Weak pound hits FCO

Foreign Office programmes and diplomatic posts may be under threat after it was revealed that the department faces a budget shortfall of £110m due to the recent depreciation of the pound.

But Foreign Minister Chris Bryant assured Parliament the budget deficit would not affect funding for programmes to combat terrorism, which will see a 3 per cent increase in spending, from £36.9m this year to £38m next year.

Opposition MPs also pointed to an internal FCO memo stating that the gap in funding could not be bridged by “salami slicing” and that some diplomatic posts may be forced to close after the election.

The FCO’s budget was, until recently, protected against currency fluctuations but the Treasury withdrew these hedging arrangements in late 2007. Mr Bryant admitted to fellow MPs that this was “a problem” and said the FCO was in discussions with the Treasury.

Meanwhile, the strengthening of the euro against sterling has eased pressure on some EU embassy budgets – and diplomats from these missions have also enjoyed a welcome pay rise, said one EU diplomat.

But embassies being paid in dollars have not benefited due to a similar weakening in the dollar.

For some missions, the windfalls from favourable currency fluctuations have been balanced out by budget cuts: “We have been told to do more with less,” said one Ambassador.