MPs blast 'ludicrous' decision on currency

A sharp fall in the value of sterling had caused a 13 per cent drop in the Department's core purchasing power since the system was axed in 2007, the Commons Foreign Affairs Committee found, sparking cuts in embassies and postings around the world,

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

The influential cross-party committee said the financial constraints under which the Foreign and Commonwealth Office was now operating were "unacceptably disrupting and curtailing" its work.

"We cannot see that it remains credible to regard the costs of currency fluctuations as predictable ones which the FCO might reasonably be expected to absorb," the committee said in its report.

"The cuts that the FCO is making at its overseas posts represent a serious reputational risk to the department and the UK, and thus a threat to the FCO's effectiveness," it said.

Earlier this month the Foreign Office asked the Treasury for an "urgent" cash injection to fill a nearly 135m budget shortfall.