29 March 2011
Whitehall departments grappling with spending cuts could learn from how the Foreign & Commonwealth Office dealt with a sudden shortfall, according to government auditors.
But the episode has led National Audit Office head Amyas Morse to warn departments against ‘simplistic cuts’.
An NAOreport published today said there were wider lessons from the way the FCO budget had to be cut rapidly by £60m after a decline in sterling’s value sharply increased the costs of its overseas operations.
That 2009 experience ‘could apply equally to other departments who need to make cost reductions as part of the 2010 Spending Review’, the NAO said.
The FCO’s budget cut arose because the government removed its historic protection against adverse currency movements in 2008, a step that was followed rapidly by a slump in the value of sterling.
The department had to act so fast it could not take a strategic view and relied on ‘tactical and short-term’ savings. Cuts in both its central activities and those managed locally overseas meant it ended that year 0.2% within its budget.
Some 37% of cuts came from back-office functions, 25% from frontline work and the rest from subscriptions to international organisations, human resources, travel and hospitality.
Morse praised this prompt action but warned: ‘Measurement and evaluation were limited. It will be vital [for other departments] to avoid damaging value for money through over-simplistic cuts.’
The report found that the limited evaluation meant the FCO could not be confident ‘that all spending reductions were implemented as intended and that the cuts have had the minimum possible impact on the department’s business’.
Other parts of Whitehall should embed a continuous search for efficiency in their working culture, and take a strategic view of the impact of cuts on priorities, the report said.
An FCO spokesman said: ‘We welcome this fair and thorough report. In particular it recognises the FCO’s success in reducing its expenditure to manage the pressures caused by the loss of exchange rate protection. We are examining the NAO’s recommendations carefully.’
