A choice between decline and growth – UK global influence and the Spending Review

This is the first in a series of blogs on the upcoming Spending Review, and how Britain maximises its influence and soft power across the world at a time of declining budgets. This focuses on the Spending Review, and the Foreign & Commonwealth Office (FCO).

Civil servants across Whitehall returned from their summer holidays with a thump. Now in the thick of negotiations, the Chancellor’s Autumn spending review looms with huge departmental cuts on the horizon. Seeking to bring the money-and-maginifying-glassUK into surplus by 2019 / 2020, the review seeks £20bn of departmental savings. May’s Budget saw Chancellor George Osborne protecting over half of all public spending while simultaneously committing to increases in health and defence spending, ring-fencing schools funding on a per-pupil basis and renewing the pledge to spend 0.7% of GNI on overseas aid. Unprotected departments will therefore bear the shoulder the heaviest burden, and have been asked to formulate ideas for savings of between 25% and 40%. These scenarios are not far-fetched. Analysis by the Institute for Fiscal Studies reports that during the last Parliament, overall departmental spending was reduced by 9.5%, with unprotected departments facing cuts averaging 20.6%.

The UK’s Diplomatic Service under pressure

With defence and aid budgets largely protected, the FCO is the major remaining government department (working on the UK’s role overseas) which will be affected. With a budget that is 25% lower than its French equivalent (despite comparable network sizes), FCO funding (£1.7bn) amounts to less than 3% of the total of the three budgets combined, and as the only unprotected department in this group, the FCO is exposed to the full force of Sending Review cuts.

And there is limited scope for savings. With the devaluation of sterling, FCO spending power has reduced by between a fifth and a quFCO_1823237barter since 2009, requiring increased prioritisation and efficiencies. The 2010 review saw the FCO making a 10% cut (real-terms), followed by a further 6.3% reduction in 2013. Simon Fraser, former FCO Permanent Secretary, admitted in his farewell interview that “like other departments, we’ve faced a pretty tight resource situation since 2010”. Diplomatic capabilities remain underfunded, especially in the areas of compensation levels, technology infrastructure and staff numbers. A February report by the Westminster Foreign Affairs Committee described an FCO desperately in need of funding and a diplomatic service lacking the right skills. There is also evidence that human rights is no longer one of the FCO’s top priorities – believed to be a consequence of the savings imposed so far.

Foreign policy challenges in the aftermath of the 2008 financial crisis have not abated, and there has been significant turbulence across the globe affecting UK interests. Shifts in world order (e.g. reduced power of Bretton Woods institutions) are also coinciding with this relative decline in the UK’s material capacities and its ability to apply international leverage. So what to do in an era of declining budgets and increasing challenges? Prioritisation is key, according to Fraser “…you cannot carry on doing more and more if you’re under continuing resource pressure – and I think we have to face that. The government has to think about that and we have to think about the priorities – what really matters and how we can focus our effort on the things that we can make the most difference on.” There are already some indicators of focus – in June, Foreign Secretary Philip Hammond told the Foreign Affairs Committee that that the FCO would aim to protect its network of overseas embassies, “I am clear that the crown jewel of the Foreign Office’s capability is the network of international platforms, embassies, and missions around the world…   …We must seek to protect that sharp end presence while addressing the need for further efficiencies.” Were there to be cuts, they would likely be made to support functions, subordinate posts in developed countries, and UK operations. The Permanent Under-Secretary, Simon McDonald stated in a recent inquiry; “the logical conclusion of protecting the network and having to reduce is that such reductions that have to take place will be at home”.

Early indicators for 2015 are not promising – the Chancellor unveiled a £4.5bn savings “down payment” in June, with the FCO taking a £20m hit of in-year spending reductions, and more cuts expected. With no constituency in the UK to speak up for it and already stretched, the organisation has largely been left to fight for itself. Echoing an assessment made by the predecessor Committee in the last Parliament, last week’s report by the Foreign Affairs Committee called on the Treasury to protect and increase the FCO budget, “We recommend that the Treasury protect the FCO budget for the period covered by the 2015 Spending Review, with a view to increasing rather than cutting the funds available to support the diplomatic work on which the country’s security and prosperity depend.”