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My wife was born in Hong Kong to British expat parents in 1972. All had right of abode in the UK. She became a Citizen of the UK and Colonies at birth, and then a British Citizen on January 1 1983 (along with everyone else).

My question is this: the FCO is saying that she is a British Citizen by Decent, but as she was born in a former colony (when there was no citizenship distinction), should she not be classed as being a British Citizen otherwise than by decent, just like her parents and everyone else born in the UK?

Any help/advice would be appreciated.

Where she was born is not relevant. It was HK but it could have been Brazil! She was born outside the UK to British parents and is therefore British by descent.