Foreign Office calls for £135m cash injection

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The Foreign Office has asked the Treasury for an "urgent" cash injection to help fill a nearly £135 million budget shortfall as the value of the pound slumps, it was revealed today.

A row broke out over the department's funding earlier this year when it was claimed that counter-terror projects and embassies were being hit by currency fluctuations.

The Tories accused the Government of undermining Britain's global interests by scrapping a special fund that provided insulation from movements in the pound in 2007.

In a written statement to MPs today, Foreign Secretary David Miliband said: "Parliamentary approval for additional resources of £134,619,000 has been sought in the 2009/10 spring supplementary estimate for the Foreign and Commonwealth Office.

"Pending that approval, urgent expenditure estimated at £90,000,000 will be met by repayable cash advances from the Contingencies Fund."

The injection from the Treasury was required to "cover ongoing operational costs such as the payment of suppliers" until Parliament approved extra funds later this month, he added.

A Foreign office spokeswoman insisted the request was "routine".

"It is normal for Government departments to ask for a cash advance if funds from Parliament are delayed," she said.

But sources accepted that budgets were being affected by currency fluctuations. Half the money spent by the department is in foreign currency.

A Foreign Office spokeswoman added: "The broader resources issue was addressed through a range of measures announced by the Foreign Secretary on February 10."

Mr Miliband told MPs last month that he had negotiated a package with Chancellor Alistair Darling to "manage the impact on the purchasing power of its budget" caused by the changes in the value of sterling.

The agreement included an additional £25 million from asset sales to be recycled into the FCO budget, £35 million from Treasury reserves and £15 million in "end-of-year flexibility".

The British Council and BBC World Service, which between them account for more than 20% of the £2.1 billion annual Foreign Office budget, would also "make a contribution" alongside other cost savings, Mr Miliband said.

The latest funding moves are separate from the previous deal with the Treasury, which related to the 2010/11 budget rather than this financial year.

Unveiling the package last month, Mr Miliband said it would "substantially offset the foreign exchange pressures on the FCO budget".

Mr Miliband insisted he was "confident" the changes would ensure the UK retained "a world-class and comprehensive diplomatic service for the UK" and foreign policy priorities, including counter-terrorism "will continue to be funded effectively".

The pound's value has fallen significantly against other major currencies since 2007. It has dropped from 1.50 euros to around 1.10, and is trading at around 1.50 against the US dollar.