"The British Council is a disgracefully unsung and under-utilised national asset. No one else has anything quite like it. It is a highly professional agent for the best of British cultural, educational, technical and scientific life. It increases the number of foreign students at British institutions and opens doors for business and the professions. It is also shamefully underfunded—a victim of the British tendency to exclude value judgments from our decisions on public spending priorities."

Chris Patten, East and West, 1998

INTRODUCTION

  1. The British Council is a unique national asset. However, it is unable to achieve its potential to serve UK interests. Despite a modest uplift to its grant-in-aid following last year's Comprehensive Spending Review (CSR), the Council remains over-stretched. Its resources are barely adequate to support its existing programmes. As a result, the quality of the Council's services and the impact of its work are under threat. Furthermore, given the increasing importance of public diplomacy and the growing demand for the services the Council provides, the UK is missing an opportunity to exploit the Council's potential for securing British interests worldwide at the beginning of the next century.

  2. This paper examines the changing global context in which the Council operates and the increasingly important role of public diplomacy in international relations. It outlines the Council's response to these developments and the foreign policy priorities of the current and previous Governments. It considers the relationship between the Council's grant-funded work and its revenue-earning activities, and reviews the implications of the 1998 CSR settlement for the funding of the Council's operations over the next three years. The paper identifies areas where resource constraints limit the Council's effectiveness and concludes by highlighting opportunities for additional funding to transform the Council's ability to make an impact for the UK.

  3. Attached to the paper are three Annexes. The first summarises the Council's purpose and strategic objectives. The second provides examples of recent activities in each of the Council's core areas to illustrate the range of its grant-funded programmes. The third is a statistical appendix giving details of the Council's income and expenditure, and other key data on the Council's resources.

THE BRITISH COUNCIL

  4. The Council is the UK's principal agency for cultural relations with other countries. It was established in 1934, has a Royal Charter and is registered as a charity. Its purpose is to enhance the reputation of the UK as a valued partner in the world. The Council achieves its purpose by creating opportunity for people worldwide through programmes in education, English language teaching, libraries and information, the arts, science and technology, and governance and human rights. It has a network of 230 offices and teaching centres in 109 countries. The Council receives a grant-in-aid from the FCO, which in 1998-99 will total £127.3 million. It also earns income from teaching English, conducting British examinations, and managing development and training contracts on behalf of the British government, the European Union and other agencies. The Council's total turnover this year will amount to approximately £415.9. million.

THE ROLE OF THE BRITISH COUNCIL

The changing world order and public diplomacy

  5. Globalisation, moves towards democracy and more open societies, greater mobility of people and ideas, and the opportunities provided by communications technology, combine to create a new world order to which diplomacy is having to adapt. Public diplomacy, the communication of our interests and values beyond governments to foreign publics, is assuming greater importance. It is the Heineken factor in international relations, reaching people which conventional diplomacy cannot normally reach. Government to government contacts will remain the core of the UK's diplomatic effort. However, as public opinion becomes increasingly influential in shaping government policy (not just in the industrialised world but in less developed countries also) there is a need to find ways of making friends for the UK and influencing people among a much wider section of the population in other countries.

  6. The Council is ideally placed to perform this role. It has more than 60 years experience in cultural relations. It has a track record of working with both government and non-governmental organisations, with the private and public sector, and with voluntary bodies. Above all, however, it is a people-to-people organisation. It is seen as an honest broker and as a trusted intermediary, building understanding and establishing partnerships based on the principle of mutual benefit. In a world characterised by economic uncertainty and political instability, in which so much is out of joint, the UK's international interests are best served by precisely the sort of relationship which the Council is able to establish with key individuals and groups in other countries.

The Council's analogues

  7. The UK's continuing influence in world affairs cannot be taken for granted. There is a need to work at maintaining and strengthening UK influence, and public diplomacy has a vital role to play in this process. Our European partners recognise the value of cultural relations work as a means of extending their influence. France and Germany, for example, spend nearly twice as much as the UK on cultural relations and in both cases, the government's contribution accounts for approximately 90 per cent of total expenditure (see Annex C table 12 for more details). Policy makers and their advisers in the United States are also keenly aware of the significance of public diplomacy, particularly given the impact of new technology. A recent report by the United States Advisory Commission on Public Diplomacy noted that "The information age is increasing the power of information and revolutionising how America communicates with the world . . . This is good news for America. We have immense edge in a world where people and information matter more . . . To ignore this edge would be to waste an incredible opportunity. To exploit this edge requires a complete re-thinking of US foreign affairs agencies."

  8. It is ironic that, while the Council is generally recognised to be the example which other countries seek to follow (the Japan Foundation, for instance, is modelled closely on the Council), the UK spends less on cultural relations, both in cash terms and as a percentage of its foreign affairs budget, than any of its major analogues. This could be seen as a testimony to the Council's efficiency. However, we believe the UK is passing up the opportunity to capitalise on a unique asset.

The benefits of cultural relations

   9. Cultural relations bring direct benefits to the UK. The importance of international students, both to the schools and colleges where they study and to the economy as a whole, is now widely recognised. It is estimated, for example, that international higher education students bring £1.5 billion a year to the UK in terms of fees and local economic activity. English language students spend a further £1 billion. While the UK's standing in some sectors may have declined, the aspects of the UK which form the core of the Council's work—higher education, the arts, scientific research to name just three—are still highly regarded internationally. They are perceived as areas in which the UK excels and the demand for contact with UK academics, artists and scientists continues to grow.

  10. Cultural relations also play a crucial role in creating a positive climate overseas for UK trade and inward investment, and in building a favourable environment in which other UK interests can be pursued. It does this by challenging false or outmoded perceptions of the UK, and by encouraging the sharing of skills and experience with other countries. It is not a quick fix, but a long-term investment in the UK's future.

THE FUNDING OF THE BRITISH COUNCIL

Efficiency and value-for-money

  11. The Council's use of public funds has been repeatedly examined and re-examined. During the past eight years, the Council has been subjected to no fewer than six reviews, ranging from a National Audit Office study in 1991 to the latest Quinquennial Review, which is due to be completed in February 1999. Each has endorsed the Council's role in promoting UK interests through cultural relations and commended its willingness to adapt to meet changing government priorities. Most too have recognised the Council's excellent track record on cutting costs, reducing overheads and improving efficiency. Delivering services which meet demanding quality standards and represent outstanding value-for-money is central to the Council's success both as a grant-funded organisation and as a provider of services to fee-paying clients and customers.

  12. The Council has undergone a transformation over the past 10 years despite fluctuations in its funding. It has responded positively to changing government priorities, it has developed new services and new ways of working, and its culture as an organisation has become more entrepreneurial. Above all, it has become adept at doing more with less. However, in doing so, it has become more and more stretched.

Cuts to the Council's grant-in-aid

  13. Five years ago the Council's combined grants-in-aid from the FCO and the ODA (now DFID) was worth 13.7 per cent more in real terms (i.e., after allowing for inflation) than it is now (£147.4 million in 1994-95 compared with £127.3 million in 1998-99—see Annex C table 2). However, following the 1995 Public Expenditure Survey (PES) round, the Council was faced with the prospect of a 16 per cent cut in its grants-in-aid. Representations were made to the government pointing out that a cut of this size would lead to a substantial reduction in Council programmes and the closure of a swathe of Council operations around the world, with damaging consequences for UK interests. The government eventually agreed to reduce the cut to nine per cent and gave assurances that the Council's grants-in-aid would be kept level for the next two years. The FCO also agreed to contribute £7.2 million towards the early retirement and redundancy costs of the Council's re-structuring programme. This focused primarily on the Council's operations in the UK and involved a 26 per cent reduction in UK posts, the move of the Council's Manchester headquarters to alternative, smaller premises and cuts in central costs. Cuts were also made overseas, with local staff redundancies in many countries.

  14. The key condition that the Government attached to its agreement to mitigate the effects of the cuts was that the Council should preserve its overseas network. The Government made it clear that maintaining the Council's global presence was its overriding priority. Proposals to withdraw from any country, therefore, were discouraged. Following last year's Comprehensive Spending Review, this condition has been relaxed slightly, but the strategic guidance issued to the Council by the FCO is unambiguous about the requirement for the Council to remain global.

Responding to government priorities

  15. The Council currently has directorates in 109 countries and, given the right circumstances (including the availability of funding), would ideally establish new operations in another four or five countries where there is a demand for its services and opportunities to promote UK interests. By comparison, in 1979 the Council had offices in 79 countries. In 20 years, the size of the Council's overseas network, measured by the number of countries in which it operates, has increased by nearly 40 per cent. The value of its grant-in-aid, however, has gone up by just 10 per cent in real terms over the same period.

  16. The trend of doing more with less is also reflected in the scope of the Council's programmes. In recent years, the Council has developed its work in several new fields in response to government priorities. It has extended its traditional involvement in education information and the promotion of UK higher education to include support for education and training exports to key overseas markets. It has also developed its capability to support exports of the UK's creative industries in areas such as design, fashion and film.

  17. Another significant growth area has been the Council's work in human rights. The Council has always been active in the field of governance and law, and it has built on its contacts and reputation as a trusted partner among NGOs overseas to establish a key role in the development and implementation of human rights programmes. Some of this work is funded from the Council's grant-in-aid. But the Council is also responsible for managing over 40 per cent of the projects funded by the FCO's Human Rights Fund.

Income from paid services and other sources

  18. The diversification of the Council's grant-funded programmes has been accompanied by the growth of its paid services and income from other sources (see Annex C table 4). In 1979-80, government grants accounted for 90 per cent of the Council's turnover; this year they account for less than a third. This change is due primarily to the expansion of the Council's English teaching and examination services and, until last year, the growth of its project management services on behalf of DFID and other development agencies. In 1998-99, 46 per cent of the Council's turnover is expected to come from non-government sources—a total of £190 million. This figure, by definition, only includes money which passes through the Council's account. It does not reflect the very substantial contribution made to Council programmes by UK and overseas partners through cost-sharing and sponsorship in kind. In one area alone—the arts—it is estimated that sponsorship in kind and matching funds from partners amounted to £37 million.

  19. The Council's paid services, whether teaching English or managing development projects, are not undertaken for their own sake or simply to generate revenue. They contribute to the achievement of the Council's overall purpose and objectives, and are an integral part of its overseas operations. They enable the Council to reach a wider audience than would be possible solely with its grant-funded programmes, and provide additional impact and profile for the UK abroad. They represent, in effect, a "free good" to the Government.

  20. It would be misleading, however, to suggest that paid services might replace the Council's grant-funded programmes. Not all activities lend themselves to full-cost recovery. Many which are central to the Council's work of promoting UK interests through cultural relations require either part-funding, or in exceptional circumstances full funding, if they are to get off the ground or are to reach the right audiences. It is also important for the Council to protect its reputation. In many countries, any suggestion that the Council is extracting profits from cultural relations would be unacceptable to the host government and jeopardise the Council's status.

Paid services and market forces

  21. Paid services, of course, are subject to market forces, ranging from macro-economic trends to shifts in government policy. Both can have a devastating impact on the Council's operations on a particular country or region. Last year saw two examples of the way in which external factors impacted on the Council's paid services and resulted in rapid changes in levels of activity. The first relates to the Council's teaching centres and the second to its project management work on behalf of DFID.

  22. In 1997-98, the combination of the strong pound and global economic uncertainty resulted in a sharp decline in the sterling value of income from the Council's teaching centres. In Spain, for example, where the Council has its largest English teaching operation, sterling income fell by 25 per cent following the strengthening of the pound against the peseta. The impact of the strong pound was most noticeable in East Asia, where the collapse of local currencies was accompanied by a marked reduction in demand for courses, leading to a contraction of teaching activity in countries such as Thailand and Malaysia. Overall, the sterling value of income from teaching centres was £6.4 million below target in 1997-98, and this year income will be affected by developments in the Middle East, especially in Syria and Yemen.

  23. In the same year, the Council experienced a dramatic fall in the value of new contracts which it was awarded for the management of DFID-funded development projects. Over 12 months, the Council's portfolio of new contracts shrank by 70 per cent. This decline was primarily the result of changes in policy announced in the White paper Eliminating World Poverty: A Challenge for the 21st Century—in particular, a move away from the use of stand-alone projects as a delivery mechanisms for overseas aid towards budgetary support and sector development programmes. The reduction in demand for the Council's project management services will lead to the loss of some 30 jobs in Manchester in 1999-2000, and a similar number in 2000-01. Overseas, the cuts are likely to be equally severe, with serious consequences for Council operations in sub-Saharan Africa and South Asia.

  24. These recent examples of the exposure of the Council's paid services to market forces and other external factors demonstrate the importance of continued government funding to maintaining a stable, long-term Council presence around the world.

The 1998 Comprehensive Spending Review

  25. The cuts to the grant-in-aid in 1996-97 and 1997-98 meant that the outcome of last year's Comprehensive Spending Review was crucial to the Council's future. The Council, as part of the FCO's submission to the Review, put forward proposals for an additional £14 million recurrent funding for operational priorities and a further £24 million non-recurrent funding for investment in buildings and IT over three years. In the weeks leading up to the publication of the White Paper, there was speculation that the FCO's budget, including funding for the Council, would be reduced by 5 per cent, or at best held level in cash terms for three years. However, when the White Paper appeared, it emerged that the grant-in-aid had not been cut, but had been given a modest increase in real terms. The Council's settlement was similar in percentage terms to that awarded to the FCO which, also as part of the CSR outcome, became the Council's sole sponsoring department following the transfer of the DFID grant-in-aid to the FCO's budget. The settlement included an uplift for inflation, based on Treasury inflation indices for the three years (2.75 per cent in 1999-2000 and 2.5 per cent for 2000-01 to 2001-02), together with an additional £2.1 million in 1999-2000, £1.9 million in 2000-01 and £1.5 million 2001-02. The Council's grant-in-aid for the next three years, therefore will be as follows:

1999-00: £133.1 million

2000-01: £136.1 million

2001-02: £138.9 million

  26. As can be seen from Annex C table 2, the CSR settlement gives the Council a 2 per cent increase in real terms for 1999-00. Thereafter, the value of the grant-in-aid is expected to keep pace with inflation in 2000-01, before dipping slightly in 2001-02.

  27. The three year settlement was welcomed by the Council. It arrests the continuous decline in the grant-in-aid since 1994-95 and offers a more stable basis for forward planning. Nevertheless, in a message to staff the Director-General warned that the settlement "still leaves the Council very stretched" and needing "to look hard at its priorities". Six months later, as the Council begins work on its Corporate Plan and detailed planning for the next three years, that message remains valid, if not more so.

THE BRITISH COUNCIL'S REVIEW OF PURPOSE AND STRATEGY

  28. Concern about being over-extended and stretched too thinly was a major factor behind the review of the Council's purpose and strategy, completed in November last year. A key theme of the new strategy is sharpening the focus of the Council's work. The emphasis on focus recognises that, in order to improve the quality of its services and increase the impact of its programmes, the Council has to be more selective in what it does and where it spends its resources. In future, the Council will concentrate on six core subjects: education, English language teaching, libraries and information, the arts, science and technology, and governance and human rights. The Council's capability in some of these areas will be strengthened, while funding for programmes in lower priority areas will be reduced or phased out.

  29. Following the review, the Council has developed a set of strategic objectives for its work (see Annex A). These objectives relate to the Council's overall purpose of enhancing the UK's reputation as a valued partner in the world, but are also linked explicitly to the FCO's objectives as required under the government's new accounting and budgeting arrangements. The objectives focus on the projection of the UK's creativity, cultural diversity and recent achievements; support for educational exports; enhancing the teaching of English; assisting reform and sustainable development; strengthening the UK's ties with Europe; and encouraging a greater international awareness in the UK.

  30. In addition, the Council has agreed geographical priorities for its work with the FCO. Using a range of criteria, including the Council's ability to make an impact in a country and the need to change perceptions of the UK, these group the countries in which the Council operates into four categories. The first group includes large scale operations in major countries providing a full range of Council services, while the fourth group includes much smaller operations managing very tightly focused programmes. From 1999-00 onwards, the geographical priorities will be used to inform decisions about the allocation of the grant-in-aid to individual countries, about the opening and closure of offices, and about investment in buildings' information technology and staff.

  31. The strategy is essentially a framework to enable the Council to live within its means. It is pragmatic rather than visionary, and is designed to ensure that the Council makes the best use of the resources available to it. However, it is not a strategy for exploiting the full potential of cultural relations work.

FUNDING ISSUES

  32. The resource constraints under which the Council operates are apparent in the underfunding of key overseas operations, the lack of adequate investment in the Council's IT infrastructure and premises overseas, and the increasingly onerous demands being made on its staff. Not only is the impact of the Council's work and the quality of its services under threat; its ability to manage risk and to cope with emergencies has also been substantially reduced.

Geographical spread

  33. Successive governments have argued that it is in the UK's strategic interests for the Council to remain global. However, it is becoming increasingly difficult for the Council to maintain its overseas network. The scope for redeployments between countries has been exploited as far as possible, with operations in Western Europe bearing the brunt of resource movements (see paragraph 47 below), but the Council's room for manoeuvre is now very limited. Over 60 per cent of the grant-in-aid is already spent in the Council's top priority countries and there is little money available for redistribution from low to high priority directorates. Similarly, if the Council is to take advantage of opportunities to develop new operations (e.g., Iran) or expand its outreach in key countries (e.g., China), the resources required will need to be found from existing budgets, effectively robbing Peter to pay Paul.

Investment

  34. Continuous pressure on the Council's budget has led to under-investment in the infrastructure needed to support its operations, especially buildings and information technology. When funding is tight, capital expenditure has been squeezed in order to avoid cuts in programmes. As a result, the Council's infrastructure is now barely adequate to meet the demands placed on it and in many countries is an impediment to increasing impact and improving the quality of Council services.

  35. New or refurbished buildings such as those in Hong Kong or Prague demonstrate the way in which the Council's overseas estate can be used to promote the best of British design and serve as a showcase for contemporary Britain. These, however, are the exception rather than the rule. Many Council directorates (for example, in Kuala Lumpur) are housed in premises which urgently require upgrading and modernisation, which do not meet changing operational needs and no longer project an appropriate image of the UK.

  36. The Council's IT provisions is equally hampered by inadequate funding. Plans to develop a global technical infrastructure have had to be scaled down sharply because of other demands on budgets. A full upgrade of the Council's IT infrastructure to provide a common platform and reliable communications worldwide (similar to that being implemented by the FCO) would cost in the region of £50 million. However, due to resource constraints, the Council has had to adopt a minimalist approach, with a budget of £17.5 million over three years. This will reduce the risk of Year 2000 non-compliance, but it will not enable all directorates to use a common IT platform. As a result, the scope for savings on running costs will be reduced and the Council will be unable to exploit fully the opportunities presented by IT to reach wider audiences and to devleop new services.

  37. In 1997, as part of the Comprehensive Spending Review, the Council submitted proposals for an additional £24 million non-recurrent funding over three years for investment in buildings and it—essentially as a catching up exercise. However, this bid was unsuccessful and investment in these areas will remain at a level which will avert immediate crises, but do little to underpin the Council's long-term strategy.

Staffing

  38. Council staff, both overseas and in the UK, have been under considerable pressure during the past three years. Following the cuts in 1996-97, 285 staff in the UK took early retirement or left on redundancy terms, while a considerable number of local staff overseas also lost their jobs. Those remaining have had to cope with greatly increased workloads. Surprisingly perhaps, staff retain a very strong sense of commitment to the Council and its work. However, there is a limit to how far such commitment can be pushed.

  39. During the past seven years, the number of UK-based staff overseas has shrunk from 300 to 230—a level approximately one-tenth of the FCO's UK-based staff establishment. In 37 countries, the director is the only UK-based member of staff and in more than 10 offices the senior manager is a local appointment. Throughout the Council's overseas network local staff have assumed a much greater role in the management of Council operations. However, investment in development and training for local staff has lagged behind and in some areas is woefully inadequate, particularly given the additional responsibilities which they now have.

  40. The picture for UK staff is much the same. As the Council moves into new areas of work and exploits new ways of working, there is a need to develop the skills and competencies of its staff. Funds for development and training, however, have not kept pace with the demands made on them. Even core requirements, such as language training, are affected. The 1998 Quinquennial Review, for example, comments adversely on the inadequate provision for language training in the Council.

  41. This problem is symptomatic of the tightness of staffing budgets. For example, the lack of "floaters" who are able to provide for unexpected absences or undertake temporary assignments overseas puts considerable pressure on staff and seriously constrains the Council's ability to respond to rapid change. Inevitably, the quality of the Council's work and its reputation suffers.

OPPORTUNITIES FOR ADDITIONAL FUNDING

  42. The fact that the Council's resources are already spread very thinly means that there are a number of key areas in which it is working where significant opportunities for increasing UK impact cannot be exploited for lack of funding. Some of these opportunities are highlighted in following paragraphs.

Increasing the UK's share of the international student market

  43. The contribution which international students make to the UK economy has already been flagged (see paragraph 9 above). The UK has about a quarter of the international market for higher education and over two-thirds of the market for English language teaching. But it faces aggressive competition from other countries, especially the USA, Australia and Canada. In the short-term, demand from a number of key markets in East Asia and Latin America is expected to drop in response to continuing economic volatility and the collapse of local currencies. However, it is estimated that the global flow of higher education students will double to 2.8 million by 2010. It is crucial that the UK maintains and, as far as possible, increases its share of this market.

  44. Following his visit to China last year, where he met the Mayor of Shanghai (a former Chevening scholar), the Prime Minister has indicated his recognition of the long-term benefits international students bring to the UK by commissioning a strategy for attracting more international students to this country. During the past few months, the Council has played a key role alongside the FCO, the DTI, the DfEE and other government departments in developing the strategy and a report containing the working group's recommendations has been submitted to the Prime Minister.

  45. The expectation is that the funding needed to take forward the report's recommendations will be found from within existing budgets. For the next couple of years, given the commitments made by each of the organisations involved (including the Council), this would appear to be feasible. However, if the strategy is to succeed and the UK is to remain a major player in the international student market, short-term one-off funding will not be enough. A significant injection of additional, recurrent funds will be required to fund a concerted, long-term marketing campaign. UK educational institutions will be expected to contribute their share, but there will remain a need for major promotional initiatives, for the generic promotion of British education and for the enhancement of marketing and quality control standards—a role which the Council, with its experience of working with the UK education sector through its Education Counselling Service, is ideally placed to undertake.

Strengthening the UK's role in Europe

  46. Relations with Europe head the UK foreign policy agenda. The government is committed to a positive and constructive engagement with Europe and the Prime Minister has highlighted the priority attached to "intensifying our relations with other EU member states". Most of the major issues which the UK faces over the next 5-10 years stem from its membership of the European Union—enlargement of the EU, economic and monetary union, institutional reform, etc. The EU already accounts for 60 per cent of the UK's exports and relations with the EU will continue to dominate both domestic and foreign policy. Paradoxically, however, the Council's funding for its work in Europe has been continually eroded over the past decade.

  47. The Council's directorates in the European Union range from the small-scale operations such as Denmark and Finland, which have local country directors and programme budgets of £100k, to substantial operations such as France and Germany, which have several UK-based staff and programme budgets of £800k-£1.2 million. Directorates at both ends of the spectrum, however, have suffered repeated cuts in their funding as the Council has sought to identify resources to develop new operations or strengthen high priority programmes in other parts of the world including East Asia, Latin America, Russia and the Caspian Basin. Since 1993-94, for example, grant-in-aid funding for the council's work in France and Germany has been reduced by 45 per cent in real terms, while its programmes in Italy and the Netherlands have been cut by 53 per cent and 60 per cent respectively. In some countries, budgets have been hollowed out to the extent that operations have been left on the threshold of viability and the Council's financial inputs to the activities with which it is associated are so small that partner organisations are beginning to question whether it is worth involving the Council. There is a serious risk of the Council, and UK interests with it, being marginalised.

  48. During the past couple of years, the Council has taken steps to focus and re-align its work in all the key EU member states. Through its European Series networking programme, and through bilateral conferences such as Pontignano, it has created a valuable and growing network of current and future leaders who understand the UK's standpoint. It has worked to showcase the UK's arts and creative industries to European promoters and to highlight the UK's scientific and technological achievements among influential scientific communities and the wider, informed public.

  49. The Council has an excellent track record of securing sponsorship and matching funds for its programmes. However, it can only persuade others to contribute if it is prepared to make a credible contribution itself. Western Europe still accounts for the largest share of the Council's grant-in-aid, but it is becoming increasingly difficult to sustain the range and impact of its programmes in the region on existing budgets. The Council is also unable to respond adequately to opportunities to develop pan-European activities and build partnerships with key EU institutions. In the longer term, therefore, the Council's ability to make an effective contribution to the promotion of UK interests in Europe will depend on significantly enhanced funding.

Assisting reform in Central and Eastern Europe

  50. During the past nine years, following the collapse of communism, the Council has played a key role in providing access to UK information, skills and experience in the countries of Central and Eastern Europe. It has used its grant-in-aid to support programmes in English language teaching, education, management, governance and civil society, and has been responsible for the management of projects worth nearly £110 million on behalf of the Know How Fund. It has also managed EU-funded technical assistance projects (for example, under the Phare programme).

  51. But KHF funding is coming to an end in Central Europe. EU funding is also changing its focus, with the Phare programme being used primarily as a tool to support accession issues. However, the reform agenda throughout Central and Eastern Europe is far from finished. In all EU accession countries, including those in the first wave, there is a crucial lack of administrative competence and institutional capacity, especially in the public sector. In areas such as education, key reform and management development issues remain to be addressed. There is also a need to strengthen civil society institutions and procedures, particularly through support for non-governmental and voluntary organisations.

  52. The UK has an impressive track record of collaboration in these areas. It has the considerable advantage of the English language. It has also gained a reputation for working in partnership with local organisations, for being responsive to local needs and for adopting pragmatic solutions to problems. There is a need to continue to nurture relationships with those who have benefited from the Know How Fund and to ensure that countries such as Poland, Hungary and the Czech Republic continue to look to the UK as the preferred partner for collaboration on reform issues.

  53. The Council has an outstanding range of contacts throughout Central and Eastern Europe—with government institutions, non-governmental organisations and the private sector. It also has an unparalleled network of offices, teaching centres and information centres in each country, enabling it to work in key regional as well as capital cities. However, the extent to which the Council, with its existing grant-in-aid, can respond to the demand for collaboration with UK institutions and support in areas such as education reform, public sector management and the development of civil society is limited. The UK, through the Council, has the opportunity to play a crucial role in assisting the reform process in the EU accession countries and to demonstrate its commitment to EU enlargement. But additional funding will be needed if this opportunity is to be fully exploited and the UK's long-term interests in the region secured.

Building partnerships with the developing Commonwealth

  54. The nature of the UK's relationship with developing countries in the Commonwealth is undergoing substantial change as a result of shifts in DFID policy. The first is the emphasis on poverty alleviation in the White paper Eliminating World Poverty: A Challenge for the 21st Century, which is expected to result in a disengagement from programmes which address broader development issues (for example, information provision and English language teaching). The second is a move away from training in the UK. The number of awards made available under Technical Co-operation Training has declined from 12,600 in 1990-91 to just over 2,000 this year—a drop of 85 per cent. As a result, there are now very few scholarships available for study in the UK for students from developing countries—a trend which exacerbates the change in the profile of international students in the UK since the introduction of full cost fees. The third change in policy is the move to budgetary support and sector development programmes. This has the laudable aim of delivering development assistance through recipient governments and local consultants, but for the Council it will mean a major reduction in its role in implementing DFID-funded development projects (see paragraph 23 above).

  55. Development policy is a matter for DFID. However, the effect of the changes in DFID policy on UK bilateral relations with many countries in Africa and South Asia, particularly with regard to opportunities for education and training, are of more general concern. The Council will not be able to plug the gap left by the loss of its DFID contract work with its existing grant-in-aid. Many operations in developing countries, especially in Africa, have very small grant-in-aid budgets. The overall level of Council activity in these countries, therefore, will reduce. Furthermore, as the income from DFID contract work declines, some contraction of the Council's network in this part of the world is inevitable.

  56. The UK has to decide whether it values its relations with the developing Commonwealth—whether these amount to more than just a flurry of interest around CHOGM and similar gatherings. Ties with the developing Commonwealth remain remarkably strong, despite the UK's increasing preoccupation with Europe. Although the economic prospects for much of Africa make depressing reading, the UK still has extensive trade and commercial interests in many countries (especially South Africa). The implosion of one or more countries could have significant economic, humanitarian and even security implications for neighbouring states, and for the UK itself. There is a case, therefore, for investing in the long term, along similar lines to the Council's involvement in Eastern Europe before the fall of communism.

  57. The Council is uniquely well-equipped to design and implement programmes aimed at strengthening governance and civil society in the developing Commonwealth in support of FCO and DFID objectives. It has worked in many African and South Asian countries for over 40 years and has an unparalleled network of contacts in government and non-governmental organisations. It is accepted as a trusted intermediary, and has demonstrated its capacity to develop sustainable and effective partnerships with civil society institutions. With additional grant-in-aid funds, it would be able to provide access to information, training for key individuals and a range of other activities designed to underpin the reform process and work towards a closer, mutually beneficial engagement between the developing Commonwealth and the UK.

Other opportunities

  58. There is a wide range of opportunities which the Council would be able to pursue with additional funding. In this paper there is no scope to outline them all, but they include major campaigns to change perceptions of the UK in key countries (along the lines of the newImages programme in Australia), enhanced promotion of the UK's creative industries, showcasing the UK's strengths in science and technology, expansion of the Council's regional outreach in China, and a substantially increased programme of work in human rights (as recommended by the Foreign Affairs Committee in its recent report on Foreign Policy and Human Rights).

CONCLUSION

  59. This paper has attempted to address the question of whether the resources of the British Council are "sufficient and appropriately deployed to enable the UK to maintain and develop its interests abroad". It has outlined some of the key issues affecting the funding of the Council and identified areas in which resource constraints are affecting the quality of its programmes and its ability to achieve impact. It has also provided examples of programmes where additional funding would enable the Council to make a significantly enhanced contribution to UK foreign policy objectives.

  60. Our contention is that the Council is a unique British asset which gives the UK a distinct competitive advantage. With public diplomacy playing an increasingly important role in international relations, the time has come to exploit that competitive advantage to the full.