Departmental Annual Report 2010-11 - Foreign Affairs Committee Contents

6  The British Council

54.  The British Council received what it calls a "challenging" settlement in the Spending Review 2010. By the end of the Spending Review period, the amount of funding provided by the FCO in the form of direct grant-in aid will reduce from £185 million to £154 million, a 26% real-terms reduction by 2014-15. As well as a reduction in the absolute amount, an increasingly greater proportion of the FCO grant must be allocated towards Official Development Assistance (ODA)-eligible activity. By 2014-15, ODA-eligible activity will account for two-thirds of the FCO grant-in-aid. Martin Davidson, the British Council's Chief Executive, told us that the cumulative effect of these changes would leave the British Council a substantially different organisation:

In 2010-11 the FCO grant accounted for 27% of our income and 73% was earned income - in other words we earned £3 for every £1 provided by Government. By 2014-15 this will have changed to 16% FCO grant and 84% earned income, so that for every £1 the taxpayer invests in us we will be earning £5.[62]

Three years ago, the FCO's grant constituted around one-third of the British Council's income.[63]

55.  Before the Spending Review 2010, the British Council was already implementing measures to reduce its costs. This spending reduction programme was necessitated by a reduction in FCO grant-in-aid of approximately 10% or £20.8 million between 2007 and 2011. As a result of this spending cut, the British Council reduced its physical overseas network, emphasised commercial activities in some areas and initiated an efficiency programme based around the transfer of some back-office functions to the new Shared Services Centre in Noida, India with a consequent reduction in staffing levels in the UK. In order to adapt to the spending settlement in the SR2010, the British Council anticipates further effort in these areas through to the end of the Spending Review period.

The efficiency programme and the Noida centre

56.  The British Council intends that 35% of the required savings will be via increased efficiency and the savings generated by the transfer of back office functions to Noida, India. This process has so far seen the loss of 165 finance and administrative jobs throughout the British Council's network (not just the UK).[64] These job losses are part of a wider reduction in staff numbers; according to its Annual Report, the British Council has lost 290 UK-based staff over the past financial year. These reductions have been concentrated among lower-grade employees. During this period the proportion of UK-based British Council staff classed as "senior management" has increased from 13 to 16% over this period.[65] The PCS Union notes that the previous efficiency programme saw UK staff numbers fall by 35%. It further notes that temporary workers now represent 20% of the British Council's UK-based staff.[66]

57.  Correspondence with the Council suggested that in 2010-11, £5.6 million was saved from the transfer of back-office functions to India. Improvements in the performance of the Noida centre are expected to result in annual savings of £7.4 million by 2012-13 and by 2015, be a part of a 20% reduction in running costs.[67] However, while the British Council plans for this efficiency programme to account for over one-third of the savings demanded under SR2010, the Council admitted to ongoing concerns about this move and the performance of the Noida centre.[68] Mr Davidson said that a failure to improve the performance of the Noida centre would have implications for the rest of the British Council's savings programme.[69]

A new emphasis on commercial activity

58.  During last year's inquiry, Simon Fraser, Permanent Under-Secretary at the FCO, told us that part of the reason why the British Council was facing larger reductions to its budget than those faced by the FCO and BBC World Service was the ability of the British Council to generate income via commercial activity.[70] In 2010-11, the British Council earned £492 million, mainly from English teaching and examinations and commercial partnerships. This currently represents around 70% of the British Council's total income. The British Council aims to increase its revenue from earned income by between 9 and 15% annually, or 55% over four years to £748 million by 2014-15.[71] The Council's commercially generated income in 2010-11 increased only marginally from 2009-10.

59.  Martin Davidson told us that, given the overall reduction in FCO grant-in-aid and the demand that a greater proportion of this grant be allocated to ODA-eligible activity, "virtually the full weight of the loss of FCO grant will fall on the developed world", mainly on British Council operations in western Europe and East Asia. Sir Vernon Ellis, Chairman of the British Council agreed, warning of a "strain" on Council activities in East Asia. To compensate for the reduction in FCO grant to these areas, the British Council will place a greater emphasis on commercial activities-examinations and commercial partnerships-in the developed world. The British Council hopes that the increased commercial revenue can be directed towards cultural activities that were previously funded from the FCO grant-in-aid. In 2010-11, the British Council used £11 million of its commercially generated income to supplement cultural activities throughout its network; in this year it is planned that £7-8 million will be redistributed in this way.[72]

Reduced geographic coverage.

60.  During last year's inquiry, Sir Vernon Ellis spoke of the "rationalisation" of British Council operations in some countries and a move to a "hub-and-spoke" model.[73] The British Council's corporate plan states that the Council will also "continue to bring in 'lighter' models of operation" and "office and even country closures will almost certainly be necessary". Changes to its overseas network are expected to reduce the British Council's costs by £41 million.[74] Despite the statement that country closures will almost certainly be necessary, there has been no net decrease in British Council offices over the past financial year.[75]

61.  In our evidence session this year, Mr Davidson clarified what was meant by "rationalisation":

We are, however, looking very carefully at the nature of our network, and our expectation is that for a number of our smaller operations we will become a very much smaller organisation—probably down to one or maybe only two people in some of the smaller countries.[76]

The PCS Union has been critical of this plan. In evidence to us it claims that:

These "new models of working overseas" translate into the classification of the countries in which the British Council operates as "low", "medium" or "high" priority. Over half are "low priority". Many of these will be reduced to a staff of just two or three, with no UK-appointed staff in country. The assumption is that an online, digital presence will in many cases replace the very real, long-term cross-cultural human engagement that the British Council has been facilitating and nurturing for over 75 years.[77]

Sir Vernon Ellis told us that the areas which would be "rationalised" and where operations would be reduced in size would be those parts of the world receiving less in the way of FCO grant-in-aid, namely East Asia and western Europe.[78]

62.  In last year's Report we concluded that the SR2010 financial settlement would put the British Council's budget under "great strain" and "may well trigger some fundamental rethinking of the role and work of the Council". One year later, we conclude that this is indeed the case. The planned reductions in the Council's presence in the developed world have been directly attributed to a reduction in the FCO's grant-in-aid and the wider changes announced by the British Council in response to the sharply reduced grant-in particular the much greater emphasis on commercial activity-will lead to the British Council becoming a substantially different organisation by the end of the Spending Review period.

63.  We stated last year that SR2010 posed a significant challenge to the British Council and we are pleased to see this challenge tackled and a plan put in place to adapt to a change in financial circumstances. However, we remain concerned that such an emphasis on commercial activity will detract from the British Council's primary purpose to "build engagement and trust for the UK through the exchange of knowledge and ideas between people worldwide". We accept that in many ways commercialisation of the British Council is unavoidable and driven by decisions made by central Government, but nevertheless we remind the British Council that it must place its primary purpose at the core of all its activity, commercial or otherwise, and must not become predominantly an international English language school rather than a promoter of the UK's reputation, culture and influence.

62   Ev 81 Back

63   Q 168 Back

64   Ev 82 Back

65   British Council Annual Report 2010-11, March 2011, page 108. Available the British Council's website.  Back

66   Ev 83, para 11 Back

67   Ev 82 and Ev 78, para 2.3 Back

68   Qq 180-182 Back

69   Q 182 Back

70   Foreign Affairs Committee, Third Report of Session 2010-11, FCO Performance and Finances, HC 572, Ev 36 Back

71   Ev 78-79, paras 1.3, 2.4 and 3.1 Back

72   Qq 172-175 and Qq 196-197 Back

73   Oral evidence taken before the Foreign Affairs Committee on 3 November 2011, HC 572-i, Q5 Back

74   "British Council Corporate Plan 2011-15", page 22 Back

75   Q 165 [Sir Vernon Ellis] Back

76   Q165 [Martin Davidson] Back

77   Ev 82, para 8 Back

78   Qs 173-174 Back

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Prepared 13 April 2012