The report focuses on the FCO’s financial situation and the implications of the Spending Review 2010 on its work and performance.
"While it is not realistic to suppose that the FCO can be insulated from the effect of public sector spending cuts, we note that its budget has suffered more than those of other Departments such as the Department for International Development (DFID) or the Ministry of Defence (MOD).
Core FCO functions have been protected from the worst of the cuts; so a greater share of the pain will be borne by other members of the ‘FCO family’, the British Council and the BBC World Service. This will place great strain on these organisations.
We will hold a separate inquiry and produce a further Report on the effects of the Spending Review on the BBC World Service in the near future, and we will continue to monitor the situation with regard to the British Council.
Our Report notes that the Spending Review settlement comes on top of previous cuts to the FCO’s budget in the very recent past, and a regrettable long-term trend for the FCO to lose out relative to other departments and agencies in the allocation of government spending.
The Report warns that heavy cuts to the capital budget will lead to the neglect of improvements to the FCO estate and may create an unwelcome incentive for the FCO to sell historic or prestigious buildings.
The FCO’s policy of switching to locally-engaged staff in overseas Posts has brought benefits, but it cannot be extended indefinitely, and we are concerned that the drive to reclassify FCO spending as Overseas Development Assistance (ODA) provides a cover for meeting the 0.7% target without increasing the money actually spent on ODA.
We welcome the new Foreign Currency Mechanism, which will protect the FCO budget against fluctuations in foreign exchange rates, but we are concerned it does not make allowance for differential inflation rates."