Foreign Office should make lasting budget cuts
Summary
A Committee has urged the Foreign and Commonwealth Office (FCO) to make sustainable savings to improve on short term solutions that were proposed to decrease a budget overspend of nearly £100 million.
The report 'Spending Reduction in the Foreign and Commonwealth Office’ (HC 1284) details the FCO’s overspend of £91 million in 2009-10: whilst drastic cuts were made for recovery, the improvements were short term in nature and should be revised to help maintain vital services for the future.
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 the Treasury imposed poor value for money conditions on forward purchasing foreign currency.
The Committee of Public Accounts appreciates how the decline of the value of sterling caused a lot of problems for the FCO as half of its budget is spent using foreign currencies.
As a result of a decline in the value of sterling, in September 2009 the FCO faced an overspend of 72 million centrally and £18.8 million overseas, out of its total budget of £1.6 billion and 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 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 the Committee 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.
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