The annual review from the Foreign Affairs Committee commended the Council’s plans to adapt to financial circumstances which had put it under “great strain”.

However, it warned the organisation’s greater emphasis on commercial activity in response to the cuts could divert it from its primary purpose of building cultural ties, and turn it into a “substantially different” organisation.

“The greater emphasis that the British Council will place on commercial activity risks a diminution of the UK’s influence and soft power. This change is regrettable but understandable given the reduction in the FCO’s grant-in-aid,” states the report.

“While we give a cautious welcome to the British Council’s plans, care must be taken to avoid the British Council becoming predominantly an international English language school rather than a promoter of the UK’s reputation, culture and influence.”

“Care must be taken to avoid the British Council becoming predominantly an international English language school”

The Council has been adapting to spending cuts since 2007, and says it will continue to reduce its physical overseas network and initiate efficiencies such as the transfer of back-office functions.

However, with 27% of its funding coming from the FCO now set to fall to 16%, it must increase its revenue from earned income which accounts for the remainder. In 2010-11, it earned £492 million, mainly from English teaching and examinations and commercial partnerships, and it hopes to increase revenue by between 9 and 15% annually over four years. In 2010-11 it only marginally increased its earned income.

Giving evidence to the committee, the Council’s Chief Executive, Martin Davidson said: ”We are, however, looking very carefully at the nature of our network, and our expectation is that for a number of our smaller operations we will become a very much smaller organisation – probably down to one or maybe only two people in some of the smaller countries.” He said most of the impact would fall on the developed world.

The committee also warned the FCO’s other major cultural organisation, the BBC World Service, could face further cuts when it is placed fully under BBC control in 2014. It is already slated to lose five of 32 language services after 2014 and an estimated 30 million listeners.

Davidson said most of the impact would fall on the developed world

Committee Chairman, Richard Ottaway MP said: “We concluded that Spending Review 2010 may turn out to have had a very damaging effect on the [FCO’s] ability to promote and safeguard UK interests overseas.

“The decisions so far taken by the FCO to implement the Spending Review 2010, including reductions in the deployment of UK-based staff overseas and the planned programme of property sales, have indicated that our initial conclusions were correct.”