House of Commons - The FCO's performance and finances in 2013-2014

The FCO's performance and finances in 2013-2014 - Foreign Affairs Contents

2 FCO spending and capacity

Spending by the FCO

5. The budget cuts imposed on the FCO by the 2010 Comprehensive Spending Review (2010 Spending Review) were proportionally some of the greatest imposed on any Government department.[3] The Spending Review set out a 10 per cent[4] real terms reduction in the resource budget (24 per cent[5] real terms reduction if the transfer of funding for the BBC World Service to the BBC Licence Fee is taken into account), and a 55 per cent reduction in capital spending over the four-year Spending Review period. The Spending Round 2013, which set out government spending for the 2015-16 financial year, required the Department to administer a further real terms reduction of 6.3 per cent[6] to the resource budget.[7]

6. In order to provide context, we set out below an analysis of FCO spending, based on actual resource outturn, for every year of this Parliament and for the three years prior to 2010-11, to illustrate the financial challenges FCO management have faced over the course of the Spending Review period.

7. The Spending Review settlements do not include costs relating to peacekeeping, conflict prevention or depreciation and impairments. However, resource departmental expenditure limit (RDEL) outturn figures taken from the Annual Report include these items of expenditure. In order to make a like-for-like comparison with the Spending Review, Tables 1 and 2 have deducted these costs from total RDEL outturn.

8. Table 1 shows outturn for the FCO 'family', which includes spending by the FCO 'core' Department, the British Council and the BBC World Service. The last row of Table 1 provides outturn figures on the same basis as the Spending Review settlement.

Table 1: FCO Family Resource DEL Outturn from 2007-08 to 2014-15[8] (in 2013-14 prices)[9] (figures in £m)

2007-08[10] 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 (forecast)[11]

Total Resource DEL 2,059 2,252 2,304 2,319 2,252 2,193 2,156 1,833

Less:

Depreciation 83 91 114 109 128 166 181 147

Conflict prevention & peacekeeping 421 504 507 542 553 493 474 516

Resource DEL (on Spending Review basis) 1,555 1,657 1,683 1,668 1,571 1,534 1,501 1,170

Table 2 shows outturn for the FCO core Department, which relates to spending on the diplomatic and administrative functions of the Department and of its sponsored bodies,[12] and which excludes Grant in Aid funding to the British Council and the BBC World Service. The last row of Table 2 provides outturn figures on the same basis as the Spending Review settlement.

Table 2: FCO 'Core' Resource DEL Outturn from 2007-08 to 2014-15 (in 2013-14 prices) (figures in £m)

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15[13] (forecast)

Total Resource DEL for Core Department (exc. BBC & British Council) 1,595 1,776 1,835 1,871 1,825 1,753 1,751 1,686

Less:

Depreciation 83 91 114 109 128 129 160 147

Conflict prevention & peacekeeping 421 504 507 542 553 493 474 516

Resource DEL for Core Department 1,090 1,180 1,214 1,220 1,144 1,130 1,117 1,023

9. The FCO is forecast to exceed the planned cuts imposed by the 2010 Spending Review, for both the FCO Family and core FCO:

· The 2010 Spending Review planned for a 24 per cent reduction to the FCO 'family' budget. Spending is, however, forecast to fall by 29.9 per cent in real terms (see Table 1) over the 2010 Spending Review period, from £1.668 billion to £1.170 billion: 5.9 per cent more than initially agreed in the settlement;

· 'Core' FCO was earmarked to be cut by 10 per cent in the 2010 Spending Review settlement. FCO 'core departmental' spending, however, is forecast to fall by 16.1 per cent in real terms, from £1.22 billion in 2010-11 to £1.023 billion in 2014-15 (see Table 2), which is 6.1 per cent more than initially agreed in the settlement.

10. The FCO budget has a number of distinctive features. Firstly, it is small in comparison to that of other departments. In 2013-14, the FCO ranked 15^th out of the 20 major Whitehall departments in terms of resource spending and accounted for just 0.6 per cent of total government expenditure.[14] The FCO spent approximately a quarter of the sum spent by the Department for International Development and less than six per cent of that spent by the Ministry of Defence.[15]

11. Secondly, there are a number of areas of FCO expenditure that are difficult to reduce because they are not under the Department's control or are ring-fenced. In 2013-14, these included:

a) Spending on peacekeeping and conflict prevention (£474 million): the Conflict Resources Settlement funds conflict pool and peacekeeping expenditure within the Department. It is separate from the Department's main budget and is ring-fenced from it.

b) Grant-in-aid (£407 million): The Department provides grant-in-aid financing to the British Council and BBC World Service, as set out in the 2010 Spending Review settlement. Funding for these bodies is ring-fenced.

c) Subscriptions to international organisations (£156 million): the UK is a member of a number of international organisations for which the Department pays the UK's share of the running costs. These costs are not decided by the Department and have to be paid regardless of spending allocations by HM Treasury.

d) Depreciation and impairments (£181 million): this sum is not transferred from the Consolidated Fund under the supply procedure as cash but is a notional sum. It is an accounting concept which represents the decline in the value of assets used during the year. It reflects resources used by the Department based on past events, rather than actual cash spent in year, and so it is not possible to spend it on any other budget lines.[16]

Areas of uncontrollable and ring-fenced expenditure limit the ability of the Department to accommodate cuts or manage their finances flexibly by transferring costs between budget lines. Any overspend on non-discretionary items of expenditure (such as international subscriptions) has to be covered by budget lines from other elements of the FCO budget. These other areas of 'discretionary' spending totalled £940 million in 2013-14, accounting for 44 per cent of the FCO's total resource DEL outturn; a significant proportion of this was committed to staff salaries and estates costs, which are largely fixed for a given year and change slowly.

INTERNATIONAL COMPARISON

12. The House of Commons Library has, at our request, compared FCO spending to that of equivalent departments in other countries. Comparisons are rarely exact, as corresponding ministries in other countries often have different functions, so the figures below should be treated with some caution. To make the figures more comparable, for countries where the foreign ministry is responsible for spending on overseas aid, aid spending has been stripped out.

Table 3: Foreign Office spending comparisons

International comparisons with similar bodies, excluding aid spending where body is also main aid agency

Spend in local currency Spend in £ millions Rank of Spend Spend per head (£) Rank of Spend per head Year spending relates to

USA US $ 25.0bn 17,469 1 55.7 1 2014

Finland €

0.38bn 284 10 52.5 2 2015

New Zealand NZ $ 461m 219 11 49.5 3 2014-15

Canada CAD $ 2.52bn 1,404 6 40.2 4 2013-14

Germany €

3.64bn 3,202 3 39.1 5 2014

France €

2.82bn 2,305 4 36.3 6 2015

Australia AUS $1.77bn 811 8 35.7 7 2014-15

UK (FCO) £2.18bn 2,183 5 34.3 8 2013-14

Ireland €

163m 137 13 29.9 9 2015

Sweden Krona 1.9bn 151 12 15.8 10 2015

South Africa Rand 5754.3m 787 9 15.0 11 2014-15

India Indian Rupees 9,662 crore[17] 4,027 2 3.3 12 2012-13

Source: Figures compiled by the House of Commons Library[18]

Table 3 shows that, based on spending per head of population, the UK spends a similar amount to France on foreign office functions, but less than Germany and considerably less than the United States. The FCO ranks eighth out of the 12 countries listed, with only Ireland, Sweden, South Africa and India spending less per head.

Effects of cuts on FCO capacity

13. The capacity of the FCO to perform its role of protecting and promoting the UK's interests and values overseas relies upon:

· The existence of a corps of sufficient highly competent and motivated staff;

· Efficient methods of gathering information, from the widest possible range of sources within any given foreign country, on attitudes to the UK, opportunities for the UK, and threats to the UK's interests;

· An ability to analyse that information and to form the best possible understanding of how the UK's interests might be safeguarded and its values promoted;

· The ability to command respect amongst opinion-formers within a foreign country or in international institutions, and thereby to carry influence in promoting the UK's values; and

· A platform from which staff can operate. By "platform" we mean the physical premises occupied by staff, both in London and abroad, as well as the facilities which equip staff to do their job effectively (professional development, effective performance management, daily-use tools such as IT services, and back-office functions).[19]

STAFFING

14. The Department's Strategic Workforce Plan, drawn up in late 2011, envisaged an overall reduction in headcount of UK-based staff[20] of 10 per cent between 2011 and 2015. The FCO's 2013 Departmental Improvement Plan noted that "decisions of Ministers to expand our network and the sustained pressure to deliver an ambitious policy agenda", together with concerns about overstretch, had led the FCO to increase temporarily the supply of staff to fill gaps; and it acknowledged that the Department was not on track to meet the 2015 deadline for the 10 per cent headcount reduction.[21] In November 2013, Mr Matthew Rycroft, then the FCO's Chief Operating Officer, told us that the Department had extended that deadline by one year, to the end of the 2015-16 financial year, and the Permanent Under-Secretary confirmed to us in November 2014 that the FCO was on course to meet that target.[22] The baseline figure used by the FCO is an average staffing figure for 2010-11, of 4,824 full-time equivalents (FTE), and the target for 2015-16 is 4344 FTE.[23]

15. The overstretch point, alluded to by the FCO's 2013 Departmental Improvement Plan published in June 2013, is significant and led us to warn in our report last year on the FCO's Performance and Finances that the FCO machine was being "worked to the limit" and was in danger of trying to do too much at a time when capacity was being limited.[24]

16. Those concerns about overstretch have not dissipated and are widely shared. Sir Simon Fraser said that "there is a risk of considerable stretch in the Office, and staff feel that and tell us about it".[25] When FCO Heads of Mission gathered in London for their Leadership Conference in May 2014, they identified relieving overstretch as the most important challenge to address in the year ahead,[26] and the issue was also discussed by the FCO Supervisory Board during the course of the year.[27]

17. To pursue a target of a 10 per cent reduction in headcount by March 2016 at a time when demand for policy advice is acute, and when staff are already under pressure from what Sir Simon described as "more or less continual crisis in world events"[28] seems perverse. Sir Simon admitted that "because of the pressures on the organisation", the FCO had "decided that it was important to seek to maintain the workforce", but he then added "except for the 10 per cent long-term trajectory reduction", which highlights a marked contradiction in FCO policy.[29]

18. We also note the possibility of compulsory redundancies at the FCO in future. Sir Simon Fraser confirmed to us that there were no current plans for compulsory redundancies among UK-based staff, although there had been "at least 500" redundancies among locally-engaged staff over the past year. He did not, however, rule out compulsory redundancies of UK-based staff during the next Spending Review.[30] It is not obvious to us what scope there is for the FCO to make compulsory redundancies other than on the grounds of consistently unacceptable performance. We recommend that the FCO give an assurance that any compulsory redundancies in the next Spending Review period would not entail a decrease in the number of staff providing direct policy support.

19. One of the more acute manifestations of overstretch is the difficulty sometimes faced by the FCO in filling key roles, typically those which are especially demanding in terms of hours or workload. The FCO 2014 Improvement Plan says that "there remains a disconnect between corporate and operational requirements—demand for staff continues to run ahead of supply in high priority business areas".[31] Sir Simon Fraser was candid in telling us of "a slight change in people's attitudes" towards taking on difficult jobs.[32] He said that the FCO "depended very much on people's readiness to go above and beyond the call of duty" and that staff were now sometimes saying that, given the pressure and the rewards associated with a particularly demanding vacancy, they would be less inclined than previously to put themselves forward.[33]

20. The FCO told us in May 2014:

This would suggest that the FCO is trying to address the challenge of filling key roles by actively steering staff towards key posts rather than relying on open competition. The FCO should, in response to this Report, set out its strategy for ensuring that vacancies for key posts are filled promptly and by staff of the necessary calibre.

EXPERTISE

21. We have been alert, through the course of this Parliament, to suggestions that the FCO's local knowledge and expertise in understanding foreign countries is not what it once was. We heard two striking examples, one from a former FCO Minister and another from a former senior Ambassador:

· Lord Malloch-Brown told us in January 2012 that the UK had lost its previous Arabist "touch and feel" for the Middle East. He said "although the British Ambassadors I met in the region were still of a very high calibre, they had much smaller political teams per country than in the past. In that sense, it is correct to say that they could not dig down deep enough". Lord Malloch-Brown ascribed this to cuts under both this Government and the previous one.[35]

· Sir William Patey, British Ambassador to Iraq in 2005-06, to Saudi Arabia from 2007 to 2010, and to Afghanistan from 2010 to 2012, said at a recent event at Chatham House:

Both men made an explicit link between shortage of manpower and the FCO's capacity to gather and analyse information.

22. The FCO's difficulties in dealing with the Ukraine crisis have also attracted particular comment. Sir Nigel Sheinwald, a former Ambassador to the US, for example, was quoted in the Financial Times on 14 November 2014 as saying that "When the Ukraine crisis happened, there was a problem in the Foreign Office, the old Cold War cadre of people just wasn't there".[37] Edward Lucas, a Senior Editor at The Economist, made a similar point when giving evidence to us in September 2014 on Ukraine and Russia. He said that "[the FCO] kind of gave up in 1991: we thought it was over and wound down the terrific analytical capacity we had".[38]

23. To some extent, the scaling-down of the FCO's resources in Russia and Eastern Europe after the end of the Cold War can be seen as the result of a rational decision to re-allocate resources to where they were most needed at the time. Sir Simon Fraser took this view, while accepting that there was now "less depth of Russia expertise" in the FCO than in the 1990s.[39] He acknowledged that it would be important to address the shortfall now, given that dealing with Russia was going to be one of the big strategic challenges in the near future.[40]

Languages

24. Criticism of FCO expertise has commonly centred on an apparent decline in proficiency in foreign languages, something which we have drawn attention to repeatedly over the years. A succession of witnesses have noted a shortfall in proficiency in Arabic in the FCO. To take just two: Lord Malloch-Brown told us in 2012 that Foreign Office languages were "in crisis" and that even with a mainstream language such as Arabic, the cutbacks that have occurred are key".[41] Sir Oliver Miles[42] saw it as "deplorable" that "too many positions" in the FCO in the Middle East and North Africa region were occupied by non-Arabic speakers.[43]

25. Proficiency in Russian is also seen as a weak spot: Sir Tony Brenton, a former UK Ambassador in Moscow, told the House of Lords EU Sub-Committee on External Affairs that

26. It is alarming that the strongest criticisms that we hear about FCO capability relate to regions where there is particular instability and where there is the greatest need for FCO expertise in order to inform policy-making. We also note that the percentage of 'speaker slot' posts[45] occupied by someone possessing the specified level of proficiency in the required language (a measure known as "Target Level Attainment") is currently just 38 per cent overall, and in the same key regions it is lower still: 28 per cent in FCO posts in the Middle East and North Africa region, and 27 per cent in Russia and Eastern Europe.[46]

27. The Permanent Under-Secretary readily acknowledged that the low levels of Target Level Attainment in foreign languages were unacceptable and said that Heads of Mission and FCO Directors had been given "very clear instructions" that people should be given time to do their language training and were given strong incentives to do so—both carrots and sticks.[47] We note the actions being taken by the FCO to make clear to staff what is expected of them and to demand higher levels of proficiency in certain posts.[48]

28. In past reports, we have repeatedly drawn attention to the dangers of allowing language proficiency among FCO staff to erode. Whatever the root causes of this decline, we are heartened to see that the Permanent Under-Secretary has gripped the issue and has made a clear personal commitment to reversing the trend. One of the clearest indications of a turnaround would be improved performance in language exams, and we encourage our successors to monitor this area closely.

Overseas opportunities for UK-based staff

29. Knowledge and expertise at senior levels of the FCO is an accumulation formed over many years of service in the UK and abroad. Heads of Mission who have spent their career within the FCO—the vast majority—have experience of living and working within different cultures, and in different political and social environments. As we observed last year, opportunities for UK-based staff in relatively junior policy grades to work overseas are an essential part of acquiring that knowledge and experience which is carried forward to senior levels of the organisation.[49] It is important that those opportunities should not be eroded. We note that the balance between UK-based staff working in the UK and those working overseas has been relatively constant over the last six years, at a roughly 62%/38% split.[50] A small downward trend since 2012 is likely to be attributable to the recent marked reduction in overseas postings for staff in administrative grades.[51]

30. Last year we questioned whether the FCO's openness to an increase in the use of locally-engaged staff in front-line and policy roles might reduce opportunities for UK-based staff. Sir Simon Fraser reassured us then that any such increase could be accommodated without damaging the career prospects of UK-based staff, and that the number of diplomatic positions overseas for UK-based policy staff was in fact increasing.[52] However, the FCO declined to give us a guarantee that a greater use of locally-engaged staff in future would not at some point lead to a decrease in overseas positions for UK-based staff at policy grades. It did nonetheless state that it would "not undermine the first-hand experience and knowledge base" of its UK-based staff.[53]

31. All FCO posts at SMS grades[54]—including most ambassadorships and many deputy head of mission posts—are advertised across Whitehall.[55] The FCO listed eleven posts which were, or would shortly be, headed by people who had not spent their careers in the FCO.[56] Sir Simon Fraser confirmed that these staff were (or would be) FCO employees; but when asked whether there might come a day when a Head of Mission was not an FCO employee, he saw no reason why that should occur. He told us that the FCO "runs the overseas network" and added that "Heads of Mission and ambassadors report to the Foreign Office. That is their institutional home, so if people want to come in and take those jobs, they should come in and become part of the Foreign Office".[57]

32. There is also interchange from other Government departments at middle-ranking grades. Sir Simon Fraser told us that there had been an increase in the number of inward secondments from other departments, and that the FCO benefited from their expertise. He recognised, however, that the FCO needed to nurture "the skills and the people who are making a long-term contribution as British diplomats", and to maintain "opportunity for them as well".[58]

33. While we recognise that it is in the FCO's interest to draw, to a limited extent, on experience from outside the organisation, we have sometimes been surprised to find key, sensitive posts occupied by people who have not spent their career in the FCO. We also find that the practice of appointing Heads of Mission from outside the FCO on the basis that they are the best applicants for the posts concerned brings into question the adequacy of the FCO's staff development. We believe that the head of the UK's representation in any particular country should only be a non-FCO career employee in the most exceptional circumstances. However, we welcome the reassurance by the Permanent Under-Secretary that he would expect a Head of Mission always to be employed as an FCO employee. We believe that any other arrangement would obscure an otherwise clear line of accountability, from heads of mission to the Permanent Under-Secretary to FCO Ministers.

Staff morale

34. The FCO's 2013-14 Annual Report and Accounts state that "overall, morale is generally considered to be high".[59] It is true that the FCO consistently scores significantly higher than the Civil Service median for percentages of staff who are proud to work for the Department, who see it as a great place to work, and who feel motivated.[60] The FCO, however, recognised concerns about pay, and the Annual Report recorded that staff morale was "a static amber risk" on the FCO's Top Risk Register, given the continuing constraints on pay.[61]

STAFF PAY

35. The FCO, in its 2014 Departmental Improvement Plan, reported that the majority of staff are dissatisfied with their pay and benefits package. Only 33 per cent of staff felt that their pay adequately reflected their performance, and only 26 per cent believed that their pay was reasonable compared to that for people doing a similar job in other organisations.[62] FCO staff pay was frozen for two years, in 2011-12 and 2012-13, and was subject to an average increase of one per cent in 2013-14, in line with the Government's public sector pay restraint policy.[63]

Pay: comparison with other Government Departments

36. There is a significant difference between rates of pay for FCO staff and rates for staff in what might be called comparable departments, such as the Department for International Development and the Department for Business, Innovation and Skills. For instance, the minimum pay for a Grade 7 employee in the Department for International Development in 2013 was £49,500,[64] whereas it was £43,500 at the FCO.[65] Sir Simon Fraser told us that in some key grades, the median of FCO pay is "somewhere in the region of 10 to 12 per cent below median pay of those Departments".[66] He added that there were "historical reasons for that", the main one being that the FCO had moved very early to remove incremental pay increases when the Treasury had asked Departments to do so. Others had done so rather less speedily and, as a consequence, pay for FCO staff had fallen behind pay for staff in other departments.[67]

37. This discrepancy has emerged as a major obstacle to full implementation of the 'One HMG Overseas' initiative, under which the Government plans to derive benefits (including savings) from bringing together on a single premises or "operating platform" in any one foreign city the various UK Government departments and agencies operating there. Significant progress has been made on various aspects of the programme, but not on harmonisation of pay between staff working for different departments. Deborah Bronnert, the Chief Operating Officer at the FCO, told us that "the pay issue in particular will be very hard to crack".[68]

38. Sir Simon agreed that the disparity in pay between the FCO and other Government departments was "undesirable and illogical", but he emphasised that it was not within his "power to unilaterally increase the pay of FCO staff" as he simply did not have the resources from the Treasury to do so.[69] He said that he was talking to colleagues in the Treasury about how the situation might be remedied.[70]

39. We asked the FCO to supply a copy of research that it had commissioned from an external researcher on comparing pay between the FCO and other Government departments.[71] The FCO offered to share the research, but it asked to do so on condition that we did not publicise the contents, as other Government departments had required the FCO to give an undertaking that the report would not be publicised. We rejected those conditions. It is unacceptable for Government departments to place constraints on the disclosure of information which directly concerns public expenditure, is not internal policy advice, and which we suspect is neither commercially confidential nor likely to present a security risk if disclosed. We chose, however, not to pursue the matter, as enough information was already in the public domain to illustrate the pay disparity.

40. We asked the FCO how much it would cost to remedy the differences in pay, to the point where FCO staff would receive equal pay to staff doing comparable jobs in other Government departments. The FCO estimated, on the evidence available, that raising FCO median pay so that it was in line with median pay for comparable departments operating internationally would mean an increase to the FCO annual pay bill of approximately £20 million—which we calculate to be an increase in total staff costs of 3.4 per cent.[72]

Reduced benefits of working at the FCO

41. It may be that dissatisfaction reported in the staff survey also stems, in part, from a sense that many of the benefits and attractions of working for the FCO have been trimmed or have declined in value. For instance:

· The number of overseas posts for FCO staff in administrative grades has been cut substantially, reducing the opportunities for staff in these grades to work abroad;[73]

· Residential premises for most FCO staff overseas are likely to be humbler than in the past. The new Residential Accommodation Policy for UK-based staff working overseas is intended to reduce spending on rented residential accommodation by 20 per cent over the Spending Review period. The "ceilings" for rentals payable by the FCO have been lowered,[74] and the likely consequence is that affordable properties will be smaller or less central, and less prestigious; and

· Allowances paid to recognise proficiency in languages have remained static for years. A recent review of language allowances concluded that allowances paid to postholders in 'speaker slots' should remain unchanged. This decision was based on a number of factors, including pressure to remain within the HM Treasury one per cent pay cap rule, and strong fields of applicants for speaker slots.[75]

CONCLUSION ON PAY AND MORALE

42. The pay differential between the FCO and comparable Government departments is not going to go away. For as long as there are compensations and significant non-financial benefits in working for the FCO—the chance to spend much of your working life overseas, prestige, a good standard of living while overseas, allowances—the discrepancy is less noticeable. But if those benefits are perceived to be diminishing (and for some grades they have largely disappeared), then the current dip in morale could become more established and could lead to a lessening of commitment amongst staff. Ultimately, if the FCO becomes a less attractive place to work, more and more of the brightest and best will apply elsewhere.

43. The FCO must continue to ensure that the Department is an attractive place to work and that it can compete with other high-prestige employers to attract high-quality applicants. Maintaining a tradition of excellence will be key, but we believe that the FCO cannot entirely overlook pay and benefits. The FCO could either seek to eliminate the pay differential between the FCO and comparable Government departments: that would require Treasury dispensation and might cost £20 million, maybe spread over a period of five years or so; or it could put more resources into safeguarding the benefits and allowances which are most valued by staff.

Overall conclusion on FCO spending and impact on capacity and workforce

44. We do not dispute that the FCO needed to play its part in the general retrenchment instigated by the 2010 Spending Review. The FCO was dealt a difficult hand, and Ministers and senior management have, on the whole, played it skilfully. We continue to see evidence in some overseas posts of a depth of knowledge and a well-developed relationship with civil society organisations and representatives. However, we believe that the scale of the cuts required from the FCO has been excessive and that damage to the institution has resulted. The FCO's budget is a tiny element of Government expenditure, but it makes a disproportionate contribution to policy-making at the highest level, including decisions on whether to commit to military action. To impair the FCO's analytical capacity for the sake of a few million pounds could be disastrous and costly.

45. Unless staffing at overseas posts is protected, further reductions in staffing levels overall are likely to lead to either a reduction in complement at overseas posts, or a significant shift in the balance between UK-based staff and locally engaged staff, in favour of the latter. Neither option seems to us to be palatable: the first would almost certainly reduce opportunities for staff to get away from the diplomatic "bubble" and acquire the depth of knowledge about local attitudes that must inform policy-making, while the second would be likely to reduce the opportunities for more junior staff in policy grades to get the experience which is essential to qualify them for service at the highest levels of the Diplomatic Service.

46. The cuts required by the 2010 Spending Review have also had an impact on the UK's overseas platform, even though admirable efforts have been made to expand the number of posts under the Network Shift announced by the previous Foreign Secretary in May 2011. That expansion took place at the expense of a number of subordinate posts in Europe and of the UK's diplomatic footprint in Iraq and Afghanistan. We have previously questioned the wisdom of closing the British Embassy office in Basra;[76] and in October 2014 we noted the view of senior figures in the Kurdistan Region of Iraq that the UK's failure to secure proper premises in Erbil[77] had given a poor impression of the UK in comparison to other countries which had opened permanent offices in the city.[78]

47. The cuts imposed on the FCO since 2010 have been severe and have gone beyond just trimming fat: capacity now appears to be being damaged. The next Government needs to protect future FCO budgets under the next Spending Review. The FCO already spends less per head of population than foreign ministries in our closest comparator countries. The majority of the FCO's expenditure is either ring-fenced or non-discretionary, and so its scope to make savings is limited. If further cuts are imposed, the UK's diplomatic imprint and influence would probably reduce, and the Government would need to roll back some of its foreign policy objectives. In short, the FCO would need to aim to do less.

3 Only the Department for Communities and Local Government, HM Treasury, Department for Environment, Food and Rural Affairs and Business Innovation and Skills faced deeper cuts (in terms of percentage falls in budgets) than the Foreign Office. See Spending Review 2010, page 10. Back

4 "Spending reduction in the Foreign and Commonwealth Office", National Audit Office, HC 826, 29 March 2011, para 4, http://www.nao.org.uk/wp-content/uploads/2011/03/1011826.pdf Back

5 "Spending Review 2010", HM Treasury, Cm 7942, October 2010, page 10, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/203826/Spending_review_2010.pdf Back

6 The FCO's budget excluding Official Development Aid reduces by 7.8 per cent. Back

7 "Spending Round 2013", HM Treasury, Cm 8639, June 2013, page 10, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209036/spending-round-2013-complete.pdf Back

8 Outturn figures for the period 2008-09 to 2013-14 were taken from the FCO Annual Report and Accounts 2013-14, HC 17, 1 July 2014, , page 128, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325896/FCO_Annual_Report_2013-14.pdf Back

9 Nominal outturn figures have been deflated into 2013-14 prices. We used the GDP deflators from the Autumn Statement, December 2014 update. See https://www.gov.uk/government/statistics/gdp-deflators-at-market-prices-and-money-gdp-december-2014-autumn-statement Back

10 Outturn figures for 2007-08 were taken from the FCO Annual Report and Accounts 2012-13, HC 32,1 July 2013, page 25, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/318816/Annual_Report_2012-2013_-_update_June2014.pdf Back

11 Forecast figures were taken from the February 2015 FCO Supplementary Estimates (HC 1019), pages 399 to 412, and adjusted to 2013-14 prices. See www.gov.uk/government/uploads/system/uploads/attachment_data/file/405331/supplementary_estimates_2014-15_print_with_corrections_slip.pdf Back

12 Six bodies are listed on page 127 of the FCO Annual Report and Accounts 2013-14 as falling within the FCO accounting boundary: Wilton Park, The Great Britain-China Centre, The UK China Forum, The Marshall Aid Commemoration Commission, The Westminster Foundation for Democracy, and the BBC World Service. Back

13 Forecast figures were taken from the February 2015 FCO Supplementary Estimates (HC 1019), pages 399 to 412, and adjusted to 2013-14 prices. See www.gov.uk/government/uploads/system/uploads/attachment_data/file/405331/supplementary_estimates_2014-15_print_with_corrections_slip.pdf Back

14 Based on a comparison of Resource Delegated Expenditure Limit (RDEL) outturn in 2013-14, only the Law Officers' Department, the Department for Energy and Climate Change, the Department for Culture, Media and Sport and the Department for Environment, Food and Rural Affairs spent less than the FCO in 2013-14. See Public Expenditure Statistical Analyses, HM Treasury, July 2014, Cm 8902, Table 1.3, page 20, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/330717/PESA_2014_-_print.pdf Back