Foreign Office spreads untruths about Liberal vanity projects (7)
I believe the answer is:
follies
'vanity projects' is the definition.
(folly can mean a silly or pointless project)
'foreign office spreads untruths about liberal' is the wordplay.
'foreign office' becomes 'FO' (abbreviation).
'spreads untruths' becomes 'lies' (to lie is to tell untruths).
'about' means one lot of letters go next to another.
'liberal' becomes 'l' (abbreviation).
'lies' after 'l' is 'llies'.
'fo'+'llies'='FOLLIES'
(Other definitions for follies that I've seen before include "Silly acts or ornamental buildings" , "Ornamental buildings with no practical purpose" , "Idiocies" , "Rash actions" .)