Foreign Office permanent secretary Sir Simon McDonald has set out plans for a fresh review of the department following chancellor George Osborne's decision to protect its spending.
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. Like all other unprotected departments, it was asked to draw up plans for a 25-40% reduction ahead of last year's Spending Review – prompting warnings from MPs about its ability to deliver.
But the Foreign Office was spared the axe when Osborne announced the final settlements for the next four years, with its resource budget held at £1bn until at least 2019-20. As part of the deal, it has also promised to find £53m-worth of administrative savings over that period.
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Writing on GOV.UK, McDonald – previously Britain's top diplomat in Germany before taking over from Sir Simon Fraser last summer – said the final settlement with the Treasury had been "better than expected" and had left the FCO in a "better place to plan".
But the Foreign Office must, he said "play its part in balancing the books by finding further savings in the way government works overseas".
The department has now launched review of its operations, dubbed "Future FCO", which will report back with its preliminary findings in mid-March before a final presentation to foreign secretary Philip Hammond by Easter.
Setting out the thinking behind the "broad" review, which McDonald said would draw on the input of "hundreds" of FCO staff, the Foreign Office perm sec said he wanted to ensure the department became "more expert, more flexible and more forthright" – and promised that the new review's recommendations would not be left to gather dust.
"We have to approach the task with humility," he said. "In their early days, the review team dug out (the many) previous reviews the FCO has undertaken. The biggest achieved their biggest objectives (e.g. combining the Foreign Office and the Commonwealth Office in 1968), but many ideas recommended by multiple reviews have not been implemented.
"Every review has recommended more foreign, less office (yet only a third of our UK-based diplomats are overseas). Every review has asked us to be more flexible and to reduce layers. It’s my job to ensure that this time is different."
The Foreign Office published its Single Departmental Plan last week, signalling five areas where the department believes it can make efficiency savings over the course of the parliament.
According to the document, the FCO will seek to cut the cost of key commercial contracts as they come up for renewal, and try to benefit from economies of scale across its global network.
It will also seek to bear down on travel costs; make more use of "cross-Whitehall expert services"; and press on with the One Government Overseas programme, which was launched in the last parliament and brings all UK government overseas staff – regardless of their department – into single buildings run by the FCO, which also takes charge of back office operations.
The Spending Review pledged to open two new embassy buildings in Abuja and Budapest, although the FCO is also expected to contribute £75m-worth of land and property disposals as part of the wider, government-wide drive to cut the number of buildings occupied by departments.
The FCO currently has 267 overseas posts in 168 countries and territories, according to its latest annual report. It employs approximately 4,400 UK-based staff, down from around 4,800 in 2010, with a further 9,200 local staff in its pay around the world.