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Politics & press news – Embassy 15 – February 2009

FCO squeezed in credit crunch

MPs have warned that the Foreign Office is facing "serious financial pressures" due to the falling value of the pound which could affect its international diplomacy efforts.

The chair of the House of Commons Foreign Affairs Committee, Labour MP Mike Gapes described the situation as "deplorable" and called on the Treasury to provide extra support for Foreign Office activities.

The value of the pound has plunged in recent months. In December, it hit near-parity with the euro, while it reached its lowest level against the dollar for nearly 25 years last month.

Since the majority of diplomatic activity abroad is paid in foreign currency, Foreign Office budgets are likely to suffer more than other government departments.

Gapes criticised the Treasury's decision to withdraw protection against currency fluctuations leaving the Foreign Office exposed to the weakening of the pound.

"Hedging" arrangements were used to limit the FCO's exposure by securing foreign currency in advance at a fixed rate.

Foreign Office officials admitted to the committee that the ministry faced "a tougher challenge" to fund its activities in the next financial year.

The FCO warned that anticipated increases of more than £3m a year in the cost of subscriptions to international bodies like the United Nations may force it to cut other programmes.

"It is deplorable that the FCO should have to shoulder the burden from within its already tight budget to pay for subscriptions which also benefit other government departments," said Gapes, calling on the Treasury to meet some extra costs.

Responding to the report, Ed Davey, foreign affairs spokesman for the Liberal Democrats, warned it would be "short-sighted, self-defeating and penny-pinching" if British commitments to bodies like the United Nations were compromised.

The FCO expects its overall funding to grow from £1.6bn in 2007-08 to £1.7bn by 2010-11. In the year ending 2007 it was able to spend £58m less than expected.
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