Financial sustainability of the British Council

The British Council is struggling to balance its role as an instrument of UK soft power with the need to generate profits as a commercial enterprise. The British Council has always acted as a state-supported soft power organisation that also has a commercial arm generating profits. However, since the COVID-19 pandemic, the commercial organisation has struggled and the British Council recorded net losses of £184 million over the period 2020–21 to 2024–25. The FCDO provided an initial loan of £60 million in July 2020, and this loan has since grown to its current size of £197 million. This loan is on commercial terms, as the FCDO considers the British Council to be a commercial organisation. The British Council itself disagrees with this assessment, claiming that it acts as the best-known soft power organisation in the world on a grant budget that is relatively smaller than that received by comparator organisations in other countries. Efforts to secure the long-term financial sustainability of the British Council have been ongoing since its 2020 business plan, but there is still a lack of clarity over how the organisation’s business model can adapt and survive in a post-pandemic world. The British Council now has a turnaround plan, and as part of this intends to close its offices in nine countries and make significant headcount reductions, while aiming to grow its commercial revenues and maintain its contribution to UK soft power. In order for the British Council to be sustainable and effective, the FCDO and British Council must work together to agree a forward path for the organisation. recommendation a. Alongside their Treasury Minute response to this report, FCDO and the British Council should write to us to set out a positive vision for the British Council, including detail on: ii. where it will operate; iii. whether it will continue to have a commercial function; and iv. whether its commercial function should be structured as a subsidiary of the broader charity. 3 b. The FCDO has said that the British Council must adapt to survive, but it cannot do that without the FCDO’s full and practical support. The FCDO should consider and set out what more it can do to support the British Council and improve its soft power impact.

It is unacceptable that the British Council and FCDO took so long to reach an agreement on a long-term solution for restructuring the current loan of £197 million. FCDO and the British Council agreed the current fixed-term loan of £197 million in March 2024. It was apparent, however, from September 2024 at the latest that the British Council was not going to be able to repay the loan in March 2025, as per that loan agreement. Throughout 2025 and 2026 the two organisations have been in negotiations over revised terms for the loan, which has been extended twice and is now due to mature in September 2027. This delay has had tangible impacts on the British Council as it sought to implement its turnaround plan. One such impact was the year delay between the British Council’s sale of its Madrid School in April 2025, and FCDO giving permission for the British Council to invest the proceeds of the sale in its turnaround plan. As of July 2026, the overall principles of the loan negotiations had been agreed, with a 15-year repayment period and an agreement that FCDO would accept some ‘trapped cash’ as interest repayment. The British Council estimates that it generates over £1 billion in soft power activity for the UK each year, and yet its future is in danger over a £197 million loan. recommendation a. The FCDO and the British Council should write to us alongside their Treasury Minute response, laying out how the agreed approach to the loan provides value for money for the British taxpayer while harnessing the important soft power role the British Council plays around the world. b. The FCDO should write to us on what steps could be taken to offset the loan against the soft power value provided by the British Council and convert as much of the loan as possible into a grant or similar.

There has at times been a lack of trust between the British Council and the FCDO, and both sides have struggled to adapt to a shift from a sponsor relationship to one where the FCDO is also a commercial lender. Through the National Audit Office’s report and our own evidence session it is apparent that there have been tensions and a lack of trust between the two organisations. Beyond the key element of disagreement over the British Council’s status as a commercial organisation, the British 4 Council raised concerns over ministerial engagement through the loan renegotiation process and discussions about proposed country closures, and voiced frustrations with changing administrations posing barriers to progress. It is apparent that the FCDO has lacked confidence in the British Council’s leadership, having commissioned four external reviews of the British Council since August 2025 at a cost of £540,000, three of which the British Council funded. This also reflects lessons learned from the failure of the 2020 business plan where assurances by the British Council about profitability proved to be incorrect. The FCDO is now more than a sponsor of the British Council, it is also a lender. It is clear that this change has proved challenging, and this is reflected in the FCDO’s recent move to become more embedded in the British Council’s financial governance arrangements. recommendation The FCDO should set out any changes it is making to governance arrangements to ensure that they support both: a. a collaborative sponsorship arrangement that balances appropriate oversight of how the British Council uses its grant-in-aid funding and British Council autonomy; and b. the financial oversight necessary for the FCDO as a commercial lender to the British Council.

The British Council’s 2020 business plan failed to return the organisation to profitability, and both the Council and FCDO were slow to recognise and respond to this. The British Council began a five-year business plan in 2020, which aimed to cut costs and increase revenue. It achieved the first of these goals but failed to increase significantly revenue with the organisation continuing to make a loss throughout the period (with an exception in 2021– 22, when the sale of its Indian subsidiary led to a one-off profit for the year). The plan was unrealistic, and it took until 2024 for both the British Council and FCDO to realise that the plan was off track and would not deliver what it set out to do. FCDO expect that new financial governance arrangements will give it better visibility and assurance that the British Council’s current turnaround plan is meeting its key metrics, and provide opportunities to reset should it begin to slip against its targets. recommendation The FCDO and the British Council should set out what lessons they have learned from the failure of the 2020 business plan and how it is mitigating against those risks in the current turnaround plan. 5

The British Council’s turnaround plan projects no operating surplus until 2029–30 and is entirely reliant on the unlikely scenario that all elements of the plan will run perfectly, leaving the organisation vulnerable to any external disruption. In 2024–25 the British Council had negative free reserves of £111 million. The British Council’s new turnaround plan is expected to deliver £306 million in benefits by 2029–30. Even if the British Council fully delivers the planned benefits, it will not be generating an operating surplus until 2029–30 and expects its free reserves to have fallen to negative £184 million by that time. The British Council has cited low levels of reserves as a factor that made the organisation vulnerable to the shock of COVID-19, when much of its teaching and exams business closed temporarily. With falling free reserves and no surplus expected until the end of the plan, the British Council remains financially very vulnerable and highly dependent on there being no further economic disruption to its organisation. While the FCDO and the British Council hope this risk is manageable, it is concerning that the plan leaves the organisation little flexibility to meet any future crisis. recommendation The FCDO and the British Council should set out: a. what measures will be used to track the British Council’s progress in its turnaround plan, as well as the expected timetable and milestones; and b. what action the British Council and FCDO will take to correct course should the turnaround plan prove unrealistic before its end date of 2029–30, The FCDO and British Council should write to us with updates about its progress every six months.

The British Council has cut more than a third of its staff and plans to reduce headcount further, dispose of historical assets and close operations in nine countries, all while attempting to stabilise and grow revenues. The turnaround plan’s expected benefits of £306 million include £172 million to come from restructuring and efficiency projects, with an expected reduction of a further 25% of the organisation’s staff. Since 2020 the British Council has reduced 34% of its staff, and with the turnaround plan headcount cuts will reach 46% of the workforce by 2029–30. Such cuts, however, have not been made at the very top of the organisation. The British Council also faces the closure of nine of its country offices and further asset sales. Stakeholders are concerned at the extent and handling of these cuts, and the value for money of proposed 6 asset sales. Given the turnaround plan’s reliance on growth to reach an operating surplus by 2029–30, such extensive shrinking of the organisation is a large potential risk to achieving that growth. recommendation The British Council should set out what steps it has taken to: a. consult staff on headcount reduction; b. ensure its decisions on staffing secure value for money, including information on which grades have been affected by cuts and how the size of the leadership team has changed; and c. resolve the tension between shrinking the organisation through headcount reductions, asset disposals and country closures while attempting to achieve revenue growth and maintain and increase the British Council’s contribution to UK soft power. 7 1 The British Council’s role and relationship with the FCDO Introduction

The FCDO explained that its position is that the British Council is a commercial organisation and therefore it should receive financial support on commercial grounds, and the FCDO told us that it had taken legal advice on this position.10 However, the British Council told us that it does not agree with this position and that it believes that it has never acted as a commercial organisation, although it accepts the FCDO’s judgement with regard to the treatment of its loan. The British Council outlined limitations 6 C&AG’s Report, paras 2 and 2.11 and Figure 10 7 C&AG’s Report, para 3 8 Committee of Public Accounts, Financial sustainability of the British Council written evidence 9 C&AG’s Report, paras 1, 1.4, Figure 2 10 C&AG’s Report, para 2.6 and Q31 9 on its activities, such as not being able to teach English in the UK, for example, or teach other languages around the world as its competitors do.11 The British Council views itself as a cultural relations organisation which is able to leverage its ability to generate other income to increase its soft power effect for the UK.12 This is in spite of its relatively lower proportion of government funding in comparison with similar organisations in other countries. Whereas the British Council received state funding of £184 million in 2021, comparable organisations in France and Germany received a total of £744m and £570m respectively.13 As we heard in evidence, the grant for the British Council was £200 million in 2010, which would stand at about £320 million today after inflation.14 The British Council told us that, for its entire history, it had used its commercial income to subsidise its soft power operations.15 Over the period 2015–16 to 2020–21 the British Council used £128 million of its operating surplus from commercial operations to support its grant-in-aid activities.16 It told us that because the grant-in-aid amount has not kept pace with inflation in recent years this has only increased its reliance on growing its commercial incomes.17

The British Council told us that it is the combination of commercial income and grant funding that makes it effective at what it does, and that an element of tension between the two sides of the organisation is something that must be accepted.18 The COVID-19 pandemic heavily disrupted the British Council’s commercial business, leaving it reliant on loan support from the FCDO. It has had to take difficult decisions over how to restructure its commercial functions in order for those, and for its grant-in-aid work, to continue.19 The British Council also told us that, having already reduced its workforce by 34% since March 2020,20 it now plans to make further headcount reductions leaving it 46% smaller than its pre-pandemic size.21 We understand that it will also close operations in nine countries and continue to sell assets around the world in order to meet the goals of its turnaround plan and return to financial sustainability.22 11 Q 31 12 Q 4 13 British Council, Soft power and cultural relations institutions in a time of crisis, 29 January 2021, page 25 14 Q 42 15 Q 63 16 C&AG’s Report, para 1.11 17 Q 42 18 Q 6 19 C&AG’s Report, Figure 13 20 Q 26 21 Q 43 22 Letter from Minister Elmore to the Chair of the Foreign Affairs Committee, 30 June 2026 10

We asked the British Council whether it would be possible to separate its work into commercial and soft power operations. The British Council told us that it is not possible to separate its two roles.23 The FCDO acknowledged that there is a complex challenge in fixing the financial sustainability of the British Council and ensuring that it can do both parts of its work well.24 We asked the British Council and the FCDO what the future of the British Council would look like, and heard from both that discussions are ongoing, and that in FCDO’s view there are options available such as ringfencing the commercial business so that it has its own “ecosystem”.25 Renegotiating the British Council’s loan

The British Council has received loan support from the FCDO since 2020 and the current loan of £197 million was agreed in March 2024, with it originally due to mature in March 2025. The FCDO and HM Treasury agreed to extend it to September 2026, and then extended it again to its current expected maturity date of September 2027.26 A condition of these loan extensions was that the British Council should develop a turnaround plan, and this turnaround plan was submitted to the FCDO in August 2025. However, the British Council has not been able to implement the plan in full, as the FCDO had outstanding queries about how the loan would be restructured and the British Council’s proposals to close its offices in a number of countries.27 One result of this is that it took over a year for the British Council to be able to use the proceeds from the sale of its Madrid school, which took place in April 2025. Because of the terms of the loan as it is currently structured, the British Council would have had to use these proceeds to pay down its loan instead of investing in its turnaround plan. It took until April 2026 for the FCDO and HM Treasury to agree to waive the repayment requirement.28

The British Council’s preference has been for the FCDO to forgive the loan, or to accept some of the British Council’s art collection in lieu of cash repayment. The FCDO’s position is that this is not possible, as the British Council is a commercial entity and loan forgiveness in this case would not be compliant with the UK Subsidy Control Act 2022.29 Partly as a result of this difference of opinion, a final decision on the loan’s restructuring was yet to be reached at the time of our evidence session in July 2026, although some basic principles for the loan’s restructuring had been agreed. 23 Q 6 24 Q 5 25 Q 64 26 C&AG’s Report, Figure 10, para 2.11 27 C&AG’s Report, paras 3.4, 3.5 28 C&AG’s Report, para 3.14 29 C&AG’s Report, paras 3.6, 3.7 11 These principles included an interest-only grace period for the British Council, during which time the FCDO will accept ‘trapped’ cash as interest payments, and that there will be a 15-year repayment period for the loan.30

We challenged the FCDO and the British Council over why it has taken them such an extended period to finalise a long-term future for the loan arrangement that is satisfactory to both parties. The British Council acknowledged that it had known that something would need to be done about the loans since 2021, and that the slow pace of negotiations was frustrating and had hampered the organisation’s effectiveness as it attempted to stabilise its finances.31 The FCDO told us that it felt that it was right to take the time, and to conduct a series of reviews, to reassure itself that the British Council’s new turnaround plans represented a realistic path back to financial stability.32 The relationship between the British Council and the FCDO

In addition to the disagreement between the British Council and the FCDO over whether the British Council is a commercial organisation, there have been other areas of tension between the organisations. The British Council has expressed its frustration over the slow pace of the loan renegotiation process, claiming that more regular, high-level engagement with ministers may have led to better progress. The British Council has also been frustrated by discussions over country office closures, telling the National Audit Office that the FCDO needed to make a decision about whether it would support the British Council with funding to allow it to operate in countries that are loss making or accept that closures are necessary.33

The FCDO told us that during the British Council’s previous 2020 business plan, repeated assurances about the organisation’s return to profitability were ultimately incorrect. This has led to the need for a new governance structure that will allow the FCDO to “interrogate what is actually happening”.34 30 Qq 1, 40; ‘Trapped’ cash is cash that is held overseas by the British Council that is considered to be trapped due to foreign exchange controls. The British Council is unable to utilise these funds outside of the country that they are located in, so is unable to use it to support its wider business. 31 Qq 51, 52 32 Q 55 33 C&AG’s Report, paras 3.11, 3.13 34 Q 38 12

Since the agreement of the FCDO’s initial £60 million loan to the British Council in July 2020, the relationship between the organisations has changed. The FCDO is now not only the British Council’s departmental sponsor, overseeing how it spends its grant-in-aid money, but is also a lender with commercial responsibilities.35 In its role as a lender, the FCDO commissioned four external reviews of the proposed turnaround plan, which were carried out over the eight months from September 2025 to April 2026. The reviews covered areas such as options for restructuring the British Council’s loan, cashflow and revenue projections and cost a total of £600,000, of which £540,000 was paid by the British Council.36 The FCDO told us that it will be more embedded within the British Council’s financial governance from now on, at the invitation of the British Council’s Chief Executive,37 and that the grant-in-aid relationship is still at the heart of how the FCDO and British Council work together.38 35 Q 4 36 C&AG’s Report, Figure 12 37 Q 58 38 Q 4 13 2 Delivering the British Council’s financial recovery Lessons from the failure of the 2020 business plan

The British Council’s 2020 business plan was developed following the onset of the pandemic and formed the basis on which the FCDO provided its initial loan support to the British Council. The plan aimed to improve the British Council’s operating surplus by £450 million by 2025–26 through a combination of revenue growth and efficiency savings.39

The British Council largely delivered the planned cost savings and restructuring but failed to achieve the expected growth in commercial income. The British Council achieved £179 million of efficiency savings against a target of £185 million and significantly reduced staffing levels.40 However, revenue growth fell short of expectations and the British Council continued to make losses. The British Council accepts that the plan had been too ambitious, particularly on the recovery of teaching and exams income. The National Audit Office reported that changes in demand for English language teaching and exams, together with increased competition in the sector affected the performance of the British Council’s commercial business. A 2019 review of the British Council also noted that the British Council was falling behind its competitors in digital teaching services.41

The British Council told us that it delivered the programme of cost reductions, restructuring activity and asset sales that had been planned, but that revenue growth proved much harder to achieve than expected.42 The British Council acknowledged that, with hindsight, the organisation should have cut more costs in the initial stages of the business plan.43 39 C&AG’s Report, para 2.4, Figure 6 40 C&AG’s Report, para 1.15, Figure 6 41 C&AG’s Report, para 1.15 42 Qq 18, 19 43 Q 21 14 The British Council also argued that it was not alone in dealing with the uncertainty after the Covid-pandemic, with most businesses unsure whether they would bounce back to this day.44

We also heard evidence about when it became clear that the 2020 business plan would not achieve its objectives. The FCDO told us that by September 2024 it had become apparent that projections of a return to profitability would not be realised and that a revised turnaround plan would be required.45 The failure of the 2020 business plan has led both organisations to place greater emphasis on monitoring performance and scrutinising assumptions underpinning the new turnaround plan.46 Delivering a financially sustainable turnaround plan

In August 2025, the British Council submitted a new turnaround plan to the FCDO. The plan is expected to deliver £306 million of benefits by 2029–30 through a combination of restructuring activity, revenue growth initiatives and asset sales. The largest component of the forecast improvement is £172 million from restructuring and efficiency projects.47

Despite these planned improvements, the British Council does not expect to return to an operating surplus until 2029–30, forecasted to be £9 million in that year. Its free reserve position, as a result, is forecast to deteriorate further from negative £111 million in 2024–25 to negative £184 million by 2029–30. This compares with free reserve levels of £87 million prior to the pandemic, though even that was a level that the British Council felt left it vulnerable to the financial impact of the pandemic. 48

The British Council told us that successful delivery of the turnaround plan would leave the organisation in a stronger financial position and able to begin repaying its loan obligations but noted that this would require everything to go “perfectly”. It also acknowledged that the British Council would continue to have limited resilience to future external shocks because of its free reserves position, which is forecasted to remain negative for at least the next five years.49 44 Q 58 45 Qq 54, 55 46 Q 58 47 C&AG’s Report, para 3.4, Figure 13 48 C&AG’s Report, Key facts, para 1.11, 3.16 49 Q 38 15

British Council told us that it does not see flexibility in the turnaround plan to deal with any small- or large-scale crises should they arise.50 The FCDO, however, told us that options remain available if some elements of the turnaround plan do not perform as expected, including changes to teaching operations and greater use of digital delivery.51 It told us that the revised turnaround plan is based on more conservative assumptions than the previous plan and has been subject to external reviews.52 The FCDO emphasised that it will put a stronger governance and more regular oversight in place to monitor delivery of the plan.53 Managing workforce reductions, asset sales and country closures

The British Council’s turnaround plan relies heavily on restructuring activity, with £172 million of the £306 million forecast benefits expected to come from restructuring and efficiency projects. These changes include workforce reductions, country office closures and a programme of asset disposals.54

The British Council has already reduced staffing levels significantly since the pandemic, with more than 2,000 full-time equivalent posts removed since 2021.55 The British Council also plans further headcount reductions of approximately 25% as part of the turnaround plan and intends to close offices in nine countries while reducing its presence in others.56

We questioned the British Council about the scale of these changes. It told us that staffing levels had already reduced by 34% since March 2020 and that the implementation of the turnaround plan would leave the organisation around 46% smaller than it had been before the pandemic.57 The British Council told us that reductions were taking place across the organisation in the British Council’s four offices in each nation of the UK as well as overseas.58

We also explored whether restructuring had extended to senior levels of the British Council. It told us that senior managers had left during previous restructuring but that the size of the executive leadership remained 50 Q 38 51 Q 65 52 Qq 35, 36 53 Qq 38, 65 54 C&AG’s Report, para 3.15, Figure 13 55 C&AG’s report, para 1.17 56 C&AG’s report, para 3.13, Letter from Minister Elmore to the Chair of the Foreign Affairs Committee, 30 June 2026 57 Qq 26, 43 58 Q 43 16 broadly unchanged.59 The FCDO told us that the British Council faces a difficult challenge in balancing further cost reductions with maintaining the operational capacity required to deliver its commercial activities and wider objectives.60

Our overriding concern is that the turnaround plan makes substantial cuts to the commercial organisation which leaves no cushion with deciding negative reserves, if any aspect of the plan is not fulfilled. The gap between what the British Council believes it provides in soft power of over £1bn and its grants in aid of £163m needs to be resolved. One way this could be achieved is by reconstructing the soft power side into a charitable arm similar to other large organisations like the National Trust. It seems to the Public Accounts Committee that the future of the British Council is still precarious and both it and the FCDO need to carefully monitor the situation as partners so that the British Council can confidently demonstrate to the world that the UK values its work in providing soft power. 59 Qq 23-27 60 Q 65 17