This report is the Committee's annual review of how the FCO is managing its resources, examining the departmental annual report for 2007-08 (Cm. 7398, ISBN 9780101739825). Chapters cover: new strategic framework; performance measurement; global network; essential services; FCO Services; personnel issues; transparency and openness; financial management; public diplomacy and communication; the British Council; the BBC World Service. The Committee is concerned that the FCO is facing serious financial pressures in this financial year due to the Treasury's withdrawal of its support for the Overseas Pricing Mechanism (OPM) which used to protect departments from the weakening of sterling. There is a risk that the FCO may not be able to meet higher international subscriptions over the next two financial years, causing its performance against Public Service Agreement targets to suffer. The likely increase in the UN Regular Budget and other international subscriptions will push this figure even higher. The FCO should have to shoulder the financial burden from within its already tight budget to pay for subscriptions which also benefit other Government departments. The Committee recommends that additional nondiscretionary costs should properly be met by the Treasury.
This report is the Committee's annual review of how the FCO is managing its resources. This year a key area off interest has been the 2007 Comprehensive Spending Review because the Committee think it is one of the tightest in Whitehall and it risks jeopardising some of the FCO's important work. Apart from this the other subjects covered are: measuring performance; operational efficiency; management and leadership; FCO services; diplomatic representation overseas; transparency and openness; public diplomacy; British council; BBC World Service.
Against a backdrop of historically weak financial management and significant under-spending, the Foreign and Commonwealth Office has made considerable progress over the past three years to improve the accuracy, reliability and timeliness of financial information. Having recognised the need to take action, the Department set up its 'Five Star Finance' project which is due to completed in the summer of 2010. Of particular benefit has been the recruitment of a professionally qualified finance director and increasing the number of professionally qualified accountants within the finance function. An important factor has been the need for better information on the costs of individual embassies and this has been strengthened. Further action, though, is still required to implement a workable and effective system of costing activity in all locations to enable it to make informed decisions about its operational priorities. Given that over half of the Department's expenditure of some £2 billion is paid out in foreign currency the Department has suffered a significant reduction in purchasing power as a result of the weakening of the Sterling. The Department now forward purchases US dollars, euros and yen but with input from the Treasury it also needs to work with other Departments to identify the most effective way to manage exchange rate risk for the government as a whole. The Department confirmed that its aim is to maximise the benefits from each of its embassies in pursuit of British trade and foreign policy interests and that it has no plans to sell-off any of its prestigious buildings around the world
Around half of the Foreign and Commonwealth Office's budget is spent in foreign currencies. In 2008, the Treasury removed the protection it had previously provided to the Department against exchange rate fluctuations. The FCO did not have the expertise or experience to effectively manage the risk of a fall in exchange rates, and that the Treasury imposed poor value for money conditions on forward purchasing foreign currency. As a result of a decline in the value of sterling, in September 2009 the FCO faced an overspend of £91 million on its 2009-10 budget (£72 million centrally and £18.8 million overseas), out of its total budget of £1.6 billion. It made drastic cuts to reduce this overspend. The FCO did well to reduce spending so quickly, which enabled it to live within its budget. However, many of the spending cuts made were short term in nature, and involved simply delaying or stopping some activities, rather than making lasting efficiency improvements. Not enough was done to monitor and measure the impact of the cuts and there is a risk that such short term cuts can lead to increased spending in the future. The FCO needs to achieve sustainable reductions in running costs of £100 million over the next four years, and sees the overseas estate as a potential source of these efficiencies and income. But in the past, high charges have had the unintended consequence of discouraging other government departments from sharing premises.
The Foreign and Commonwealth Office (FCO) has made good progress in its financial management, aiming to establish itself as one of the best departments in Whitehall in this respect. It has shown strong leadership in raising the profile of good financial management across the Department. Up to 2007-08, however, the FCO has underspent consistently against its budget. The Department has introduced a financial management improvement programme "Five Star Finance", the aim of which is for the department to be a Whitehall leader in financial management. It currently rates itself at three and a half stars on a 1(low) to 5 (high) scale, a rating confirmed by NAO. The FCO operates in a challenging environment in terms of the global nature of its operations. The fluctuations of global currency markets pose particular difficulties for the Department. Until 2007-08, its budgets were protected by the Treasury from exchange rate fluctuations. When this protection was withdrawn, the FCO introduced alternative measures to manage its exposure, principally the forward purchase of major foreign currencies. It needs to ensure that its finance team has the right skills and experience to manage the financial risks it now faces. The FCO is taking action to avoid future underspends against its budget. In other respects, FCO's financial management has improved. The accuracy, reliability and timeliness of its financial reporting have all been enhanced. In 2007-08 it laid its accounts on 30 June, the earliest date it has ever achieved after the March year-end.
The Foreign and Commonwealth Office lacks a clear strategy and comprehensive data to manage its overseas estate effectively. It is taking positive steps to adapt its properties to new global challenges but has not achieved value for money in the management of its estate as a whole. Without a clear framework to assess the estate's performance, it is difficult to evaluate the Department's progress. The Department has recently appointed an estates specialist as Director of Estates and Security who is developing a new strategy which should help secure improved value for money in the future. There are several factors, such as changing political issues, security restrictions and exchange rate pressures, which add to the complexity of managing the global estate. But lack of adequate financial and management information about the estate hampers good decision making on efficient use of space and the identification of surplus assets for potential sale. The management of projects to improve the estate could be better: a third of the projects that the NAO analysed exceeded their initial approved budget by over 10 per cent and two-thirds were delivered late. The total cost overrun since 2002 is approximately £57 million, against a total spent on capital projects of £250 million. The FCO does not always use space in its posts efficiently. Over half of the posts that responded to the NAO's survey have unused office space or staff accommodation. The FCO could do more to promote the use of its overseas estate by other UK government organisations where feasible.
The FCO (the Department) has over 4,000 buildings across its global estate, in 279 different locations. The estate is a mix of properties including embassy, high commission and consular offices, ambassadorial residences, prestige and historical buildings and staff accommodation. The estate is valued at £1.6 billion and capital and revenue expenditure in 2008-09 totalled £269 million. The Committee welcomes the improvements the Department has made in managing its estate more effectively, including the recent appointment of an estates specialist as estates director and the development of a new estate strategy. The Department however has a poor understanding of its estate and the information it holds on its properties is basic, incomplete, out of date and inaccurate. In addition, the Department does not collect data, such as the cost and amount of space per person, recommended by the Office of Government Commerce for the effective management of government offices in the UK. The Department has unused space in its offices even in locations where other UK government organisations are based in separate premises. Other organisations are often deterred from co-locating with the Department because of the security measures necessary in embassies as well as the high charges they must pay to use the Department's buildings. The Department now needs a better managed estate with improved data to enhance understanding of the estate, and its new strategy to be implemented effectively at each location.
The United Kingdom retains responsibility for 14 Overseas Territories, 11 of which are permanently populated and which choose to remain under British sovereignty rather than to become independent states. The Foreign and Commonwealth Office (FCO) is the lead Department for coordinating UK Government policy for the Territories. The Department for International Development (DFID) coordinates development assistance, focusing on the three Territories of Montserrat, St. Helena and Pitcairn. This report examines the oversight of offshore financial services in the Territories; the balance between UK and Territory funding and responsibilities; and governance and management of the Territories external relations. The FCO aims to strike a balance between maximising the autonomy given to Territories' democratically elected governments, and minimising risks to the UK. The UK has dealt with a wide variety of risks and liabilities in the past, including pension liabilities of an estimated £100 million in Gibraltar and emergency aid of over £250 million to Montserrat after a volcanic eruption on the island. Territories have seen improvements in disaster management, but this needs to accelerate as rising sea levels and global warming add to the existing risks from hurricanes and volcanoes. The FCO is attempting to increase capacity for oversight of Territories' financial services industries, but regulatory standards in most are low. Limited capacity also reduces the ability of Territories to investigate and prosecute money laundering. Standards of governance and financial reporting in the Territories are variable and can fall below standards acceptable in UK local government. Lax financial management can evade departmental controls to protect the UK from risk, although there is stronger fiscal oversight of Territories receiving development aid.
The Foreign Affairs Committee believes the Foreign and Commonwealth Office (FCO) will not be back at the centre of Government and able to lead UK foreign policy, in line with the Foreign Secretary's ambitions, unless it can provide deep foreign policy expertise and judgement to underpin and implement Government decision-making. The FCO must have the resources and skills required to fulfil this role, especially specialist geographical expertise and knowledge of foreign languages. The FCO has a vital role to play for the Government, namely the timely provision of world-class foreign policy information, analysis, judgement and execution. Finances, people and buildings must be well-managed, but managerial requirements must not divert time and focus disproportionately from the FCO's core foreign policy functions. Given the resource constraints facing the FCO, however, there is doubt whether the department can achieve the Government's ambitions for enhanced commercial work while maintaining its core foreign policy functions at the required standard. The committee regards the FCO's network of overseas posts as integral to the department's ability to discharge its functions, and recommends that the FCO should seek to maintain a global UK presence. The committee also called "confusing" the fact that under the current Government the FCO has three sets of priorities: the Foreign Secretary's, the Cabinet Office's Business Plan for the department, and the 2010 Strategic Defence and Security Review.
The Foreign and Commonwealth Office (FCO) provides a range of consular services to British nationals overseas, and when necessary, their families in the UK, including giving travel advice, issuing passports, assisting travellers in difficulty or distress, and dealing with major emergencies such as terrorist attacks or natural disasters. The total cost of consular services during 2004-05 was almost £80 million. Services are provided through over 200 diplomatic posts worldwide including embassies, high commissions and consulates. This NAO report examines the challenges involved in delivering effective consulate services, including providing high quality information to travellers and influencing the behaviour of travellers; providing a consistent frontline service with cost-effective use of resources; response to major emergencies overseas and preparedness response measures.
The Consular Service of the Foreign and Commonwealth Office provides vital support to British nationals overseas. It offers a wide range of services, handling anything from lost passports to kidnap, a major crisis evacuation or verification of a document. It is the FCO's public face, and it is central to its reputation at home. Britons undertaking more adventurous travel, large expatriate populations and a series of major overseas crises have tested the Consular Service in recent years. In 2013, the FCO dealt with over 450,000 consular customers, over 17,000 of whom received personal assistance. The Consular Service has responded with a "strategic shift" to provide a more standardised and professional service. However, the strategic shift to a "smaller and better" consular service has also meant that some services have been limited or withdrawn, and standardisation has meant the end of so-called "over-service" as well as under-service. The FCO has consequently put great emphasis on encouraging self-help, managing expectations and explaining the limits of its assistance to British nationals. Despite these efforts to explain to the public what the FCO can and cannot do, there was still a significant gap between the high expectations of the public and the reality of what the FCO could provide.
This report focusses on the FCO's financial situation and the implications of the Spending Review 2010 for its work and performance, and that of its associated body, the British Council. The FCO is one of the major departmental 'losers' in the Spending Review. Reductions in spending on the FCO, if they result in shortfalls in skilled personnel and technical support in key countries and regions, can have a serious effect in terms of the UK's relations with foreign countries, out of all proportion to the amounts of money involved, especially in relation to the UK's security and that of its Overseas Territories. Cuts to the core FCO budget of even 10% may have a damaging effect on the Department's ability to promote UK interests overseas. The FCO will also face cuts of 55% to its capital budget. The target of raising £50 million per year through selling existing buildings may be difficult to achieve, and may not secure savings in the long-term. A further reduction in the opportunities for more junior UK-based staff to serve in overseas posts, and a consequent diminishing of experience and morale among FCO employees, could over time have a damaging effect on the quality of British diplomacy and the effectiveness of the FCO. The British Council, facing a 25% cut in spending, should give detailed information on its strategy for implementing the cut, which may well trigger fundamental rethinking of the role and work of the Council.
It is inevitable that the UK will have strategic, commercial or security-related interests overseas which have the potential to conflict with its human rights work, says the Foreign Affairs Committee in a report published today. The Government should not be trying to assert that the two can co-exist freely: it should instead be explaining publicly its judgments on how to balance them in particular cases. The Committee's recommendation comes in the light of the FCO's decision not to designate Bahrain as a "country of concern" in its 2011 report on its human rights work, despite the repression of demonstrations in Bahrain in 2011. The Committee recommends that the criteria for designation should be based purely on assessments of human rights standards and should not be coloured by strategic or other considerations. The Committee also challenges the Government for being inconsistent in not taking a public stance on the Bahrain Grand Prix but boycotting group stage games at Euro 2012 in Ukraine. On rendition, the Committee finds that the protracted police investigations had an unacceptable impact on the work of the Gibson Inquiry and of relevant committees. The Government should explain why current investigations into claims of rendition made by two Libyans are expected to take so long. The Committee accepts that enough progress has been made in Burma to justify some relaxation of the EU's sanctions regime, but it says that Burma's human rights record remains seriously blemished. It recommends that the UK should call for better access to those still detained as political prisoners, and should press the Burmese authorities to allow independent observers to visit Rakhine state, to assess the extent to which the rights of the Rohingya minority are being respected.
Eighteen months since the Arab Spring began, there has been extraordinary progress in Egypt, Tunisia and Libya. Yet many challenges still lie ahead, not least the need to support and reform the economies of these Arab Spring states. In 2011, the G8 Deauville Partnership identified $38 billion of funding available to support reform. The UK must use its leadership in the EU and G8 to ensure that we deliver on our promises. The Government needs to learn lessons from its experience in anticipating and handling the Arab Spring. Questions arose about the FCO's staffing levels, linguistic expertise and information gathering in the Middle East and North Africa region, although diplomats understood well the long-term problems in the region. The report welcomes the Government's recent moves to establish contacts with Islamist parties in the region and calls for deeper engagement to demonstrate at an early stage the UK's support and assistance for democratically elected leaders who respect human rights and democratic reforms. The BBC's Arabic Service further highlighted the importance of the BBC World Service in providing an independent news service and enhancing the UK's standing in the region. The Committee welcomes the Government's decision to reverse planned cuts to the Arabic Service last year, expresses concerns that cuts made elsewhere in the World Service will prove detrimental to the national interest, and urges that there be a sustained investment in the World Service
Saudi Arabia and Bahrain remain key partners for the UK but relations are complicated by the differences between our societies and the pressing need for reform in the Gulf. Historic warm relations between the UK government and the leaders of Saudi Arabia and Bahrain are not mirrored in public opinion in Saudi Arabia and the UK, and the UK's reputation in Bahrain has also suffered since 2011. The Government must make its public profile and reputation a more central part of its work in the Gulf, consider how it can best support much-needed economic and political reforms, and how it can explain its policies and point to specific achievements when speaking to the public at home and in the Gulf. In Saudi Arabia, the Government must convert its promising steps so far in providing assistance on legal and judicial reform into solid and reportable programmes. In Bahrain, it must work to secure access for NGOs and the UN Special Rapporteur on Torture, and press more strongly for swifter implementation of reforms. Saudi Arabia's role as a key buyer for the UK defence industry is controversial but the report finds little to suggest that ending defence sales from the UK would have any positive effect. The aggressive way in which the Bahraini security forces handled events in 2011 has deeply damaged Bahrain's reputation. The recommendations of the Bahrain Independent Commission of Inquiry (BICI) were sensible and the Bahraini government's failure fully to implement them is inexplicable.
The Commonwealth is working for the UK however if the organisation is to reach its potential and influence events, the Commonwealth Secretariat needs to "sharpen, strengthen and promote its diplomatic performance". Recently the Commonwealth has appeared less active and less publicly visible. The Government does not appear to have a clear and co-ordinated strategy for its relations with the Commonwealth. The moral authority of the Commonwealth has "too often been undermined by the repressive actions of member governments". The Committee is "disturbed to note the ineffectiveness of the mechanisms for upholding the Commonwealth's values", and expresses support for the Eminent Persons Group's proposal for a Commonwealth Charter. The Committee also says that it is not convinced that member states are making the most of the economic and trading opportunities offered by the Commonwealth. The report welcomes the fact that the Commonwealth continues to attract interest from potential new members, and the report says that there are advantages in greater diversity and an extended global reach for the Commonwealth however the application process should be rigorous. There is also concern at the continuing evidence of serious human rights abuses in Sri Lanka and the Committee urges the Prime Minister to state publicly his unwillingness to attend the Commonwealth Heads of Government Meeting in Colombo meeting unless he receives "convincing and independently-verified evidence of substantial and sustainable improvements in human and political rights in Sri Lanka.
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. 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. The FCO's budget is a tiny element of Government expenditure, but the FCO makes disproportionate contribution to policy making at the highest level, including decisions on whether to commit to military action. The next Government needs to protect future FCO budgets under the next Spending Review.
The Foreign Affairs Committee believes the events of the 'Arab Spring' should stand as a reminder to the Foreign and Commonwealth Office (FCO) that failing to take a stronger and more consistent stance against human rights violations by overseas regimes can carry risks for the UK. Any suggestion that the FCO downplays criticism of human rights abuses in countries with which the UK has close political and commercial links is damaging to the UK's reputation and undermines the department's overall work in promoting human rights overseas. The Committee is less confident than the FCO that there is little conflict between its simultaneous pursuit of both UK commercial interests and improved human rights standards overseas. The Committee heard concerns on this front with respect to Saudi Arabia and Bahrain in particular. There should be a more robust and significantly more consistent position on human rights violations in the Middle East and North Africa. On China, the Committee finds it difficult to support the Government's approach to human rights engagement with China in the continuing absence of any evidence that it is yielding results, and when the human rights situation in China appears to be deteriorating. The Government should engage in more explicit, hard-hitting and consistent public criticisms of human rights abuses in China. The Committee welcomes the FCO's continued production of an annual human rights report and the Government's recognition that the UK's own human rights practices affect its international reputation and ability to pursue improvements in human rights standards overseas.
The 2012 Budget, announced the 'ambition' to double the value of exports by 2020 to £1 trillion a year. However current performance has been flat over the last two years and, to meet the Government's ambition, exports will have to grow by 10 per cent year on year. Many factors which affect export performance are outside the control of the FCO and UKTI, such as exchange rates and political and economic changes overseas. While the UK outperforms Germany, France and Italy in the Gulf, it has not traditionally performed as well in many other emerging markets, such as Russia, Brazil, Turkey and China. Success here is essential if the Government is to meet its target. There is a joint UKTI-FCO Board to oversee coordination of their work overseas but currently there is no further joint accountability for planning, monitoring and delivery against their goal. Their initial responses to the government's objectives have not been sufficiently coordinated. UKTI is now increasingly looking to measure actual business outcomes rather than volume of activity. Among the NAO's recommendations is that the FCO improve how it measures and monitors the impact of its activities supporting exports so that it can demonstrate that its spending of some £420 million a year yields tangible results. UKTI is piloting the use of external business partners to provide some of its services, and needs to implement lessons from the evaluation of its pilot initiative to use external partners if it decides to roll it out
This report concludes that the Government is right to continue to support Turkey's accession to the European Union, as long as Ankara meets the accession criteria, and subject to the Government imposing restrictions on the right to free movement from Turkey after it joins. However, at the moment, shortcomings in Turkey's justice system are leading to human rights abuses, including as regards freedom of expression and the media, and making it harder to advocate Turkey's EU membership. Turkey's EU accession process is in any case stuck: effectively, it is hostage to the Cyprus dispute. The Committee said that, by undermining the force of EU leverage, the stalemate is having consequences that are detrimental to UK objectives in Turkey across a range of fields, including not only human rights but also energy and market access issues. The Committee found this especially regrettable given that Turkish democracy may be in a critical phase, and given the influence that Turkey may have at the moment over reforming Arab states. The Committee also said that, by creating uncertainty over the timing - if not the fact - of Turkey's EU accession, the stalemate was discouraging both the EU and Turkey from starting to address some of the most difficult issues that would be involved in Turkey's EU membership. The Government's continuing support for Turkey's EU membership has provided a strong basis for the further development of UK-Turkey bilateral relations which has significant potential. As a foreign policy partner Turkey could potentially add value to UK foreign policy
The Environmental Audit Committee established a sub-committee to explore concerns that Government policy on trade and development was not adequately incorporating the need for sustainable development and environmental protection. The series of inquiries have scrutinised DFID, the WTO and UK trade policy, the Government's response to the United Nations Millennium Ecosystem Assessment. This is the final inquiry and it looks at the role of the Foreign and Commonwealth Office in delivering international environmental objectives. Although it is not often the lead department it has a role in building international support for policy objectives and it also has direct responsibility, with DFID, towards the environment in UK Overseas Territories. The report looks at: FCO policy; FCO capacity on the environment; international environment strategy; setting an example; UK Overseas Territories.
The British Council is the UK's international organisation for educational opportunities and cultural relations. Its purpose is to "build engagement and trust for the UK through the exchange of knowledge and ideas between people worldwide." As well as education, it runs programmes in the arts, science, sport, governance and English language in 110 countries and territories worldwide. 2009 marked the 75th anniversary of the establishment of the Council. It receives Grant-in-Aid from the FCO for its public diplomacy activity: £209 million 2008-09, a 6% increase from 2007-08. The Committee concludes that the change in extent of data provided and the presentation of that data in the British Council's 2008-09 annual report makes it more difficult to track and evaluate the Council's performance over a period of years. In future the annual report should include fuller performance data, including corporate performance scores and reach, to facilitate year-on-year analysis. The recent decline in some of the scores achieved in relation to quality of service, particularly in that relating to engagement with decision makers and senior influencers, gives cause for concern. The Committee welcomes the Council's efforts to re-establish itself in Iran and Zimbabwe, its increased focus on China, and its progress in implementing NAO suggested administrative reforms (HC 625, session 2007-08, ISBN 9780102954173). 2009-10 will be a difficult year for the British Council and further cuts in staff and services may be unavoidable. In these circumstances it is important that the Council concentrates its activities on its core business and key objectives.
Now in its 48th edition, the Handbook is an authoritative annual compendium of Britain, providing an up-to-date account of all the latest policy developments in the UK.
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