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The Foreign Office was today heavily criticised for losing millions of pounds of taxpayers' cash in property deals designed to save money.
The Foreign and Commonwealth Office annual report for 2003-4 cited the worst example as being in New York, where plans to move the consul general from a ?12m property and save ?6m had instead resulted in a loss of almost ?400,000.
Published today by the House of Commons foreign affairs committee, the report raises "grave concerns" about the "asset recycling programme" brought in by the Treasury in 1998. The programme requires the sale of embassies and other properties abroad to fund investment in new buildings and computer systems.
A year ago, the cross-party committee warned that the programme could result in valuable buildings being sold cheaply in order to meet targets, and that the Foreign Office would be left vulnerable to fluctuations in exchange rates and house prices.
In the New York case, the Foreign Office decided in June 2001 that the consul general's house was too large. It had planned to sell the property for around ?12.2m and buy a more appropriate residence for around ?6.3m.
However, the New York housing market slumped following the September 11 terrorist attacks, which severely weakened the dollar. The Foreign Office went ahead and paid the price it had offered for the replacement property, and the consul general subsequently moved into his new home at a total cost of ?6.48m.
By the time the original residence was sold, however, it only fetched ?6.32m - an eventual loss of ?380,000. While the Foreign Office could not have foreseen the September 11 attacks, its decision to proceed with the exchange of contracts on the new property was denounced by the committee as "utterly bizarre" and "reprehensible".
"This transaction was undertaken for the purpose of realising a gain of approximately ?6m, and has instead resulted in the loss of ?380,000 and the replacement of a highly prestigious property by an inferior one," the report said.
A potential profit of at least ?4m was also lost in Dublin after the Foreign Office decided to sell the UK ambassador's residence at Glencairn. The estate and its 34 acres of grounds were sold for ?24.3m in 1999 for security and operational reasons.
The following year, a property called Marlay Grange was bought for ?6.2m, and a further ?2.8m was budgeted for security and refurbishment.
Following the Good Friday agreement, security considerations became less of an issue and a decision was made to buy Glencairn back, but without its grounds. The purchase cost ?7m, but the value of Marlay Grange had meanwhile dropped to ?4.3m and, by that time, ?680,000 had already been spent on renovations.
Sir Michael Jay, the permanent under secretary at the Foreign Office and the head of the diplomatic service, told the committee that the Dublin deals had resulted in a net gain of ?13m. However, the report found that the Glencairn grounds alone could have been sold for ?17m in 1999.
"The [Foreign Office's] claimed net gain of ?13m from its Dublin property transactions should more accurately have been described as a net gain of at least ?17m being reduced by ?4m as a result of the department's mistaken decision to sell, only to reacquire, the Glencairn residence and to purchase, only to sell, Marlay Grange," it said.
The committee also described Foreign Office attempts to prevent MPs from scrutinising its deals as "utterly indefensible".
"We conclude that serious mistakes were made during the sale and purchase of residences in Dublin and New York, and should not have occurred," it said. "Such incidents serve to underline the importance of effective scrutiny of the Foreign Office's property transactions by parliament."
Other concerns raised in the report included the ?120m in savings demanded from the Foreign Office over the next three years in the chancellor's July spending review.
The committee also asked the Treasury to fund additional security measures in embassies and high commissions following the death of consul general Roger Short in an attack on the Istanbul consulate last year.
"The efficiency savings ... will place a considerable strain upon the Foreign Office's operations in coming years," the report warned. "Given the [Foreign Office's] significant fixed costs, people-intensive nature and the increasing demands and expectations being placed upon it, we fear that efficiency savings will effectively mean cuts in programme budgets."
The British Council, the body charged with promoting Britain around the world, was criticised in the report over its new logo. Four pale blue dots on a white background - intended to represent the four countries of the UK - have replaced 49 dots arranged to form the Union Jack.
Harking back to British Airways' decision to remove the Union Jack from its planes' tails, the committee said: "We are concerned that the British Council may be making the same mistake as British Airways in underplaying its Britishness.
"The Union Flag is the most well known and widely recognised symbol of Britain and, as British Airways belatedly realised, it can be presented as part of a modern and dynamic corporate image."
A spokesman for the council rejected the charge, insisting: "Promoting Britain abroad is not about logos ... having the word British in our name is surely a pretty upfront and strong indication of who we represent."
He added that the new logo was intended "to appeal directly to young people abroad who would be attracted to a creative image".
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