FCO performance and finances 2011-12 - Foreign Affairs Committee Contents

4  FCO estate

21.  The FCO's overseas estate encompasses some 5,000 properties, ranging from Embassy and High Commission buildings to residential accommodation for staff. Approximately 54% of properties are leased and 46% are owned.[35]


22.  The FCO's overseas estate accommodates staff both from the FCO and from other UK Government departments and public bodies. In 2011, 25 Government departments or publicly-funded organisations used or shared FCO premises.[36] Such arrangements should generate savings to public funds; yet the Government has not always made the most of opportunities for savings. The Public Accounts Committee reported in September 2011 that there was insufficient integration in the management of Government properties overseas, and it noted that

The expense of co-locating with the Foreign and Commonwealth Office discourages other government organisations from sharing the Department's space overseas. Some departments have therefore moved out of the Foreign and Commonwealth Office's properties. As a result there is potential duplication of costs, with a risk of the taxpayer paying for multiple government buildings in one location.[37]

The high costs to these organisations of using FCO premises arose from the Treasury requirement that the FCO had to charge full economic costs for use of its accommodation overseas, including security costs. We note the FCO's statement, in its Capability Action Plan 2011, that the charging regime "had had a corrosive effect on relationships" with other Government departments.[38]

23.  A new charging agreement has since been drawn up, allowing for diminishing charges over a four-year period. Mr Fraser told us that the new regime offered "clarity and stability" for other Government departments and that the number of staff from other departments working on FCO premises overseas had risen from 1,500 two years ago to 1,800. It is expected that 70% of the Department for International Development's overseas staff will soon be based on FCO "platforms".[39]

24.  Mr Fraser told us that he saw a need for greater efficiency in co-operation and co-location overseas.[40] We agree. We welcome the emphasis placed by the Permanent Under-Secretary on sharing overseas premises with other Government departments and publicly-funded bodies. We believe that there is significant scope in this area to generate savings for the taxpayer and to strengthen the UK's identity locally by concentrating representation of different arms of Government in shared premises overseas.


25.  The FCO told us in October 2012 that it had been "increasingly looking at co-location with friendly foreign missions" and that it was "now mandatory for all business cases regarding the development of the estate to address this option".[41] In a letter to the Chairman of the House of Lords Select Committee on the European Union, on 10 October 2012, the Secretary of State said that "the decision to establish co-located missions is generally driven by pragmatic, cost-sharing objectives" and that "we are open to considering the case for such arrangements where we have a constructive relationship with the third countries or organisations concerned".[42]

26.  Co-location entails a sharing of services such as utilities and security but not a single, unified diplomatic representation. A Memorandum of Understanding signed on 24 September 2012 set out a framework for the UK and Canada to co-locate in premises where it was of mutual benefit. The Secretary of State stated explicitly that the Memorandum "does not impact our respective autonomy in making or delivering policy, and none of our respective diplomats will work for each other's governments".[43]

27.  Co-location is not by any means a new concept for the FCO, which is already co-located with Canada in Bamako (Mali) and Rangoon; with Germany in Madagascar, North Korea, Ecuador and Tanzania;[44] with France in Niger, Sierra Leone and Goma (Democratic Republic of the Congo); with the Netherlands in Moldova; with New Zealand and Estonia in Kabul; and with a number of partners in Baghdad and Beirut. In many of these cases, the co-location is not on FCO premises but on those of the partner country. We note that the FCO also plans to co-locate with Germany in Port of Spain (Trinidad and Tobago); with Canada in Port-au-Prince (Haiti); and with Australia in Dakar (Senegal).[45]

28.  Mr Fraser described co-location as "one of the answers for the future, so that we can seek to manage ourselves as efficiently as we can within the budget that we have", arguing that "if we can save money on premises, we can spend more money on people".[46] We asked him whether he was satisfied that confidentiality and security could be assured in such circumstances. Mr Fraser replied that in some cases the two missions would have purpose-built buildings in which they might be operating on different floors, and he stressed that preservation of security was "an absolute requirement on our part".[47]


29.  We have in the past expressed strong reservations about the sale of "iconic" properties which enhance the status of the UK in a way which cannot be quantified by any financial valuation. While it has not felt able to give us a categorical assurance that it would rule out the sale of any iconic or nationally important property, the FCO confirmed in June last year that it had no plans in place for any such sale; and it reassured us that the Committee would be notified in advance of potential future estate sales.[48] We were heartened to hear Mr Fraser tell us in November that certain diplomatic assets around the world had "intangible value" and were "national assets" rather than just Foreign Office assets, which could be used to great effect to project Britain.[49]


30.  The FCO's capital budget for 2011-12 was £115 million: this is set to reduce to £102 million in 2012-13 and 2013-14, before falling to £98 million in 2014-15.[50] In addition to the annual capital budget, the FCO has agreed with HM Treasury that up to £100 million in income from the sale of properties each year may be reinvested into the network. When we published our report last year on the FCO's performance and finances, the FCO was aiming to generate £240 million in sales over the period from April 2011 to March 2015.

31.  We expressed scepticism in last year's report about the FCO's chances of success in achieving this target, averaging £60 million of sales per year, describing it as "extremely optimistic".[51] When the FCO responded to our report, in June 2012, it continued to refer to "the sale of £240 million of assets over four years", which it maintained was "challenging but realistic".[52] Despite the ambitious target, one and a half years into this four-year period, only about £36 million had been raised from sales.[53]

32.  By October, however, the FCO had estimated that it would be seeking only £200 million to fund capital investment in the FCO's estate over the Spending Review period, and that it would therefore be seeking only £200 million from asset sales.[54] Matthew Rycroft, Chief Operating Officer at the FCO, explained that the decision to make the change had been prompted by the Committee's warnings about the dangers of going too far, too fast in selling heritage buildings, and by decisions to defer certain capital projects. He also pointed out that "spiralling property prices" in certain parts of the world would enable the FCO to generate much higher revenue from sales than had been anticipated.[55] The sale of the High Commission compound in Kuala Lumpur, confirmed in December 2012, is one example, raising approximately £60 million for reinvestment by the FCO in its estates capital programme.[56]

33.  Further exchanges, however, revealed that the £200 million figure was not a target for property sales but for finance to be raised for capital spending. £60 million would come from other sources, such as sums initially set aside for IT projects which would now be deferred. The true target for receipts from property sales from April 2011 to March 2015 is therefore £140 million.[57]

34.  The original estimate by the FCO that asset sales of £240 million could be achieved between 2011 and 2015 was poorly founded: there were forecasting failures within the FCO, and lessons should be learnt. We recommend that the FCO, in its response to this Report, should summarise the action which it has taken to improve its procedures for assessing future needs across the estate and its forecasting of local property markets.

35   FCO Annual Report and Accounts 2011-12, HC 59, Session 2012-13, page 49 Back

36   The organisations most heavily represented were UKTI (present at 152 posts), UK Border Agency (120 posts), Ministry of Defence (70), Serious Organised Crime Agency (39), Department for International Development (26), the British Council (20) and HM Revenue and Customs (19). See 48th Report of the Public Accounts Committee, Spending Reduction in the Foreign and Commonwealth Office, HC 1284, Session 2010-12, Ev 18-9 Back

37   48th Report from the Public Accounts Committee, Spending Reduction in the Foreign and Commonwealth Office, HC 1284, Session 2010-12, conclusion 4 Back

38   http://www.civilservice.gov.uk/wp-content/uploads/2012/04/2012-02-07-FCO-Capability-Action-Plan-2011-CO-version-v6.pdf, page 17  Back

39   Q 33 Back

40   Q 33 Back

41   FCO Management Issues, July to September 2012, http://www.publications.parliament.uk/pa/cm201213/cmselect/cmfaff/writev/fcomanage/contents.htm  Back

42   http://www.parliament.uk/documents/lords-committees/eu-sub-com-c/cwm/CWMsubCmay31Oct2012.pdf Back

43   http://www.parliament.uk/documents/lords-committees/eu-sub-com-c/cwm/CWMsubCmay31Oct2012.pdf Back

44   The European External Action Service is co-located with the FCO on the German "platform" in Dar-es-Salaam, Tanzania Back

45   See Q 31 and HC Deb, 11 February 2013, col 487-8W Back

46   Q 31 Back

47   Q 39 Back

48   Government response to the Eleventh Report from the Committee, Session 2010-12, Cm 8360, page 7 Back

49   Q 53 Back

50   FCO Annual Report and Accounts 2011-12, HC 59, Session 2012-13, Page 23. The figure for 2011-12 is for estimated outturn; other figures are for planned expenditure. Back

51   FCO Performance and Finances, Eleventh Report from the Committee, Session 2010-12, HC 1618, paragraph 26 Back

52   Cm 8360, page 6 Back

53   Q 41 Back

54   FCO Management Issues, July to September 2012, http://www.publications.parliament.uk/pa/cm201213/cmselect/cmfaff/writev/fcomanage/contents.htm Back

55   Q 40 Back

56   FCO Management Issues, October to December 2012, http://www.publications.parliament.uk/pa/cm201213/cmselect/cmfaff/writev/fcomanage/contents.htm Back

57   Q 48-9 Back

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Prepared 19 April 2013