The Foreign, Commonwealth and Development Office needs a new model of funding in next year's spending review to ensure it can continue to maintain its estate portfolio across the world and not cut back services, the department’s permanent secretary has said.
Sir Philip Barton told MPs the current model of using capital receipts from selling assets will only last until the end of the 2026-27 financial year as there are no more embassies that can realistically be sold for significant sums.
The FCDO has raised around £1.1bn from sales of embassy buildings in Bangkok and Tokyo in the last six years.
Speaking at the Foreign Affairs Committee on Monday, Barton said: “We think we’re near the end of the funding model – we don't think there are very significant assets as there were in Tokyo and Bangkok that we could realise to fund future capital [spending]. So we think we need, in the second phase of the SR, a more consistent capital funding stream from the Treasury.”
Barton said the department needs to have a “proper grown-up conversation” with the Treasury about how much funding is needed to “maintain the sort of presence that ministers choose to have as the UK's international platform”.
The National Audit Office said in a recent update on its research into the FCDO’s overseas estate that the FCDO had estimated in December 2023 that its estate maintenance requirements would cost around £250m a year. When asked about this figure Barton said he didn’t “recognise” this figure.
Following up on this, Tim Jones, the FCDO’s finance director, told the committee the department is currently spending “in the relatively low hundreds of millions of pounds” of asset receipts in total on estates work each year.
Once the department has run out of capital receipts, Jones said he expects the department to move to a “world of more annualised budget plans”.
He added: “But we have yet to see from the Treasury what the overall approach is to capital infrastructure over the second phase of the spending review because it has hasn’t yet launched.”
Asked if there were any assets that the FCDO might consider selling if the Treasury does not agree to provide more funding, Barton said: “I don't think there are significant assets which we’d ever contemplate selling. So I think we're coming towards the end of that as a way of funding our capital requirements overseas, and obviously in the end its for ministers to decide. But I can't personally see a world where that works going forwards.”
Explaining how he came to this conclusion, Barton said the FCDO has reviewed its estate and got external experts to carry out independent analysis and not found any assets where there is “big discrepancy between the actual realisable cash value” of a location and the value the government gets from the building.
Asked when the department might reach a cliff edge point where it has to reduce its provision of services if the Treasury does not provide more funding, Barton said: “I think there are some tough, tough choices ahead for the funding envelope. I worry that we've for many years now stretched the elastic. I imagine a lot of my predecessors felt the same. So I'm a bit cautious about knowing exactly when it will snap. But I think there are limits to how much further we can go without making some more significant choices about our global network and our global footprint.”
Barton, who announced earlier this month that he plans to step down in January, also told the committee that he would stay on until a successor is found.