves.

We will continue to improve our systems and staff to continue improving the FCO’s financial effectiveness. Investment in staff training has continued with 67 staff in training to gain professional finance qualifications and 23% of our Finance function now have professional qualifications. The implementation of new planning, budgeting and reporting systems has allowed the FCO to increase our capability. Near real-time information is now available and the ability to budget in foreign currencies has been a major step forward.

I should also cover the work of our Internal Audit Department here. Our "zero tolerance" of fraud and financial impropriety is rigorously enforced and our default position is that where there is sufficient evidence the perpetrator(s) are dismissed and the matter reported to the relevant authorities. I can confirm there have been no significant [2] cases of fraud reported to the FAC since the last evidence session of 9 December 2009. Although the level of identified fraud is low, we are not complacent and remain vigilant to the risk and endeavour to ensure that public money is not lost through fraud. We have good whistle-blowing procedures in place, all staff are reminded of them on a regular basis, and all reports of financial impropriety are investigated. We are challenging the way that we administer ourselves in line with defensible risk management and central to this are the 5* Finance Programme and the Corporate Service Programme, backed-up by a robust disciplinary process.

3. Spending Allocations and Effectiveness within the FCO

The main corporate issue facing the FCO over the coming months is strategic resource allocation: deciding how to allocate and use the resources which the FCO secured in the Spending Review (SR10). The FCO’s Resource Allocation Round, now underway, will allocate our SR10 Settlement across the FCO for each of the four Financial Years of the SR10 period (2011/12-2014/5).

The Foreign Secretary and the FCO Management Board are agreed that the allocation of resources should be guided by the new Foreign Policy Priorities, by the Foreign Secretary’s wish to sustain a strong global network; and by our determination to keep our staff safe, secure, and well equipped, and to ensure they have the skills we need for the future (i.e. diplomacy, commercial and trade policy, and leadership and management skills).

Implementing the FCO’s SR10 will be tough. We need to realise a 10% real cut over the next four years, whilst managing rising costs and other pressures on our budget. For example like all government departments, we must also make a 33% cut in ‘Admin’ spend over the four years of SR10. This will involve restructuring to achieve efficiencies, primarily in back office activities through our Corporate services Programme. Our internal allocations may also be affected by changes in plans of other Departments and Agencies if they reduce their presence overseas following their own Settlements e.g. UKBA, as this will impact on the amount we need to support them.

We will take the opportunity presented by the Spending Review to reshape the organisation so that it is stronger and more efficient in the future. We do not intend simply to replicate past spending patterns, but to make some clear choices; this will mean achieving further savings, continue to reduce its headcount and streamline its structures. The FCO Board intends to reach agreement on allocations for the FCO as a whole by December, so that we can allocate resources to our Directorates and Posts, including our programme allocations, early in 2011, and finalise business plans well before 1 April (the start of the SR10 period).

4. The impact of the Comprehensive Spending Review on the FCO’s core business, including the department’s overseas network, and especially as regards future arrangements for the management of the department’s exchange-rate risk, and the allocation and management of overseas spending between the FCO and the Department for International Development.

The Foreign Secretary’s letter to the Chairman of the Foreign Affairs Committee of 27 October explained the Spending Review Settlement and its broad implications for the FCO, including the management of exchange rate risk. We are continuing to assess the impact of the Settlement during the Resource Allocation round currently underway, but the key elements of the Settlement I would highlight are:

–For the core FCO it is a 10% real cut over the 4 year SR period, with a 33% Admin cut target;

–The creation of a new Foreign Currency Mechanism to replace the old Overseas Price Movements mechanism will restore some protection to FCO purchasing power overseas;

–The peacekeeping budget has moved off the FCO baseline;

–The FCO family’s contribution to UK Overseas Development Assistance (ODA) spending has increased to £273m per year.

–The Capital budget for the FCO family will reduce by around half immediately, with provision for recycling some asset disposal receipts.

It is worth expanding first on how we will work through the implications for the FCO. In the coming weeks, we will take strategic decisions on how to live within our Settlement, including what we do, and how we do it, and whether our existing network of Posts adequately meets the new realities. In other higher priority Posts, such as emerging markets or countries critical to UK security, it might mean opening new Posts. The Foreign Secretary is clear that Britain will continue to need a global diplomatic network, not least to promote our commercial interests to help bring the UK economy back to long term health. We have no plans-and in the light of SR10 no need-for widespread post closures. We will report any major decisions to Parliament.

We will meet the Treasury target of cutting administrative spending by 33% by 2014-15, by continued improved procurement practices and continuing to streamline back office work, including through outsourcing, localisation and consolidating functions regionally overseas or back to the UK. We will also continue to reduce the number of FCO staff. Our previous Strategic Workforce Plan planned to reduce numbers of UK staff by 10% before the Spending Review; a 2% year on year reduction, so the FCO is well placed to react to the additional financial pressure. Over the next few months therefore, we will revise the strategic workforce plan covering the spending review period. The flat cash settlement equates to around a 2.5% per year real terms budget reduction and we expect the UK-based workforce to shrink at about this rate, making use of natural wastage, early retirement and voluntary redundancy as far as possible, including the recent autumn early retirement exercise, under which around one hundred staff left.

Official Development Assistance (ODA)

In making these plans, we will take full account of the FCO’s increased target for ODA. The FCO will continue to contribute to the economic development and welfare of developing countries through activities that include but are not limited to stopping conflict, promoting good governance and supporting economic development, thereby contributing also to the Government’s commitment to provide 0.7% of GNI as ODA by 2013.

We will be planning how to achieve the rise in ODA Spending over the next few months in consultation with both the British Council and BBC World Service. All the FCO family’s ODA spend will be in accordance with DAC guidelines. The settlement will allow us to increase areas of our work which contribute to international development. We have not yet taken decisions on which particular activities we will scale-up, but we would expect to sustain a large proportion of our current ODA work (e.g. governance and scholarship programmes which support developing countries) and add some new ODA -eligible activities. There will also be some reclassification. In the past we did not score some FCO activities which could count as ODA. In a tight public expenditure environment, it’s only fair to taxpayers that all eligible expenditure is counted. So we will ensure, working with the OECD and DFID, that all FCO work which should legitimately be scored as ODA in areas such as stopping conflict, promoting good governance, capacity building and supporting economic development.

We will be assisted in all this by the agreement of a Foreign Currency Mechanism that will remove from the FCO the foreign exchange risk we have borne since April 2008. Protection will now extend not only to Post budgets but also to foreign currency movements in estates, security, capital and programme expenditure. The FCO has already stopped forward purchases of foreign currency pending start of the new arrangement in FY 2011/12.

Staff Morale

The Civil Service 2009 staff engagement survey showed the FCO has very high levels of staff commitment ("engagement"), i.e. staff readiness to say good things about the FCO, stay in it, and strive to deliver better for it. Our positive engagement score (69%) is 10% over the Civil Service average, 6% above the average of the highest performing group in the survey, and the best of all the main government departments. The three strongest drivers of engagement are leadership and the way we manage change; "my work"; and "inclusion and fair treatment". FCO scores here are much higher than the Civil Service average, for example staff confidence in decisions made by FCO senior managers is 17% higher; belief that change is managed well is 21% higher. Staff also have a widely shared sense of pride in working for the FCO, at 79% in the 2009 staff survey, 24% higher than the rest of the Civil Service. 63% of our staff say "the FCO inspires me to do the best in my job", 23% above the Civil Service average.

A higher than ever number of staff (88%) took part in the 2010 survey, which closed on 29 October. We have just received our initial, high level, survey findings on the FCO as a whole and we received a positive engagement score of 66% [against 69% last year]. Although there were minor decreases in satisfaction across questions since the 2009 survey, the findings are still generally positive, particularly in view of recent austerity measures. We will receive the full survey results in early December 2010, when we will receive the comparative Civil Service averages and we will know what our key drivers of engagement are. We are not able to make any conclusions on what our staff have said until we have received the full results. As we take forward work on our agenda in the coming CSR period, we will continue to emphasise the importance of good leadership, including effective, ongoing, two-way communication with staff on the changes that affect them.

The FCO’s global estate

The diplomatic estate is a key tool for achieving our objectives. It is a unique and highly diverse public asset, ranging from buildings from which we deliver consular services in popular holiday destinations to some of our most important overseas missions such as Washington, Moscow, New York, New Delhi, Brussels and Beijing.

We will continue to modernise the way we procure and manage our global estate, driving down costs wherever possible, and allowing the FCO to concentrate on our front-line functions. We have taken a number of steps to improve our operations this year, including:

–a new asset management framework for estates work;

–new governance arrangements for estates investment decisions;

–greater rigour in delivery of major projects;

–improvements to our property management database;

–better coordination between the FCO and other departments using the overseas estate.

Looking ahead, we will continue to draw on professional property expertise as appropriate and carefully prioritise our capital spending, including addressing the need for new premises in Jakarta and refurbishment of our existing embassy in Tel Aviv. Our Spending Round settlement allows us to undertake prudent capital investment on an appropriate scale given the pressures on public finances.

We will also continue to look critically at whether the leased and owned property assets we hold are fit for purpose and represent value for money. As the Committee will know, we regularly dispose of properties which are surplus to requirements and will continue to do so. In 2009/10, we achieved some £9.2 million in asset sales. We use the funds generated to invest elsewhere or to achieve co-location with other government departments and hence save money. I will continue my predecessors’ practice of informing the Committee of the value of such sales in arrears.

I should add that, while we will need to generate more of our capital from asset recycling over the next four years, there is no intention to rush to sell off buildings which are fit for purpose, which represent value for money and which meet our operational needs. Ministers fully recognise the impact that certain historically important overseas buildings can have in support of the UK’s international objectives, especially support for British business.

As mentioned above the FCO was included in the Chancellor’s announcement that all Government Departments would reduce "administration spend" by 33% as part of the overall drive to increase efficiency. The FCO’s Corporate Services Programme is a key part of the FCO achieving this. The aim of the Programme is to save time and money for the FCO by standardising and streamlining our corporate policies, processes and tools. We are on track to reduce corporate spend by £30m each year from our initial 2008/9 baseline.

The majority of these savings will come from the localisation of UK-based positions abroad and from restructuring our local staff overseas. We are also planning to save money by joining up the corporate services operations of different government departments abroad and from outsourcing our facilities management. By the end of this CSR period (2011-2015), all Posts where there is more than one Government Department will share corporate services where it makes sense. This is the Government Consolidation Overseas policy as announced by the Chancellor last month. This will result (assuming agreement with other Whitehall departments on a new cost sharing mechanism) in more equitable sharing of the costs of corporate services provision across government departments overseas.

Finally, we are putting in place more cost-effective, efficient and streamlined arrangements for day-to-day maintenance and getting the basics of health and safety right through increased Facilities Management Outsourcing. I wrote to the Committee on 4 November to notify you that the FCO signed our second regional contract to outsource facilities management (FM) in India and Asia Pacific with ISS to outsource facilities management in 28 posts in 14 countries in Asia-Pacific and India. The contract with ISS is for seven years, with the option of up to three additional years. It will deliver between £7-14.9 million savings over the life of the contract. Furthermore, it will mean significant benefits in terms of standardisation of services across the region, professional management of FM activities and a significant reduction in the FCO’s local staff headcount. It will also free up resources, allowing FCO staff to concentrate on their core business of delivering the UK’s foreign policy priorities.

FCO staff security

If we are to achieve our foreign policy goals, it is essential that we engage on the ground in difficult and often dangerous circumstances. Staff security is an essential driver of resource allocation and a prime concern of ministers.

We take a risk management approach, since no "one size" solution fits all circumstances. We assess the threat and vulnerabilities at each post and put in place the most appropriate measures to protect staff, families and other assets. We expect to complete all outstanding "high" and "medium" risk security projects by the end of this year, and our spending round settlement contains provision to continue this work in the next few years.

The threat from terrorism is the biggest threat to the safety of our staff. The number of posts where we assess the terrorist threat to be critical or severe has increased threefold since 2006. The nature of the terrorist threat is constantly evolving. Determined suicide bombers are very difficult to prevent, as saw in the attack on our Ambassador in Sana’a in April and then the more recent rocket attack against staff there on 6 October. Fortunately, there were no serious casualties and our security procedures worked in both cases. But we cannot be complacent, and we have taken a range of additional security precautions to protect staff in Yemen on which I would be happy to brief the committee privately.

The Yemen example illustrates the dilemma we face: it is often precisely in those places where the foreign policy challenges are the most pressing that we face the biggest threat to FCO operations: other examples of high-threat posts include Kabul, Helmand, Baghdad and Islamabad. While there are no absolute guarantees-and we are tightly resourced here as elsewhere-we believe we have a calibrated but robust security regime which provides value for money, and keeps the balance between security and conducting our diplomatic business efficiently.

Other security threats

I should also add that we assess that the threat from espionage to be probably as high as it was during the Cold War-with the added complication that there are more opportunities because of the greater use of IT systems. We work closely with other departments and agencies to counter the espionage threat and the emerging cyber threat. Again, I would be glad to brief the committee in more detail privately.

5. The work and performance of the British Council and the BBC World Service, and the impact of the Comprehensive Spending Review on these organisations.

The Committee has already had a separate evidence session with both the Council and World Service. We recognise the valuable work of both organisations: the Foreign Secretary has set out his vision of a new British Foreign Policy in an increasingly interconnected world. The work of the British Council and the World Service provides Britain with an unrivalled platform for the projection of our culture values; and as such are useful channels of engagement with audiences who may be reluctant to deal directly with Her Majesty’s Government.

The impact of the SR10 Settlement on the organisations is that the FCO will continue to provide from our overall Settlement a grant-in-aid to both the BBCWS and the British Council. The Foreign Secretary has repeatedly made clear the importance he attaches to both organisations but also that all parts of the FCO family must contribute to efforts to cut public spending. The Council’s Grant-in-aid will reduce from £180m (excluding capital funding) in FY10/11 to £149m in FY14/15. This represents a cut of 17%, which (with inflation) amounts to a real cut of around 25%. The British Council will implement this cut through a mixture of efficiency savings and increased income from English teaching, examinations and contract delivery activities. The British Council will contribute to the increased UK ODA spend that is part of the overall settlement. The Council, unlike the FCO and World Service, is able to raise a significant part of its own revenue. Its commercial income is currently £450m p.a. and after costs this provides a small surplus.

The FCO will also continue to provide a grant to the BBC World Service. The amount will reduce from £229m (excluding capital funding) in FY10/11 to £212m in FY14/15. This represents a cut of 7%, equating (with inflation) to a 16% real cut. World Service funding will be transferred from the FCO to the Licence Fee from FY14/15 to enhance and protect the World Service’s vital role. The BBC has made a clear commitment to providing sufficient investment in the World Service to support its plans and safeguard its independence and the Foreign Secretary will continue to play a role in setting the World Service’s objectives, priorities and targets and agreeing any closure of services.

I was pleased to hear that the Committee found their recent visits to Afghanistan and Pakistan so useful. I hope the forthcoming visits next year are as useful.

I hope you find these answers helpful. I will shortly forward a more detailed description of how the FCO will be taking forward the Structural Reform Priorities/Coalition Priorities set out in Section B of the FCO Departmental Business Plan and I look forward to appearing before your Committee soon to discuss the issues covered in this letter.

12 November 2010

ANNEX

FCO Finances and Performance

I have submitted a memorandum addressing the detailed Terms of Reference for my forthcoming hearing before the committee. Ahead of this hearing, and also the hearing scheduled for January, "The Role of the FCO in UK Government", I would like to set out for the Committee a broad sense of how the FCO intends to take forward the Coalition objectives set out in the FCO Departmental Business Plan, published on 8 November, which I have already sent to you.

1. Protect and promote the UK’s national interest s and security

The National Security Strategy sets the context for Britain's security, outlines the goals we aim to achieve for the United Kingdom internationally, and identifies the main risks to our interests on which the Strategic Defence and Security Review (SDSR) was based.  It notes that the United Kingdom is an open, outward-facing nation whose political, economic and cultural authority and global interests are disproportionate to our size.  

The SDSR confirmed that counter terrorism remains at the top of the Government’s security agenda. Under the broad strategic direction of the National Security Council, the Home Secretary is the lead Minister for CONTEST - the UK’s strategy for countering International Terrorism. The FCO co-ordinates and leads the delivery of CONTEST internationally, both in terms of the work that needs to be delivered overseas and the way that work is linked to domestic efforts to tackle the terrorist threat. We will continue to work closely with partners across government to achieve that goal. Our efforts are underpinned by the FCO’s Counter Terrorism and Radicalisation Programme fund, which is the principal funding stream for cross-Whitehall overseas counter terrorism work. We will also continue to build both strong and productive bilateral and multilateral counter-terrorism relationships.

The UK play s  a central role in international efforts to prevent the illegal proliferation of weapons of mass destruction .  We  will work bilaterally with a wide range of international partners to improve nuclear and biological security, and to strengthen export controls and other barriers to illegal transfer of weapons technology .  In particular we will actively engage in international efforts to prevent Iran from obtaining a nuclear weapon.

We continue to work in multilateral fora to maintain and strengthen the international rules-based system of organisations, treaties and regimes, which has helped build global confidence and security over the last 50 years.  This includes working to achieve success at the Comprehensive Test Ban Treaty Preparatory Commission in 2010, the Review Conference for the Biological Toxin Weapons Convention in 2011, the Nuclear Security Summit in 2012 and the Review Conference for the Chemical Weapons Convention in 2013, as well as active participation in the Arms Trade Treaty negotiations and follow-up from the 2010 Nuclear Non-Proliferation Treaty Review Conference.

As mentioned in my memorandum of 12 November, we recognise the importance of commerce and trade to our national interests and security. The FCO will increase the impact of our commercial diplomacy in order to contribute to the Government ’ s priority of reducing the deficit and returning Britain to strong, sustainable growth . The FCO will work closely with UK Trade & Investment (UKTI) and the Department of Business Innovation and Skills (BIS) to support the economy and British firms, to help them ex ploit global opportunities; and to support a strong, sustainable and open global economy. Commercial objectives are now central to the UK’s bilateral relations and the activities of FCO Ministers .

UKTI, which is a joint FCO and BIS department, has a network of 1,300 trade and investment staff operating in 96 different markets. Heads of Mission play an important role in delivering trade and investment objectives. In Posts where there are no dedicated trade and investment staff , Heads of Mission offer political support to UK companies in the market and signpost local companies to UK investment opportunities.

We will work across Government to re-inject momentum into global efforts to combat climate change. We want to see the UNFCCC negotiations in Cancun in November/December 2010 and in South Africa in 2011 build the foundations for a comprehensive global agreement. In parallel we will work to promote low carbon growth, especially in the emerging powers, EU and traditional partners.

We will also work to ensure the UK’s energy security (including reliability, affordability and sustainability) by promoting effective and transparent global energy markets; supporting the development and implementation of effective EU energy strategies; and prioritising engagement, including commercial opportunities, with key consumers and producers.

The UK’s prosperity requires the FCO to work with the UK Border Agency to secure our borders by controlling migration. The FCO’s Migration Directorate will work with UKBA to increase the numbers of failed asylum seekers and foreign national prisoners we return to their country of origin, build the capacity of partner governments to assist returnee re-integration and reduce the drivers of irregular migration. We will support development and delivery of a migration policy that meets our economic needs by attracting the brightest and best economic migrants from the global talent pool. We will do so, whilst working closely with UKBA on the development and implementation of an annual limit on non-EU migration to the UK to reduce net migration.

Conflict overseas represents a significant threat to UK interests, by impeding economic development, causing instability, promoting illegal migration or fuelling terrorism. The SDSR confirmed the Government’s commitment to building stability overseas through preventing conflict and identifying and tackling emerging threats including from fragile and conflict-affected states.

The National Security Strategy and SDSR sets out an approach to conflict and instability that integrates diplomacy, defence and development actions in support of cross-government strategies. With DFID we shall lead cross-Whitehall work with MOD and others, to help to prevent conflict and build stability. As part of the tri-departmental management of HMG’s conflict resources, FCO will manage and report to Parliament on the Peacekeeping Budget on the basis that these are resources it holds and manages on behalf of the Government but which do not form part of the FCO family’s core budget and/or DELs.

The FCO and DFID will jointly lead work to develop a new " Building Stability Overseas " strategy, which will be published in Spring 2011. This will set out the Government’s overall approach and priorities, including how we will support our work through the tri-departmental Conflict Pool and the Peacekeeping Budget. W e will ensure that our effort and funding is directed to those places and activities where the UK’s interests are greatest and where it will be most effectively spent.

The Foreign Secretary has set out his vision of a distinctive British foreign policy that builds up the UK’s global influence . By 2015, we intend to have strengthened bilateral relationships with a number of key countries including India, China, Turkey, Brazil and the Gulf States. We will use the National Security Council framework to elevate relationships with individual countries in a systematic fashion , in areas such as health, education and commer ce as well as diplomacy .

We have already sought to elevate our relationship with India through a new " enhanced partnership ." The Prime Minister led a major visit in July which agreed specific initiatives to develop economic and trade relations, science and technology, energy, education, defence, culture and people to people contacts.

The Prime Minister has recently returned from leading the biggest ever British delegation to China , which reflects the importance of China as a global player . China has a vital role to play in delivering strong sustainable and balanced global growth. As the world’s largest emitter of greenhouse gases, China is critical to a global deal on climate change and a shift to a low carbon economy. It plays a key role on a number of security and foreign policy issues , notably on Iran, the NPT, the DPRK, UNSC and international institutional reform and international development.

The Prime Minister visited Turkey in July and launched an updated UK/Turkey strategic partnership under which the Government aims to double UK/Turkey trade over five years and build stronger co-operation on foreign policy issues including the Middle East, Afghanistan and the Western Balkans.  All of this is underpinned by the UK’s lead role in the EU as a supporter of Turkey’s accession process.

We will work to intensify our relationship with Brazil over the next six months across a broad agenda including the commercial opportunities related to Rio’s infrastructure development for the 2016 Olympics and the 2014 Football World Cup in Brazil.

We are working to e levate our political, economic, commercial and defence relationships w ith the Gulf States in the Middle East. In the region more widely w e will engage with the new government in Iraq, to deepen ties and help build stability. The British Government will continue to press for progress towards a two-state solution to the Israeli-Palestinian conflict which provides a secure and universally recognised Israel living alongside a sovereign and viable Palestinian state, with Jerusalem the future capital of both states, and a fair settlement for refugees. The Foreign Secretary was in the region earlier this month. We will continue to work with the US and our EU and UN partners to this end, to secure change on the ground in Gaza and to build the institutions of a future Palestinian state.

The Commonwealth of the twenty-first century should stand for democracy, development, and human rights, acting as a recognised force for good on the issues of our times. In our engagement with the Commonwealth we aim to inject new life into its network and underline the UK’s commitment to, as well as the benefits it seeks to draw from, this unique global organisation. We will encourag e the Commonwealth to focus on the contribution it can make in inter-faith dialogue, conflict prevention, democracy, development and trade and the work of international organisations. The FCO will work more closely with the Commonwealth Secretariat and associations, member states and other interested parties. We will encourage the Eminent Persons Group (EPG) and Commonwealth Ministerial Action Group (CMAG) review to issue strong recommendations from the Commonwealth Heads of Government Meeting (CHOGM) 2011. The EPG report will be finalised at its meeting on 20-22 March 2011, and the recommendations will be considered by Heads at the Commonwealth Heads of Government meeting in Perth, Australia, in October 2011.

The Foreign Secretary has been clear that we support expansion of the United Nations Security Council.  We support permanent membership for the G4 (Japan, Germany, Brazil and India) as well as African representation. Our goal is a UN Security Council that is more representative of the twenty-first century. Discussions continue on how this should happen, but fundamental differences remain. The UK will continue to  push for reform.

The Foreign Secretary has commissioned a review of our overall approach to the Overseas Territories as part of the Government’s development of a more dynamic relationship with them. The great majority of those living in the Overseas Territories are British citizens. The Foreign Office will co-ordinate across G overnment to ensure the security and good governance of the Territories and to support their economic wellbeing. 

2. Contribute to the success of Britain’s effort in Afghanistan

Violent extremism in both Afghanistan and Pakistan poses a threat to UK interests and to regional stability and has already claimed the lives of thousands of civilians and security personnel. Extremism and the instability it causes also hold back good governance, development and economic progress.

The UK’s objective is to prevent Afghanistan once again becoming a place from which Al Qaeda and other extremists can attack the UK and our interests. Our policy has four main goals:

· A more stable and secure Afghanistan

· The conditions for withdrawal of UK combat troops in 2015, including capable Afghan National Security Forces

· An Afghan-led political settlement that represents all Afghan people

· Regional political and security cooperation that supports a stable Afghanistan.

From 2015 UK forces will no longer have a combat role in Afghanistan. But this will not signal the end of our engagement in Afghanistan. The UK will work with the Afghan Government, regional partners, international allies and multilateral institutions to deliver lasting security, stability and prosperity in Afghanistan.

Work on increasing the size and capability of the Afghan National Army (ANA) is ahead of schedule. The right and necessary number of forces are now deployed in Afghanistan. There have been two sets of Afghan-run elections in two years, giving Afghan people a say in the future of their country.

The Lisbon NATO summit is a key opportunity to set the pace of security transition and to ensure a sufficient number of trainers are pledged to help build Afghan security capability.

In Pakistan , the UK’s immediate priority is to support the Government in addressing the flooding, helping to minimise the humanitarian impact and supporting longer term stability and growth. We will also continue to deepen the relationship with Pakistan through a refreshed strategic dialogue and work with Pakistan to tackle militancy in the border areas and elsewhere.

3. Reform the machinery of government in foreign policy

The National Security Council was established as the centre of decision-making on international and national security issues. It oversaw the development of the National Security Strategy and the SDSR which, taken together, support the position of the FCO at the centre of delivering the Government’s international priorities. The FCO was deeply involved in the preparation of both these documents and will continue to be involved in the delivery of the SDSR. Specifically the FCO will lead on the delivery of three work strands: building stability overseas (jointly lead with DFID), state threats and counter-proliferation, and the security impacts of climate change and resource competition.

The SDSR confirmed the Government's commitment to maintaining our global diplomatic network to protect UK interests, address risks before they become threats and meet new challenges as they emerge.  The FCO will lead in the production of integrated strategies for key countries and regions, ensuring a new whole-of-government approach, and the FCO will improve the co-ordination of all UK work in countries overseas under the leadership of the Ambassador or High Commissioner .

4. Pursue an active and activist British policy in Europe

The Foreign Secretary and G overnment have emphasised the importance of the UK playing a n active and activist role in the European Union. The EU B ill we are preparing is aimed at strengthening the democratic accountability of EU decision-making in this country. We will be working to make the EU’s agenda focus on certain priority areas over the next few years: conflict prevention, energy security, climate change , enlargement, furthering our collective international objectives and, above all, on improving the growth and competitiveness of European economies.

We are focussing on strengthening the Single Market as it is the key to delivering the long term, sustainable growth EU citizens need; better regulation to eliminate unnecessary burdens and ensure effective enforcement of European rules across the Union; and opening external markets to ensure greater openness globally and within Europe. We also want the Commission to put forward a coherent and overarching vision for an EU low carbon economy, and ensure that the influence of the European Union is more effectively deployed to help deliver foreign policy goals.

By 2015 we hope to see the European External Action Service (EAS) set on a course that complements and supplements the execution of our national foreign policy. It is in our interest that the EU uses all the tools at its disposal, including crisis management missions, development spending, in concert to improve the EU’s collective weight in the world.  This is especially important in areas of key strategic interest to the EU, such as the Western Balkans. 

We are working at home to promote the EAS as a stepping stone in the career of talented UK officials, in order that the UK has influence within EU institutions. UK nationals have already been appointed to a number of senior positions e.g. Rosalind Marsden as EUSR for Sudan – the first Briton appointed to be an EUSR. The European Fast Stream recruitment has been relaunched and the FCO hosted an event on 18 October to encourage applications to the European Concours.

5. Use ‘soft power’ to promote British values, advance development and prevent conflict

In my memorandum I referred to the increasing proportion of work by the FCO and its arms-length bodies which will be classed as Official Development Assistance. We will ensure that the new "Building Stability Overseas" Strategy covers all the levers of power at our disposal. We will make effective use of the BBCWS and British Council to make ‘soft power’ a tool of UK foreign policy, across the full range of FCO and HMG’s work. As set out in the SDSR, we will also be working with MOD to ensure that we make most effective use of our global defence engagement.

The promotion of human rights and British values is essential to and indivisible from our foreign policy objectives. The Foreign Secretary has established an advisory group on human rights to ensure that FCO policy is informed by the best possible human rights advice. The Committee will be aware that funding to the Strategic Programme Fund on Human Rights and D emocracy was reduced by 10% this year, as a contribution to reducing public expenditure. The FCO consulted P osts and project  implementers about the best way to make this reduction in order to limit the impact on our human rights and democracy work.   This programme continues to show value for money, making a significant impact around the world in ending state executions, reducing torture and protecting the rights of marginalised groups. We will report our work on human rights through a Command Paper to be laid before Parliament and also through greater reporting of our human rights activity online. 

Consular

In addition to the above we will of course continue to support British nationals around the world through modern and efficient consular service. We have launched a new five-year Consular strategy which is designed to:

· work to achieve successful merger of the FCO and Home Office passport operations by 1 April 2011. After more than 20 years of running separate passport services, the Identity and Passport Service will take over responsibility for issuing passports to British nationals overseas as well as at home to reduce costs and increase security.

· continue to bear down on our costs as part of the Government's priority to bring the public finances back into balance. By 1 April 2011, we will have cut 110 jobs as part of a plan to downsize the consular service by 25% by 1 April 2013.

· deliver the early priorities of the new 2010-13 Consular Strategy in four areas: to improve the quality of service we provide our citizens by using their feedback more effectively; to invest in our staff to sustain professionalism and encourage those on the frontline to take decisions; to strengthen our network by using different types of consular representation, new technologies, partnerships and by using resources more flexibly; and to achieve greater clarity and control over consular finances.

I hope this summary of our work on the Coalition objectives will be useful background for the committee in preparing for the hearing.