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FCO Budget Cuts

October 20, 2010

The results of the comprehensive spending round have been announced and it is cuts nearly all around.  Interestingly the Foreign Office seems to have got off relatively lightly.  The headline cut is 24% but a large chunk of this actually offset by the transfer of BBC World Service funding to the BBC from the 2014-15 financial year.

The press release with details is reproduced below.

The Foreign and Commonwealth Office
Over the course of the Spending Review period the FCO will see a 24% real terms reduction in the resource budget, and a 55% real terms reduction in capital spending. The Department’s Administration budget will be reduced by 33%.
The settlement provides for an increase in the FCO’s Overseas Development Assistance (ODA) spending to help meet the Government’s commitment to dedicating 0.7% of Gross National Income to ODA by 2013 – the FCO’s contribution to UK ODA spending will increase from around 2% in 2010/11 to around 2.4% in 2011/12.
The settlement also continues to provide grants to both the World Service and the British Council, though at a reduced level. From 2014-15 the BBC World Service will be funded by the BBC, but the Foreign Secretary will retain his veto over any decisions to cut language services.
Once the additional resources from the BBC are taken into account the rest of the FCO budget will only fall by 10% over the period.

  2010-11 2011-12 2012-13 2013-14 2014-15
Resources 1.4 1.5 1.5 1.4 1.2
Capital 0.2 0.1 0.1 0.1 0.1
Total 1.6 1.6 1.6 1.5 1.3

Figures in £Bn
The FCO will manage these reductions by:
• Continuing to simplify, standardise and streamline support and corporate functions to reduce the burden on front line activities. This includes cutting the cost of management and support work through increased outsourcing, an increase in the tasks carried out by local staff, and a consolidation of financial, human resources, procurement and other activities regionally or within the UK;
• Reducing the costs of our overseas estate and looking for opportunities to reduce our estate in London. This includes looking to co-locate and rationalise the Government’s different operations overseas, for example moving into single premises in countries where the FCO, DfID and other government bodies are in separate buildings;
• Looking for savings through improved procurement practice including, where appropriate, co-procuring with other Departments and greater use of central framework contracts; and,
• Reviewing the FCO’s global and programme expenditure to ensure it is in line with the Foreign Secretary’s three priorities of safeguarding Britain’s national security, Building Britain’s prosperity and Supporting British nationals around the world.
The Department is looking to rationalise different overseas functions including functions such as HR, IT, finance, transactions, and procurement with other Departments. This idea was suggested through the Governments Spending Challenge process. We will also look at other common ways of operating, including terms and conditions of service for local staff.
These reductions come after a 10% reduction in real terms spending power over recent years caused by the abolition of the overseas price mechanism (OPM) under the previous Government. To give the FCO the budgetary certainty that it needs to operate and plan effectively the settlement provides for a new foreign currency mechanism (FCM) to better manage exchange rate risk. Under this system, the Foreign Office will be compensated for falls in the pound, but will have to return money to the Treasury when the pound rises, giving the Foreign Office certainty over the value of its budget.
A proportion of FCO spending contributes to the government’s Overseas Development Assistance (ODA) objectives. ODA spending includes resources to support fragile states, to prevent conflict and to promote stability in critical regions. All FCO ODA work will meet the international OECD criteria and be properly reviewed.
Foreign Secretary William Hague said:
“Reducing the huge deficit left by the last government is essential to getting Britain back to recovery. This settlement ensures the Foreign Office will play its part, while also maintaining our global reach and forging a distinctive British approach to foreign policy. The FCO’s global network is key to building our prosperity and to strengthening our security, as set out in the National Security Strategy earlier this week.
“The settlement also overturns the last government’s disastrous decision to end exchange rate protection for the Foreign Office budget. That change led to a 10% fall in FCO spending, with our foreign policy determined by exchange rate fluctuations, not a serious assessment of Britain’s place in the world.
“The BBC World Service and British Council are and will remain fundamentally important parts of Britain’s presence in the world. The transfer of BBC World Service funding to the Licence Fee in 2014-15 will enhance and safeguard the World Service’s vital role, allowing the BBC as a whole maximum scope to exploit efficiencies while also maintaining clear safeguards for BBC World Service funding and impartiality.”

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