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1 Foreign & Commonwealth Office Sir Simon Fraser KCMG Permanent Under-Secretary of State Foreign &Commonwealth Office King Charles Street London SW1A2AH Tel: Mr Crispin Blunt MP Fax: Chairman of the House of Commons Foreign Affairs Committee House of Commons London SW1A OAA [by ] 27 July 2015 t-l_a,f C.<')~,',A \ QUARTERLY UPDATE ON FCO MANAGEMENT ISSUES. It was a pleasure to host you at the FCO Leadership Conference and then again in the FCO on14 July. It is usual practice for the PUS to send you a quarterly update on FCO management issues. However, due to the election, this latest update covers the period January 2015 to July My final months as Permanent Under-Secretary have seen another busy period in foreign affairs. These have included major incidents such as the earthquake in Nepal in April which resulted in the deaths of 9,000 people including 2 British nationals and the dreadful attack in Tunisia in June in which 38 people were murdered including 30 British nationals. Migration issues, the serious economic situation in Greece, the threat of extremism and preparations for the renegotiation and EU referendum have all required significant diplomatic activity. I want to highlight the Iran nuclear talks which concluded in a deal that was the result of more than a decade of diplomacy, with consistently strong UK engagement and involvement, led by the FCO, involving many parts of government and many parts of our global diplomatic network. This is an important example of the value of diplomacy. Last month we shared with you an advance version of the FCO Annual Report and Accounts On 29 June this was signed off by the National Audit Office and laid in Parliament (copies were sent to the Committee). The report sets out how we have performed against our priority outcomes in , including case studies. It also provides an update on Diplomatic Excellence and gives accounting and expenditure information. 1

2 We have now met our 100 million efficiency target agreed under the 2010 Spending Review. Further savings of 22 million for this year 15/16 were agreed under the 2013 Spending Review and you will be aware that in June the Chancellor asked us to find a further 20 million for 15/16. We are on track to meet our 10% UK Based headcount reduction by March Work continues on the One HMG Overseas Agenda which brings together all parts of the British government overseas to improve HMG's effectiveness and efficiency overseas. The UK Estates Reform programme should be completed this year though there have been some delays in some aspects of the project which will not stop us leaving the Old Admiralty Building on schedule. Modernisation of our systems including the Technology Overhaul programme to achieve a significant upgrade to our IT are also big priorities: full implementation will be dependent on funding agreed under the expected 2015 Spending Review. We have also appointed Danny Payne as the new Chief Executive for FCO Services. He started in this new role on 1 July. POLICY The Diplomatic Academy was formally launched by the Foreign Secretary in February this year. Its Foundation Level curriculum was introduced in April. We are supporting staff to access it and make full use of the learning opportunities it provides. It is available to staff across Whitehall who work on international issues. From October a City and Guilds accredited qualification will be available to staff who complete and pass Foundation Level. The Practioner and Expert Level curricula are now under development. Protocol Directorate is ensuring smooth-running visits to the UK by senior foreign representatives, including the State Visit by President Xi of China this Autumn. Early planning for the commemoration of the Battle of the Somme in France in 2016 has started. You will have seen the annual statement on the conduct of the foreign diplomatic corps in the UK, including serious offences allegedly committed by diplomats, and outstanding parking fines and other debts owed by diplomatic missions. PEOPLE We will shortly begin negotiations with the Trades Unions on the pay deal for UK based staff for Median average pay at some grades in the FCO is below other Whitehall departments operating on the FCO's platform overseas (for example, around 10% behind at C4, 06 and SMS1). We have secured HMT agreement to move money from non-consolidated bonuses to fund a competency point of up to 10% for C4 and 06 officers after two years service subject to satisfactory performance. This is in line with public sector pay policy. HM Treasury guidance also increases all government departments' pay bills by 1 % this year. We continue to 2

3 take steps to make local staff pay more affordable and sustainable for the long term although this is creating recruitment and retention issues in some of our Posts. We have just completed validation of performance and talent ratings for senior staff and for UK based staff in the Band D delegated grade (civil service grade 6/7) and have met the centrally-fixed distribution for senior grade (SMS) staff. We have also implemented arrangements whereby staff in UK based Bands C (civil service grade HEO/SEO) and D delegated grades receive performance pay if they are in the top 'exceeded' box for performance. This will apply to all UK based staff, including those in Bands A and B (civil service grades AA- EO), from now on. The FCO Management Board agreed five priorities for diversity, based on consultations with staff associations and diversity champions, and building on the Civil Service Talent Action Plan (TAP).This was in part in response to the Committee's report on the FCO's Performance and Finances 2013/14 which said we were not doing enough to support gender diversity. We have recently been able to report improvement: Women now make up over 27% of the Senior Management Service (SMS) and 45% of our Management Board. We have 36 female heads of mission (19%) up from 22 in 2008, and set to reach 50 appointed by the end of this year. Cabinet Office have rated us in the top four departments for implementation of the civil service Talent Action Plan. Network ONE HMG OVERSEAS To date, the One HMG Overseas programme has been delivered through five work streams: Regionalisation; Consolidation; Co-location; Harmonisation; Collaboration. We made significant progress on delivery of these work streams, as confirmed by the NAO's report of March We have saved at least 48 million as a result of this work. Implementation of the Regionalisation Programme is now complete with financial benefits of over Sm net annual savings achieved on schedule, and 8 new regional hubs delivering HR, finance, procurement and transaction processing to our global network. The Consolidation with DFID Programme is nearing completion, with the FCO providing 26 DFID Country Offices with corporate services. 3 Country Offices remain, with Sierra Leone and Nigeria due to consolidate by the beginning of (Yemen is currently closed). DFID's overseas assets worth approximately 35m will transfer to FCO by the end of the financial year. 3

4 As part of Spending Round preparations, the Network Board has agreed that One HMG Overseas partners should coordinate SR15 bids for the cost of the overseas platform. We are working on a methodology for doing so. The outcome should result in greater transparency around the costs of the platform and a more whole of government approach in terms of spending decisions by individual departments. The aim will continue to be to improve policy impact overseas while driving improved value for the taxpayer. FINANCE In response to the Chancellor's announcement on 4th June of a 20m cut to our resource delegation baseline, we have applied these reductions - including 3.5m from the non-oda grant-in-aid to the British Council. Work continues to identify further efficiencies within the business, to meet the expected challenges of the SR 15 settlement. To improve the FCO's management of programme funds handled from the new 1 billion Conflict, Stability and Security Fund (CSSF), we have implemented changes to our internal financial management systems and all CSSF finances are now being reported through online dashboards to the CSSF secretariat, improving the quality of financial management information available to Board members. ESTATES Progress continues with our UK Estate Reform project, which will consolidate all London staff into our King Charles Street (KCS) building, allowing us to move out of the Old Admiralty building, saving the FCO 5 million per annum in running costs. We are creating the space to accommodate all of these staff with more open plan offices and encouraging more flexible working. The second and third floors of KCS are being refurbished and the first directorates moved to their new offices in March. The timetable for completing construction work will be extended due to an error on the part of the contractors. The full extent of this is not yet clear, but the issue is being closely managed. We continue to address health and safety and legal statutory compliance works through our centrally managed global maintenance investment programme. I attach an annex of property sales and purchases achieved and planned for and I would be grateful if, as in the past, the Committee would keep this information in strict confidence due to the commercial sensitivities. This year the majority of funding for capital projects has to be found from sales, hence the long list. As always, I add the caveat that the future sales programme is subject to change and will be balanced to meet the capital requirement. 4

5 SECURITY Across the network, we continue to experience a high tempo of security incidents, ranging from crime through civil unrest to conflict, terrorism and harassment of staff by hostile intelligence services. As a result, we are constantly adjusting our posture and/or deploying a range of protective equipment, such as armoured vehicles, tracking, body armour etc. Since my last letter to your predecessor, a sustained period of civil and political unrest in Yemen resulting in a deteriorating security situation there led to the evacuation of our Post in Sana'a in February. The subsequent Saudi-led bombing campaign damaged our Embassy and injured one of our locally employed guards. There were two separate incidents in Kabul in May which resulted in the deaths of a British, and dual British-Afghan, nationals. The former, employed as a close protection officer by Hart Security, was killed during a SVBIED attack on a EUPOL convoy; while the latter, who was a British Council contractor working on a project to strengthen civil society in Afghanistan, was killed in a complex attack at a Kabul hotel involving a suicide bomber and armed insurgents. The British Council have reviewed their policy of allowing some ex-pat contractors to be based outside the Embassy in Kabul, and the remaining British-Afghani contractor has moved onto our site. The physical threat from lslamist terrorism to our staff remains high and is evolving. Da'ish/lSIL have expanded their physical reach and influence through things like sophisticated use of the internet to stimulate so-called "lone-wolf' attacks. There have been a series of deadly attacks, including those recently on the second Friday in Ramadan in Tunisia, Kuwait and Grenoble. New threats continue to emerge and we are monitoring them closely. INFORMATION TECHNOLOGY Cyber activities against the FCO - including major phishing attacks earlier this year confirm that there is a persistent cyber threat to the UK. Although our robust defences help mitigate their effect, these attacks underline that cyber defence is critical to delivering UK diplomacy. The FCO's main information technology system, Firecrest, is ageing and increasingly failing to meet current requirements. This poses a serious operational risk. Work is in hand for a Technology Overhaul programme to replace Firecrest over the next three years. The FCO Management Board is considering the options for the overall scope and affordability this month. 5

6 On Knowledge Management, in response to the Home Secretary's announcement of the Goddard Inquiry, the FCO has implemented a moratorium on destruction of any information relevant to the terms of the Inquiry. We are currently reviewing the scope of our moratorium in line with guidance recently received from the Inquiry. There will be resource implications involved in keeping additional material. We expect close media scrutiny, including of the FCO's handling of cases relating to former FCO staff. We are working on a new record management system as part of Technology Overhaul. In the meantime, we are simplifying the process of registering documents to help Departments meet the FCO's obligations under the Public Records Act. Simon Fraser 6