Summary
The Foreign and Commonwealth Office (FCO) has been asked by the Treasury to indicate how it would make real terms savings of 25% and of 40% from its resource budget by 2019-20, in preparation for the 2015 Spending Review. We believe that the Treasury should protect the FCO budget for the period covered by the Review and should bear in mind the following four points:
The FCO has limited scope to make savings. Its resource budget is £1.7 billion, smaller than that of most other Departments, and it has discretion over less than £700 million - less than half of the total. The majority of the FCO’s savings under the 2010 Spending Review were achieved by removing from the FCO’s books its Grant in Aid to the BBC World Service. Any attempt to make a parallel cut to the British Council budget in the 2015 Spending Review would inevitably weaken the UK’s capacity to project soft power and culture in target countries with growing economies or regions with high priority political and human rights concerns, such as Russia and the Gulf, where Government expenditure does not score as Official Development Assistance (ODA).
The FCO is not well placed to make savings in back-office functions: its IT systems are ageing, pose an operational risk and need replacement; and the FCO’s security requirements make participation in a cross-Government shared service centre for payroll and human resources support difficult.
The FCO needs to be equipped to re-assert its leading role in foreign policy-making through diplomatic and analytical capability. It has started to repair some of the damage sustained in recent years, but this is very much “work in progress”. Levels of attainment in language skills in key regions have yet to turn the corner, having fallen from 28% in 2014 to 27% in FCO posts in the Middle East and North Africa, and from 27% in 2014 to 23% in Eastern Europe and Central Asia.
Human rights needs to be re-established as a top priority. The Permanent Under-Secretary acknowledged that human rights was now not one of the top priorities and that “in a constrained environment”, other elements of the FCO’s work had “supplanted it to an extent”. We believe this to be a consequence of the savings imposed so far on the Department.
There is a lack of coherence in funding different departments with shared aims. Foreign policy underlies the priorities of other Government departments, notably the Ministry of Defence and the Department for International Development. But while the budgets of the two larger-spending departments will both be protected in the Spending Review, that of the FCO, which amounts to less than 3% of the total of the three budgets combined, is to be exposed to the full force of Spending Review cuts. As far as our national security is concerned, it is beyond irresponsible to treat FCO expenditure as the only unprotected department in this group.
In conclusion, it would be a false saving to impose cuts on the FCO in the 2015 Spending Review. Given the size of the FCO’s budget, any savings made would make a minimal contribution to reducing the deficit; and they would have a disproportionate impact on the ability of the FCO to do what it was established to do, as has been evidenced in the last five years. Progress in restoring its policy-making and diplomatic capability would be reversed; and the ability of the FCO central machinery to support its core diplomatic function would be put at risk just at a time of unusual international turbulence and when diplomatic skills are required more than ever.
In an increasingly unstable world, the Government relies on the FCO to have the necessary infrastructure in place so that it can make critical decisions at a moment’s notice. Over the last Parliament the country was found to be lacking in expertise, analytical capability and language skills to manage the fallout from the Arab Spring and the crisis in Ukraine. In 2010 it might have been thought that expertise on Benghazi, Donetsk, or Raqqa was surplus to requirement. These have become vital areas for our national security, evidencing the real dangers of an under-funded Foreign and Commonwealth Office.
Further cuts of 25% or more were described in the words of Sir Simon Fraser, a former Permanent Under-Secretary at the FCO, as “neither coherent nor wise”. Outside commentators went further. Charles Grant, Director of the Centre for European Reform, described the FCO as “a Rolls Royce machine” and spoke of “the damage done to the Foreign Office by cuts made by successive Governments—not just the current Government—in recent years”. He warned that “to cut it significantly further would in my view be madness”. We agree.
© Parliamentary copyright 2015
Prepared 22 October 2015