Examination of witnesses (Questions 40
- 59)
THURSDAY 18 NOVEMBER 1999
MR GAVYN
DAVIES and LORD
LIPSEY
40. Okay. Could I move on to a point Claire
Ward was touching on about public service broadcasting? We have
gone around the houses a bit about how far your remit went on
the definition of public service broadcasting, but you do say
in your Report, "We decided that we may not be able to offer
a tight new definition of public service broadcasting, but we
nevertheless each felt that we knew it when we saw it." Do
you feel that News 24 satisfies public sector broadcasting?
(Mr Davies) I am not easily given to flippancy, but
when I wrote that I was possibly at my most flippant.
41. The most flippant line in the whole of the
Report!
(Mr Davies) No, there is another one somewhere! Honestly,
Mr Faber, I think it is wrong for me to comment further about
News 24, I really do. I think it is such a specific question about
a specific service that it is way beyond my purview to comment
on it. As I said to Ms Ward, we have put in place a mechanism
for double-checking that it is delivering a public service remit.
42. I understand your personal problem in answering
the question but the fact is when, for instance, the BBC last
appeared before us last year, the chairman understandably defended
News 24. At the time I was discussing with him the loss of sporting
rights or the haemorrhaging of sporting rights and he defended
News 24 as being a worthwhile price to pay while saying he could
not afford to pay for the sporting rights; £77 million spent
over two years to implement a station which another organisation
is already doing which does not actually comply with any of the
BBC's own public sector requirements.
(Mr Davies) The nature of this question is why we
need to have a more transparent system for making judgments on
these questions, because I really do think that this is not the
only such question which is going to arise. As channels proliferate
in the private sector, more and more of them are going to overlap
with BBC offerings, clash with BBC offerings, and this question
is going to become a frequent question which needs to be answered
in a rigorous and systematic fashion.
43. And the same applies, as has been discussed
at some length earlier, to Online. You yourself said that you
still consider there is some distinction between broadcasting
and the Internet, if there is that distinction how can Online
fit in with the public service requirement?
(Mr Davies) Again, I think it needs to be justified
in the way we have suggested.
44. Can I ask you then about the future? You
have made a few remarks. You said on page 38, "Nor do we
believe, however, that the BBC can properly fulfil its responsibilities
in the new broadcasting era without some additional sources of
funding." What are those responsibilities, what do you see
those responsibilities as being?
(Mr Davies) In a general sense, we started by asking
ourselves whether there was a role for a comprehensive public
service broadcaster like the BBC in the digital market place,
and we decided that the answer for the time being was yes. This
was subject to future review, because technology was changing
at a pace which meant we could not give a definitive answer forever
on that subject. But we did want for the time being to see the
BBC given an opportunity to deliver public service broadcasting
via digital means with a meaningful role in the market place in
order to condition the market place in the same way that the BBC
had done in the past. So that was the objective and we did not
feel actually that the scale of what the BBC has done so far has
been sufficient to accomplish that.
45. You also said just a moment ago that the
viewing habits of the country are by and large still dominated
by the BBC, and indeed in the ten or so years that the BBC has
been in competition now with other broadcasters you rightly say
that the BBC has maintained its position of supposed supremacy
in relation to those other broadcasters, yet you also say in the
Report either it receives additional funds to compete in the digital
arena or it is in effect consigned to a slow demise. Why should
it be consigned to a slow demise when it has survived the last
ten years perfectly adequately?
(Mr Davies) I think it has survived the last ten years
partly through making very large efficiency savings, which hopefully
can continue but may become more difficult, and in addition its
relative scale has shrunk, especially in multi-channel households.
It is still the prime broadcasting medium in those households
but it has shrunk a lot over the last ten years. What we say is
that the BBC has been on a financial diet for ten years, that
it has been quite a strict diet, that many of the effects of that
diet have been healthy but we think it has possibly been taken
too far and that it should be moderately alleviated in the next
five to ten years.
(Lord Lipsey) An analogy might help with that problem
which is the move to colour. If the BBC had not been allowed to
go to colour, it would have been broadcasting much the same kind
of programmes but nobody would have been watching them and it
would have been dead in ten years. I think that is very analogous.
46. One of my constant interests throughout
looking into the BBC has been the issue of sport, as I mentioned
a moment ago, and the loss of sporting rights for the BBC. Did
you as a committee look into the whole issue of paying for sporting
rights? We have talked about early adopters of BSkyB and others
who of course are paying for those sporting rights through premium
channels, but the BBC has constantly thrown up its hands and said
it cannot compete in this arena any more although it has, happily,
done better recently in the last few months. Did you go into this
in any detail?
(Mr Davies) The only detail which we looked at in
this area was the potential cost of what is called superinflation,
and that comes in two categories. It comes in the category of
sporting rights and it also comes in the category of talent. It
really is in both cases reflecting the fact that there is a shortage
of supply of product relative to the demand for product on-screen,
and that is moving the real price, the relative price of that
product, very substantially higher. We thought that probably over
the next five to six years the BBC would need to pay out about
£250 million per annum extra in order simply to provide the
existing level of service in terms of sports and talent. So it
is just getting more expensive through time to do this. That eats
up quite a large amount of the self-help which the BBC is expected
to do and it is another reason why we felt they needed some moderate
amount of more money.
47. Last year, I criticised them when they issued
their statement of promises. It had a photograph of Des Lynam
on the front, probably at the time one of their best known faces,
and yet did not mention the issue of sport anywhere in the entire
document, which I thought was slightly disingenuous. On page 40
and 41 of your Report, we have got barely a page of what the BBC
has said they will do with the new licence fee, and again I notice
the word "sport" is not mentioned anywhere in the five
paragraphs. They talk about "... important new developments
for BBC News 24, BBC Knowledge, BBC Parliament." Did you
ask what those important new developments are? Is there any more
detail involved than just a page of slightly wishy-washy promises
in a 210 page Report?
(Mr Davies) Mr Faber you must not—
48. I am not blaming you for that.
(Mr Davies) Please do not judge the BBC's programme
requests solely from what we have written in the Report. That
is a very trimmed down version of what they have now published
because they published pretty much full details of everything
they told us. To the best of my recollection there is nothing
they told us now that is not in the public domain. If you look
at the response to the Panel Report you will get a lot more detail
there, again that is something to talk to the BBC about.
49. One last question, are you happy—as
you say they have now published that—that a great deal of
the information that you were originally given was in commercial
confidence? You did not publish it for commercial confidence reasons
and we received information from them as well. One of the figures
that struck me most forcefully was the large amount, the enormous
amount, that is spent on the collection of the licence fee. If
any man in the street was to see how much money is spent on the
collection of the licence fee in proportion to what he pays for
it, he would be really quite shocked. Do you think that digital
might make the problems of collection of the licence fee even
greater?
(Mr Davies) We looked very carefully into the collection
question and made it a lot more transparent. There is a graph
in the Report which shows what the combined cost of evasion plus
collection is for the BBC each year. From memory, four or five
years ago it was something like 16 per cent of total revenue combined,
now it has fallen to 12 per cent of total revenue and the objective
is to get it down closer to 9 per cent in the period we looked
at. I must say I was rather impressed with the individuals who
are now in control of the licence collection system.
50. I was not in any way criticising the BBC.
I am stating the point that it is a great deal of money and the
take-up of digital could make matters worse.
(Mr Davies) In terms of whether the digital licence
is collectable we did spend a lot of time on that. We are obviously
in the hands of the people who have to collect it. They told us
they felt confident it would be collectable. They did not think
it would lead to a large increase in evasion. They thought it
was enforceable and they did not think it was very costly.
Miss Kirkbride
51. I think listening to my colleagues on this
Committee we are all a little bit sceptical as to whether or not
sufficient investigation has been made of where the BBC spends
its money and what it is spending its money on and whether or
not it is using enough opportunities for advertising to justify
your proposal, which has been dubbed a tax on technology, perhaps
leading to some people not going forward, taking up a digital
licence because it would act as a disincentive. Do you feel you
have sufficiently explored the Online issues and the News 24 issues
to really be satisfied we should grant the BBC more?
(Mr Davies) I certainly feel we spent enough time
exploring the overall funding of the BBC to have clear views about
the future appropriate level of funding. I feel comfortable that
we did that task to the best of our ability. It did need some
further support and bolstering, which is now being done by this
private consultancy, which is looking at the BBC efficiency and
other matters. We felt it would need that further bolstering.
Otherwise, I do feel comfortable that we did enough work. In terms
of the term "tax on technology", you could apply that
to the colour TV licence as well when that came in in the late
1960s or early 1970s, you could have said that was a tax on technology,
you could have applied it to the television licence, you could
have applied it to the radio licence, so I do not think it is
a new and different point. It is a slogan coined by people in
whose interests it is to maintain the status quo. One thing I
would like to point out to the Committee is that the present status
quo is obviously of benefit in the short-term to the private sector
digital suppliers. What is happening is that each one of us in
this country, whether we have digital or not, is paying £10
per household for the BBC digital services which are then marketed
free by the digital private sector industry. No wonder they like
that, it is a levy on every household to their benefit. It is
not surprising to me that they like the current situation and
do not want it to be changed.
52. You try and draw an analogy there with the
TV licence and the original radio licence, but in those days when
those were introduced we did not have the plethora of public sector
providers for this multi-media age in which we now live. That
is part of the problem about giving more money to the BBC, it
is not altogether a level playing field. There is not just one
provider of a BBC service and another provider of an ITV service
who has dedicated access to advertising on those channels, we
are now talking about people coming from the new world who actually
have the perception to do what they have done. That is why it
does become quite difficult to justify.
(Mr Davies) Miss Kirkbride, I absolutely agree with
you that the analogies with the past are not perfect. They do
break down really through the change in the monopoly supply. We
had, first of all, one monopoly supplier, which Lord Reith almost
fought to his death to maintain, though he would have been completely
wrong had he been able to maintain the monopoly. We then had a
duopoly for a very long time and now we have a plethora of suppliers.
That makes the case for public service broadcasting more complicated
in the ways we have been arguing about this morning. I do not
think it completely eliminates the case for public broadcasting
by a very long chalk. The other thing I would say is that when
TV licences replaced radio and colour replaced monochrome the
additional charge on the new licence fee was about double the
existing licence fee. There was an approximate doubling in people's
outgoings in order to upgrade the service. That is not even remotely
what is suggested here. We are certainly making allowance for
the fact that this is not quite such a clear-cut, watertight case
as we have seen in the past.
(Lord Lipsey) Could I just add one sentence to that?
The effect of having a big public sector broadcaster—I am
sure it is a bit more efficient than at the time you were there—is
not just that it produces certain programmes but the effect it
has on the programmes other people produce. It is very clear when
you look at the international evidence that in those countries
which have run down their public sector broadcasting, it is not
just that that disappears but that the quality of the offerings
from the other broadcasters also declines. They see an opportunity
to cut production costs while still selling their programmes and
selling space on them. You do not just affect the BBC you move
the whole ecology into a less stable and satisfying situation
if you get rid of your public sector broadcasting.
Chairman: Do you mean if we did not have
the BBC, ITV would not give us, Who Wants To be A Millionaire?
Miss Kirkbride
53. Thank you, Mr Chairman, you made my point
there so I will not pursue that particular item! I think what
I would like to pursue a little bit more is, a lot of the new
money for digital is being found through efficiency savings and
there is this extra, which is the additional from the licence
fee, why are you not satisfied with what they could do out of
their efficiency savings? What persuaded you they still need this
extra money when there is a little pot there?
(Mr Davies) All of us on the Panel ended up being
persuaded that they did need some more money. Even Lord Gordon
who did not agree with us on the method of financing felt that
the BBC probably should get some more money. The reason was that
we felt, as David has said, this is more of an art than a science.
I cannot prove this to you, I can just say it is the judgment
of six or eight people that spent most of this year looking at
a subject from an open minded point of view. They concluded that
the scale of what the BBC could offer in the future, based solely
on self-help, was not likely to be quite big enough to condition
the market place and get a foothold for public broadcasting in
the digital space. We did feel this raised a risk that the nation
probably should not take in the sense that if the BBC is essentially
excluded from being a success in the digital area, it will be
awfully hard to change that in five or ten years' time. So we
did not feel this was just another licence fee review which could
have happened any time, we felt that the Secretary of State had
asked us to do this now because there were things happening in
the broadcasting market which were very, very important at this
juncture, and that it would be very risky to fundamentally change
the BBC's role without giving it a chance to succeed in this new
space.
54. Were you persuaded the programmes they were
going to offer were not already being provided? Did you make a
comparison with what is already there in the market place?
(Mr Davies) We are certainly persuaded that there
is no point in having a public service broadcaster like the BBC
if it simply replicates programmes which would otherwise be made
by the private sector. We have written a substantial chapter in
the Report on the nature of market failure in broadcasting, and
one of the things which I think most distinguishes the term "public
service broadcasting" is that it describes broadcasting which
would not otherwise be done by the private sector. So that is
something which has to be used as a permanent test of the BBC's
output, not in any given half hour of programming but in its entirety.
55. You talk about the NAO having a role in
looking at the BBC. Do you feel very strongly that should be absolutely
dependent upon any extension of the licence fee? They are objecting
to this at the moment and it is potentially quite difficult to
see where their objections are coming from, but do you think as
the author of the Report that that should be absolutely made abundantly
clear, that one comes along with the other and they are not separable?
(Mr Davies) It is part of the package we recommended
and I think what you will find, Miss Kirkbride, is that if you
talk to different members of the Panel you will get a different
shading of opinion on the particular question of whether it should
be an absolute requirement. I think what is an absolute requirement
is that satisfactory measures be put in place, on top of the many
which have already been done, to ensure that any future funding
increase goes on public service purposes which are accountable
to Parliament and the public. We thought on balance that the NAO
was the right organisation to fulfil part of that regulatory requirement
and it is part of the package we have recommended.
56. Finally, there is one aspect which is the
financial stringency and efficiency savings, and there is also
the quality aspect and whether or not the BBC are providing what
we on this Committee, who will disagree on many things, think
is something we find suitable and attractive for the extension
of our licence fee. Do you think at the moment that there is a
sufficiently robust regime there, that the BBC is answerable not
just to politicians here, although they are perhaps the most obvious
focus, but to a wider public that they are providing quality programmes
in return for the money?
(Mr Davies) We think that the regime is far better
than it was some years ago, and we think the BBC has made considerable
efforts to improve matters. In fact, if you talk to BBC management
they are somewhat shocked that they are still subject to these
critiques because they think they have made such efforts in the
last decade to change that they cannot see why they are being
criticised. However, a lot of people told us from the private
industry during the review that they still find the BBC rather
a forbidding monolith which is hard to approach, hard to understand
and very, very difficult to communicate with and not transparent.
I want to make sure that if the BBC, as they say, have a will
to change this, that they do indeed change it. On the NAO, which
is part of accountability—not as much part of transparency,
I suspect—on the financial side, the BBC has made a strong
case in its mind that the NAO is the thin end of a wedge which
would involve a substantial amount of interference by Government
in programming content. We took the view that there is an absolutely
clear divide between accountability to Parliament—and the
NAO is a parliamentary agency, not a Government agency—and
interference by Government in programming. We think in the terms
of reference given to the NAO for what it would do at the BBC,
these two things can be absolutely clearly separated and we do
not believe that this would be a problem. Indeed, the NAO for
some years has been looking at the World Service in exactly the
way that we think, after the Charter review, it should look at
the rest of the Corporation.
Chairman: The point you make is very
valid. When we were conducting an inquiry into the BBC, I made
a simple request that the BBC should await a report by this Committee
before reducing its parliamentary coverage, we were immediately
told that to do that was political interference, so they went
ahead and did it and now they have abandoned it all because they
were wrong.
Mrs Golding
57. Can I come back to the efficiency savings?
You say they are now more efficient than they were some years
ago. Heaven help us, is all I have to say. I see they only started
looking at their portfolio of property and looking at a framework
to improve that in 1998. The BBC must have a lot of property which
needs up-dating and to have only just started on that seems to
be not very efficient. The other thing is that they say they have
set targets to achieve a 20 per cent saving over five years from
1997-98 and were thrilled that they exceeded their target in 1997-98
and very hopeful they are going to exceed the target this year,
and they hope to achieve even more savings of 18 per cent in the
years up to 2003-04. How inefficient have you to be to make those
kind of savings? You just said they are more efficient than they
were some years ago but there must be something seriously wrong
with an organisation like that, which can sit back and spend public
money and be so inefficient that they actually want to do something
and discover they could have done it a long time before. I feel
so cross about this.
(Mr Davies) I am sorry, Mrs Golding, I do not mean
to belittle this issue at all. If you thought I was, I am not,
in any sense. They have made efficiency savings over probably
the last eight years, averaging roughly 8 per cent per annum.
That does suggest that probably eight years ago they were rather
inefficient. I think it is wrong to say that is axiomatic, because
after all some of these efficiency savings are probably the application
of new technology to broadcasting, or new methods. It is wrong
to say to an organisation, "Because you have made efficiency
savings that proves you are incompetent because you did not make
them earlier." I suspect that is too harsh. But I do think
it is fair to say that they were not commensurately efficient
with the private sector eight years ago. The question is whether
under the current Director-General they have made sufficient progress
and I think they have made quite remarkable progress. Whether
it is sufficient is a different matter, and it has to continue.
But it is a much, much more efficient place now than the one you
and I would have recognised from the beginning of the decade.
(Lord Lipsey) If I could add a word about that, possibly
also from a creative industry background because I worked in newspapers?
When you try and make any savings in those kind of organisations,
your journalists, your producers, and everybody, says it is a
fundamental attack on their freedom as journalists or whatever
to do their job. It is a very hard job. Although there is further
to go in the BBC, I think John Birt has done a remarkable job
actually in getting a bit of cost-mindedness into the organisation.
I also just want to briefly link it with Miss Kirkbride's final
question, because I think you as parliamentarians—and I
suppose I am a surrogate parliamentarian too but you as proper
parliamentarians—cannot be satisfied that the money is being
spent right unless the National Audit Office can do its ex
post facto look at whether they are spending the money right.
You would not let any other bit of public money be spent without
going through the Public Accounts Committee machinery after the
event, and I do not think it should be any different with this.
58. May I say that you mentioned earlier on
the support services where they are making efficiency savings,
but the other one which particularly annoyed me was purchasing
and reviews of their purchasing effectiveness. Should they not
have been doing that over the years anyway? It just seems what
they have done is sit back, complacently and said, "We are
going to have the money anyway, the Government will let us raise
the licence fee so all we have to do is say these words and make
these small savings from a vast inefficiency and everybody will
say, `Right you can have the money'." I have to tell you
that my constituents feel very strongly about the cost of the
television licence and they cannot believe anybody could want
even more money to run a service like that. However, can I say
on sporting rights, yes, there is a high cost to be paid for sporting
rights and, yes, we all understand that will be an additional
cost to the BBC, but if you have to compete commercially for sporting
rights why can you not compete commercially for money from advertising
to pay for those sporting rights? It does not make sense to me
that if you are in a commercial world, you have to say you exclude
advertising.
(Mr Davies) Because we feel at that point the BBC
would simply cease to be a public broadcaster, and we feel that
would be a change which would damage the whole broadcasting industry,
including, and probably especially, ITV and probably also including
Sky. The current licence fee income of the BBC of well over £2
billion a year is roughly the same as the total TV advertising
in this country. If we were to try and finance the BBC through
advertising, it would really have quite devastating effects on
the rest of the industry.
59. That is as may be, we are talking about
the BBC taking money from ordinary people to finance it. The commercial
world is something else and if they want to live in a commercial
world, then we should cease to have the television licence and
let the BBC go commercial if that is the attitude. However, could
I raise a question of the role of the BBC and what they do with
that licence fee money? I had a meeting with the police last week
who were doing a big road safety drive in my area, they have been
out and got a jingle made up and want to put it into broadcasting.
They have been to the commercial broadcasters in my area but I
said, "The BBC is a public service, they should do it for
nothing for you", so they rang them and the BBC said to them,
"No, we do not think that is our role at all, we do not think
we do anything like that." Well, what is their role? Are
they not supposed to help the police to save lives, which is funded
by the taxpayer as well? Is that something which they are not
supposed to do? Do they know what their role is? Or is it just
to sit back and accept the money?
(Mr Davies) I completely agree with you, Mrs Golding,
that we as a nation will not feel comfortable in financing the
BBC if we believe them to be inefficient, for the obvious reasons
you give. I do not conclude from that that the BBC has to do everything
which any constituent deems to be a public service and I do not
conclude from that either that the licence fee has lost its basic
broad public consent, which I think is still there for the licence
fee system.
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