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

8  The British Council

The 2010 Spending Review and the British Council

84.  The British Council, the UK's principal public body for cultural and educational relations with the rest of the world, is one of the largest organisations of its kind worldwide. The Council is a charity established by Royal Charter, and is overseen by a Board of Trustees, but has a reporting relationship with the Foreign Office[167] and receives substantial funding from it. The Council's work includes helping deliver the UK Government's foreign policy objectives (provided this is consistent with its charitable purposes and Charter aims). By any criteria, the British Council is a major instrument of UK public diplomacy and "soft power".

85.  The UK is recognised as one of the leading global exponents of soft power.[168] As we have reported in the recent past,[169] there is increasing global recognition of the importance of cultural relations as a means of enhancing a country's reputation and status, of generating goodwill from other nations and peoples, and therefore, indirectly, of advancing the national interest. With this increased recognition also comes increased competition: in its own evidence, the Council acknowledged the significant investment that China and Turkey, amongst others, have been making in their public diplomacy.[170]

86.  The Diamond Jubilee and, in particular, the London Olympics and Paralympics ensured that 2012 was a very good year for the UK—Martin Davidson, Chief Executive of the British Council, described it to us as "exceptional"[171]—but precedent indicates that this "2012 effect" may not last long. Mr Davidson went on in his evidence to caution that the boost that 2012 had provided to the UK's image abroad would "fade extraordinarily quickly"[172] if there were a lack of future investment in the promotion of the UK's image and significance abroad.

87.  These comments were made in the context of an increasingly challenging economic climate for the British Council, whose turnover comprises a mixture of direct grant from the FCO and commercial income from English teaching and contracts. In 2010, the grant was £180 million, comprising 30% of income. Since then, it has been shrinking. By 2015, when the Review period ends, grant income will have reduced to some £150 million, a cut of some 26% in inflation-adjusted terms.

88.  Not only is the FCO grant being reduced: it is also being increasingly ring-fenced, for spending in the developing world. By the end of the Spending Review period, around two thirds will be ring-fenced. According to the Council, this will have the effect of requiring their offices in the developed world—in places such as France, Germany, Japan or South Korea—to become increasingly self-financing.[173]


89.  The Council has responded to this financial challenge in two main ways. First, it has made cuts: it has cut staff in the UK (partly through compulsory redundancies) and shrunk its UK office footprint, transferring most back office work to India; it has ended some loss-making programmes; and it has closed a small number of overseas offices (many of them small offices in the developed world-those places hardest hit by the combined effect of the drop in grant and its increased ring-fencing for development aid). [174] The first phase of this programme of savings has been the focus of much of our scrutiny over the past two years.

90.  Secondly, the Council has significantly expanded its commercial operations. Its overall aim is, despite the cut in grant, to expand its turnover and activity over the Spending Review period, through becoming a more commercial and entrepreneurial organisation.[175] Its target is to achieve turnover of £969 million by 2014-15 (as opposed to £707 million in 2009-10), of which just 16% will be FCO grant income.[176]

91.  Over the past three years, the main theme of the British Council's evidence to the Committee has been that the Spending Review has been extremely challenging, and has required some difficult choices, but that the Council is coping. It has not significantly drawn in its international activities, nor has it compromised its charitable purposes or its reputation, in its efforts to become more commercial.[177]


92.  However, this year, we detected a new note of concern in the Council's evidence, relating to the period after 2015, when the Spending Review ends and the Council will face a new funding settlement. Martin Davidson told us that current indications were that funding from the FCO would, for at least for the first year after the end of the Review period, follow the same downward trend. This would mean another £8 million being cut from the grant that year, with the possibility of more cuts to follow.[178] Mr Davidson warned of the danger of under-estimating the importance of soft power and the Council's role in relation to it. Referring to the "vitally important"[179] connection between the Council and the UK's foreign policy agenda, he said there was a risk of it being broken if significant cuts continued after 2015:

We must maintain that connection; otherwise we are simply another commercial organisation and not delivering the soft power of this country. That would be a tragedy not just for us as an organisation but for the UK.[180]

93.  Mr Davidson also appeared to see it as inevitable that cuts of this nature would lead to further office closures overseas:

There is no question - particularly if what we fear is likely to come from a further reduction into 2015-16 - but that our ability to maintain the scale of operation we have, for example in western Europe, is going to come under real challenge. While I think we have some very fine small offices, there comes a point when the cost of being there is simply excessive compared with what you are actually able to achieve.[181]

94.  Grant losses would of course be mitigated if targets for commercial income were met or exceeded. Council witnesses acknowledged, however, that the commercial targets they had set themselves for 2015 were tough and that there was a risk of their not being fully achieved. Some interim targets (for instance, increasing turnover by 9% during the reporting year) had not been met, which the Council had blamed in part on instability in the Middle East and North Africa. The relative weakness of the euro during the reporting period had also been problematic.[182]


95.  In our reports of the last two years, we took the view that the Spending Review "may well trigger some fundamental rethinking of the role and work of the Council"[183] and lead to it "becoming a substantially different organisation".[184]

96.  If the Review has led the Council to become a more business-savvy body and a more diligent custodian and investor of public money, this is, of course, a good thing. However, we have been concerned that the Council's changed financial situation, and its focus on generating more commercial income, might lead it into making decisions inconsistent with its long-term interests, or with those of the UK. For instance, it might feel compelled to abandon schemes and programmes that produced no direct financial return but generated more intangible benefits—not least a very positive image of the UK. It might employ fewer staff overseas who have a strong connection with the UK. Or it might focus too much on income-generation, for instance by charging for previously complimentary events or services, and in so doing putting at risk the goodwill of the foreign investors or opinion-formers that it was seeking to reach. We summed this up last year in the view that the Council should not end up as "predominantly an English language school rather than a promoter of the UK's reputation, culture and influence."[185]

97.  We explored this issue further with the British Council this year. Council witnesses clarified that it does, from time to time, take advice as to whether particular activity is consistent with its charitable status and core aims, including from the Charity Commission.[186] In relation to English teaching, the Council makes no secret of the Council's desire to markedly increase income, and to pursue new markets in areas where it is currently weak, for instance, in Latin America.[187] Tied in with this is an increased emphasis on pursuing major contracts for teacher training and on becoming more of a presence in online language education.[188]

98.  Council witnesses argued that there was no inconsistency between any of this activity and its charitable and Charter purposes.[189] Professor Pamela Gillies, a member of the Council's Board of Trustees, stressed that, even if account were taken only of the Council's English teaching work, that in itself helps advance the Council's cultural agenda as the curriculum it uses "is absolutely steeped in British culture".[190] Martin Davidson referred to an "income dividend"[191] from more commercial activity that could be recycled as spending on arts, culture, and broader education. This, he argued, was particularly needed in the developed world (he singled out France), where it had now become a "challenge"[192] for the Council to remain a body focussed on the advancement of British culture, rather than simply a money-making organisation.

99.  Other risks may arise when a cultural and charitable organisation such as the Council starts to orient itself as a more commercial body. One is that it engages in work that compromises, or is seen as compromising, its independence and integrity. This criticism has been made of the Council in relation to the 2012 London Book Fair. The Council has an established role promoting each year's "market focus" for the fair, which last year was China. Some critics allege that the Council had let the Chinese Government have too much influence on the programme, including allowing it to dictate which writers should and should not be invited.[193] We put these criticisms to Mr Davidson, who responded[194] that getting the right balance in dialogue with China was "an extraordinarily sensitive area". He acknowledged that the Council had refrained from inviting some dissident writers but said it was "critical ... that we do not look at a single event like the London Book Fair, but at a broader sweep." Mr Davidson added that, in other contexts, the Council had played its role in exposing people in China to diverse and dissenting views that might otherwise have remained unheard.

100.  Another risk is that the organisation might increasingly seek to "monetise" its good name and its relatively privileged access to power, to the detriment of its competitors. We are aware of some criticism reported in the media[195] that the British Council has increasingly become a commercial rival to private businesses (particularly in English teaching) and does not compete with them on a level playing field. We put these observations to Mr Davidson, who responded[196] that he had heard "a generalised air of concern" but that the specifics of any criticism were often lacking. He clarified that the Council had "a very clear policy" of not using the FCO grant to subsidise its English teaching, which in any case tended to be more expensive than that offered by other providers.

101.  Overall, it is to the British Council's credit that it has responded positively to the considerable challenge posed by the 2010 Spending Review and has, so far, managed to take on a more entrepreneurial character without significant detriment to the quality of its work or its global reach. We urge the Council, and its trustees, to be continually vigilant in ensuring that it retains its good name and integrity as it becomes more financially dependent on earned income.

102.  In addition, we urge the FCO to pay heed to the British Council's concerns about its future funding, after the current Spending Review period ends. The Council's main role is to promote British culture and education, which is an end in itself. In so doing, however, it both generates trust and deploys influence, from which the UK as a whole benefits. The UK currently performs well in the global contest for soft power, but that contest takes place in an increasingly crowded field, and against increasingly well-resourced competitors. Trading off the advantage the UK currently enjoys in that field- and all the benefits, tangible and intangible, that come with it- in exchange for relatively minor savings on the FCO balance sheet would be the worst sort of false economy. Accordingly, the Committee believes that the FCO should shield the British Council from the effect of any further cuts to the Department's budget in 2015-16.

The Council's role in relation to higher and further education

103.  The British Council describes the UK's further and higher education sector as one of the UK's "most attractive assets"[197] and describes its own role in promoting the sector overseas as "one of our absolute core areas of work".[198] The Far East and South Asia (especially India) are recognised as two particularly strong growth areas—regions with the potential to send large numbers of students to these shores, including postgraduates who may have commercially useful skills in research and development.[199]


104.  Since coming into office, the Coalition Government has been seeking to reduce migration into the UK. The Government is constrained about what it can do about migration from within the EU so has focussed on other areas. This has included tackling perceived abuses of the student visa system. In response to concerns[200] that the policy is hindering the growth of the UK tertiary education sector, and the recruitment of talented postgraduates to university research departments, the Government has sought to stress that there is no formal cap on overseas students and postgraduates,[201] and indeed that it would be happy to see the number continue to rise. It has also emphasised that its policy is as much about addressing loose practices by universities and colleges in this country (or bogus organisations posing as colleges) as it is about preventing bogus students coming in to the UK under false pretences.[202]

105.  Recent official figures, published after our evidence session with the British Council, indicate that the number of overseas university students in the UK has continued to rise, but at a lower rate. Within that, there has been a small decrease in overseas postgraduate students. The number of individuals coming to learn English or attend further education colleges has fallen sharply.[203]


106.  Visa policy is not within the remit of the FCO and it is not our role to examine the overall merits of the policy in this report.[204] However, the issue did arise in our scrutiny of the British Council's effectiveness as a champion of the British tertiary education system abroad. The Council's evidence was blunt. Professor Gillies said that the policy contributed to a general sense overseas that Britain was an "unfriendly" country, and was:

seriously damaging our ability to work with countries, and not just in higher education - it is poisoning a wide range of activities that we are engaged in. We need to work hard to turn around those negative perceptions.[205]

107.  Mr Davidson said[206] that it was "purely" because of the Government's student visa policy that much of the foreign media was running negative stories about Britain's attitude to overseas students. This helped create "a sense that foreign students are not welcome". He added that:

Many countries believe there is a cap on visas, and many people believe that the systems are designed to make it difficult to come here. Much of my colleagues' time is taken up trying to convince local authorities, agents and other organisations that that is not the case.[207]

108.  The British Council's important work promoting tertiary education, and promoting the UK as a place to study in and to carry out research, gives it insight into the impact of the Government's student visa policy. It is therefore worrying to hear the Council warn that the policy is being interpreted in some parts of the world as a message that the UK does not welcome foreign students. The Government should consider this warning carefully. Whatever the merits of the policy, a revision of how it is being communicated is called for.

167   The Council's annual corporate plan must be approved at FCO Ministerial level; the Council must advise the FCO if it intends to open or close offices overseas; and the Permanent Under-Secretary of the FCO is ex officio a trustee of the Council. Back

168   For instance, since 2010, three successive surveys carried out by the Institute for Government, in collaboration with Monocle magazine, using a mixture of objective and subjective criteria, have ranked the UK in the top echelons of global soft power. In the most recent survey, in November 2012, the UK came top. The British Council cited in its written evidence survey data showing that respondents in 10 strategically important countries rated the UK very favourably for levels of trust compared to other countries.  Back

169   In our report, FCO Public Diplomacy: The Olympic and Paralympic Games 2012, Second Report of Session 2010-12, HC 581 Back

170   Ev 46 Back

171   Q 169 Back

172   Q 177 Back

173   Departmental Annual Report 2010-11, Eleventh Report of Session 2010-12, HC 1618, Q 175 & Q 180 Back

174   British Council, Annual Report 2011-12, page 68 Back

175   British Council Corporate Plan 2011-15and Annual Report 2011-12, page 8 Back

176   According to the Council's 2011-12 Annual Report, 25% of its £739m turnover for the year came from grant, 59% from fees and income, and 15% from contracts. Back

177   Departmental Annual Report 2010-11, Eleventh Report of Session 2010-12, HC 1618, Q 169 & Q 194 Back

178   Q 170 Back

179   Q 170 Back

180   Q 177 Back

181   Q 190 Back

182   Q 172; The British Council, Annual Report 2011-12, page 11 Back

183   FCO Performance and Finances, Third Report of Session 2010-11, HC 572, paragraph 85 Back

184   Departmental Annual Report 2010-11, Eleventh Report of Session 2010-12, HC 1618, paragraph 62 Back

185   Departmental Annual Report, Eleventh Report of Session 2010-12, HC 1618, paragraph 63 Back

186   Q 179 Back

187   Q 202; British Council Annual Report 2011-12, page 60 Back

188   Q 186; British Council Annual Report, pages 16 and 17 Back

189   The Council's Charter aims include promoting "a wider knowledge of the English language" and "the advancement of education". These are subject to the over-arching condition that the Council shall advance "any purpose which is exclusively charitable". Back

190   Q182 Back

191   Q180 Back

192   Q180 Back

193   For instance, in an article in The Guardian, 13 April 2012 Back

194   Q 199 Back

195   For instance, in an article in The Guardian, 8 October 2012 Back

196   Q 183 & Q 185 Back

197   British Council Annual Report 2011-12, page 21 Back

198   Departmental Annual Report 2010-11, Eleventh Report of Session 2010-12, HC 1618, Q 188 Back

199   British Council and Oxford University: The Shape of Things to Come: Higher Education Global Trends and Emerging Opportunities to 2020 (2012) Back

200   As reported, for instance, in The Economist on 20 October 2012.  Back

201   As reported, for instance by The Telegraph on 18 February 2013, referring to comments made by the Prime Minister in relation to his visit to India that month. Back

202   As set out, for instance, in the Home Secretary's 12 December 2012 speech, An Immigration System that Works in the National Interest, available on the Home Office website. Back

203   Higher Education Statistics Agency, Statistical First Release 183 (January 2013); Office for National Statistics, Quarterly Report, February 2013. Back

204   Two House of Commons committees with more direct locus to comment have reported on aspects of the Government's policy. In March 2011, the Home Affairs Committee, whilst welcoming the Government's aim of preventing abuse of the system, concluded that the Government's policy risked damaging the UK's thriving educational export sector. The Committee expressed doubt whether overseas students should be counted as "migrants" for immigration purposes at all. This latter point was the main conclusion of the Business, Information and Skills Select Committee in their September 2012 report, Overseas Students and Net Migration, which argued that the way the Government's policy was being implemented was economically damaging to the UK. Back

205   Q 208 Back

206   Q 208-209 Back

207   Q 209 Back

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Prepared 19 April 2013