The new top official at the Foreign Office has said he is not "gloomy" about his department's prospects in the forthcoming Spending Review, in spite of the FCO being asked to plan for fresh cuts to an already-squeezed budget.
The Treasury has ordered non-protected government departments – including the Foreign and Commonwealth Office (FCO) – to model cuts of both 25% and 40% ahead of the November Spending Review, as part of the government's plan to eliminate the deficit and run a budget surplus by 2019-20.
Sir Simon McDonald – who took over as the Foreign Office's permanent secretary at the start of the month – said on Tuesday that the FCO was "at the beginning" of talks with the Treasury about the final settlement.
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But he told MPs on the Foreign Affairs Committee: "Because this is a negotiation, I am not assuming any gloomy outcome."
The FCO perm sec said the relatively small budget of his department when compared to that of both the Department for International Development (Dfid) and the Ministry of Defence (MoD) meant that it would not make sense to squeeze the Foreign Office further.
"In the overseas policy space there are two other big players – Dfid and the MoD – and both of them have protected budgets," McDonald said. "So in a budget of £50bn per year [across the three departments], our contention is that it is illogical to focus fire on the FCO, which is the smallest element."
According to analysis by MPs published earlier this year, the FCO spent approximately a quarter of the sum spent by Dfid in 2013-14 and less than 6% of that spent by the MoD over the same period.
The FCO was asked to reduce its real terms resource budget by 10% at the 2010 Spending Review, with a further 6.3% cut imposed in 2013. In June, the department was also tasked with shaving another £20m from its budget in the current financial year.
While McDonald acknowledged that a "blunt 25%" further reduction in FCO funding would lead to the department scaling back its operations, he expressed hope that the Foreign Office could "negotiate better than that" and said the department had also planned for an increase in resources.
"Even though the focus in this Spending Round is on reducing non-protected departments, we in the FCO are looking at what we could do if we had more," he said. "We’re looking particularly at the Russia part of our policy, strengthening our efforts in Eastern Europe and in Russia. We’re looking at the CT (counter-terrorism) agenda – this is part of a cross-Whitehall agenda – and we’re looking at how we manage our soft power."
The FCO perm sec – who previously served as UK ambassador to Germany – also rejected a suggestion from committee chair Crispin Blunt that austerity to date had left the UK's network of overseas embassies "so poor in terms of money that they have no entertainment budget", and unable to cultivate the right contacts.
"If that were true you’d have a good point. Mr Chairman," McDonald replied. "I’ve just come from Berlin where I was ambassador for four years. My lived experience is different from that. We were able to entertain. We were able to develop our networks. I had an embassy fit for purpose on Wilhelmstrasse, right in the centre of town, which attracted the people we needed... My personal experience is different from the one you are describing and very recent."
While McDonald accepted that embassies were "under pressure", he said the Foreign Office was still managing to carry out its most important functions.
He added: "I’m sure that people could do more if they had more money but the evidence I see for myself and the reports that I have received are that we are still able to do the key job."
The FCO currently has 267 overseas posts in 168 countries and territories. According to the department's latest annual report, it employs approximately 4,400 UK-based staff, down from around 4,800 in 2010. It also employs approximately 9,200 local staff around the world.
Speaking before parliament's summer recess, foreign secretary Philip Hammond said he was "clear" that the FCO would be able "to achieve further efficiencies", but vowed to protect the "sharp end" of the UK's diplomatic network.
McDonald's colleague Deborah Bronnert – chief operations officer at the FCO – told the committee that the challenge of responding to both the 2010 and 2013 cuts meant that the department now had "quite a lot of experience about how you can take money out of the system".
She added: "We’ve also learnt that there are some things that work better than others. And we are using all of that experience, talking to the [overseas] network about how we particularly bear down on what we call the operation side... trying to protect the frontline, both in the network, and also in London."
Chancellor George Osborne is set to reveal the conclusions of his latest austerity push on November 25.