Spending Reduction In The Foreign And Commonwealth Office

The spending cuts made by the Foreign and Commonwealth Office in 2009-10 were mainly in response to exchange rate pressures and provided an early experience of the challenges the Department will face in cutting its core expenditure by 10 per cent as a result of the 2010 Spending Review. These spending cuts were a short-term response to the immediate problem of a forecast budget shortfall of £72 million. They were designed to reduce in-year spending quickly, rather than achieving long-term efficiencies. In contrast, cuts to core expenditure as required by the spending review will demand a more strategic approach. There is evidence of the Department's seeking to protect its front-line activities and intending to make reductions in spending permanent. But it could not be sure that all the cuts were implemented as intended or had the least possible impact on its business. Most of the spending reduction resulted from doing less and the NAO also estimates that about 10 per cent of cuts were achieved through simple deferral: postponing activities such as non-essential maintenance to a later year. In addition, although the Department had assessed the risks of making spending cuts, it did not have measures in place to assess the impact of the cuts on the achievement of its objectives. In February 2010 the Department had started to develop contingency plans in case further cuts were required in 2010-11. However, it did not conduct a formal evaluation of its spending reduction activities in 2009-10 and missed a valuable opportunity to learn.

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 Clinton Administration claims that a declining foreign affairs budget is threatening the ability of the United States to conduct foreign policy. Referring to Congressâ€TMs attempts to curb wasteful government spending, former Secretary of State Warren Christopher and his successor, Madeleine Albright, have stated that budget cuts have forced the closure of overseas embassies and other diplomatic offices. To deal with this alleged threat to U.S. diplomacy, the Clinton Administration is calling for increased spending in the foreign affairs budget, which includes funding for U.S. embassies, consulates, foreign aid programs, and international institutions like the World Bank and the United Nations.

In 2009-10, public expenditure rose to 48 per cent of GDP whilst income fell to 37 per cent, resulting in the largest deficit in Britain's peacetime history. This Spending Review sets out how the Coalition Government will carry out its deficit reduction plan. Particular focus has been given to reducing welfare costs and wasteful spending. This has enabled the Coalition Government to prioritise the NHS, schools, early years' provision and the capital investments designed to support long term economic growth. Departmental budgets other than health and overseas aid will be cut by an average of 19 per cent over four years. Key areas of Annually Managed Expenditure (AME) in addition to Departmental Expenditure Limits (DELs) for each government department and for the devolved administrations are covered. The Review sets out departmental spending plans for the four years until 2014-15 and further savings and reforms to welfare, environmental levies and public service pensions. The Review protects high value transport maintenance and investment, maintains the science budget, invests in apprenticeships and the low carbon economy and allows universities to increase fees from the 2012-13 academic year. Fundamental reforms will simplify the welfare system and make net savings of �7 billion a year. Social housing will be reformed and social care will receive an additional �2 billion by 2014-15. Public service reform underpins the Review: decentralisation of power; cutting burdens and regulations on front-line staff; improving transparency, efficiency and accountability of local services. Local government will have greater freedom but must work within reduced allocations. Public sector pensions will be reformed in line with Lord Hutton's recommendations. Central government administration costs will be cut by 34 per cent by 2014-15. Government departments will produce business plans later in 2010 detailing reform plans and priorities.

"In contrast to previous national security reviews, the 2021 Integrated Review (IR), published in March, was not accompanied by a multi-year spending review. The publication of the Spending Review in November 2021 (SR21) filled this gap. Total defence spending, in real terms, is set to increase by an average annual rate of 1.5% over the five years between 2019/20 and 2024/25. This is similar to the 1.1% average growth rate in real spending between 2015/16 and 2019/20. On current GDP projections, this should keep the UK comfortably above NATO's 2% target up to 2025 and beyond (it was 2.29% in 2021). This growth compares favourably with the sharp reductions in spending which the Ministry of Defence (MoD) endured during the five years after the 2010 Strategic Defence and Security Review (SDSR). But it is lower than any other major department, with the exception of the Foreign, Commonwealth and Development Office (FCDO). The FCDO fared much worse, with an average annual real-terms cut in its budget of 5.0%. SR21 has extended the reduction in the official development assistance budget from 0.7% of gross national income in 2020 to 0.5% in 2021, announced in the 2020 Spending Review, for at least another two years. This Whitehall Report seeks to explain the reduced priority being given to defence and international spending, and what it tells us about the strategy underlying the government's Integrated Review."--

Traditionally, economics training in public finances has focused more on tax than public expenditure issues, and within expenditure, more on policy considerations than the more mundane matters of public expenditure management. For many years, the IMF's Public Expenditure Management Division has answered specific questions raised by fiscal economists on such missions. Based on this experience, these guidelines arose from the need to provide a general overview of the principles and practices observed in three key aspects of public expenditure management: budget preparation, budget execution, and cash planning. For each aspect of public expenditure management, the guidelines identify separately the differing practices in four groups of countries - the francophone systems, the Commonwealth systems, Latin America, and those in the transition economies. Edited by Barry H. Potter and Jack Diamond, this publication is intended for a general fiscal, or a general budget, advisor interested in the macroeconomic dimension of public expenditure management.

The Foreign Affairs Committee believes the BBC World Service is of such value to the nation that its income should be ring-fenced against spending cuts. The Service has suffered a disproportionate reduction in its future Grant-in-Aid under the spending review settlement, by comparison with that of the 'core FCO': allowing for inflation, 16% as against 10% across the four years 2010-11 to 2014-15. High-level discussions between the Government and the BBC about a transfer of funding responsibility started only nine days before the formal announcement of the change. The report says that the decision to reduce World Service spending by 16% during the 2010 spending review period should be reversed, and resources made available for it to continue its operations at roughly the 2010-11 level of staffing and output. If the Service's funding is reduced in spite of this recommendation, the committee urges for damage limitation with an unreduced BBC Hindi and BBC China Mandarin shortwave service, and enhanced resources to BBC Arabic as required by the recent and continuing political developments in the region. Some of the activity of the World Service contributes to the wider aims of the Department for International Development, and a transfer of just 0.35% of DFID's resource budget over the next three years would compensate for the proposed 16% reduction in World Service funding. There is no reason why such a transfer should not be made if the political will to carry it out is present.

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.

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.