Memorandum submitted by the Department
for Culture, Media and Sport
This memorandum is provided at the request of
the Culture, Media and Sport Select Committee to inform its inquiry
into the Funding of the BBC.
BACKGROUND TO
THE DAVIES
REVIEW
The BBC's Royal Charter guarantees the future
of the Corporation until 31 December 2006. A separate formal Government
Agreement with the BBC guarantees the licence fee until 31 March
2002 and provides for a review, before that date, of the funding
arrangements between 2002 and 2006 in the light of technological
and other developments.
The Government's aim for the review was to ensure
the BBC's continuing ability to meet its public service obligations
effectively, while at the same time ensuring that it retains the
ability to operate effectively in a competitive marketplace.
The Government decided that the review should
be a closely defined one. It did not consider that the time was
right for an extensive review of the BBC's purpose and governance;
that would more appropriately be carried out in 2003-04, when
issue of Charter renewal was approached.
The Government also decided that it was not
appropriate at this stage to consider alternatives to the licence
fee as the main source of BBC funding. The licence fee is an imperfect
funding mechanism, but the Government considers that it is the
best means of providing the BBC with sufficient security to continue
to meet its obligations. The Government decided therefore that
the review would start from the position that the licence fee
is sustainable, at least until Charter review.
The Review Panel was, therefore, requested to
focus, within the exisiting framework, specifically on a number
of closely defined issues, as set out in the terms of reference.
The Panel was requested to take a strategic, high level look at
these issues.
PANEL'S
REPORT
The Panel reported to the Government, on time,
at the end of July. The Report was published for public consultation
on 5 August, with a closing date for responses of 1 November.
The Report has provoked a vigorous debate and the Department for
Culture, Media and Sport is now analysing all the responses received.
The Government considers that the Davies Panel
produced a measured, thoughtful and comprehensive Report which
demands careful consideration. It raises a number of important
issues, including the BBC's role in the digital era and whether
it would be appropriate to fund the Corporation's full services
vision, primarily from the licence fee, as well as the mechanism
for doing so. The Report has also raised important issues surrounding
efficiency, transparency and accountability.
The Government will consider the Davies Panel's
Report carefully in the light of the responses received to the
consultation and the Select Committee's Report.
INDEPENDENT SCRUTINY
The Davies Panel recommended that, before the
Government reached final decisions on the recommendations relating
to the BBC's funding needs, it would be a useful exercise to repeat
the independent review of the BBC's finances which was carried
out by Braxton Associates in 1996. The Government has decided
to act upon this recommendation and has placed an advert in the
EC Overseas Journal inviting expressions of interest in tendering
to carry out this study.
The Government intends this to be a rigorous
and wide-ranging study of the BBC's financial projections and
expenditure plans. It will include a review of the BBC's evidence
to the Davies Panel (taking account of the latest information
available from the BBC), and those areas which the Panel was unable
to assess in detail. The consultants will also be required to
assess the level of licence fee revenues required over the next
seven years to fund various levels of the BBC's service proposals
in the light of the Panel's recommendations, having regard to,
among other things, efficiency savings and productivity gains,
the effective management of the BBC's assets, and the growth in
commercial income. The consultants will also review the BBC's
assessment of the costs of its future service plans, over the
above maintaining existing services.
The outcome will enable the Governemnt to reach
a view on the appropriate level of funding for the BBC up to 2006.
COMMITTEE'S
QUESTIONS
The Committee asked four questions:
What forms of legislation or secondary legislation
involving what form of parliamentary approval would be required
prior to the introduction of a digital supplement to the licence
fee?
We consider that a digital supplement could
be introduced by Regulations made under section 2 of the Wireless
Telegraphy Act 1949. The Regulations would be subject to the formal
consent of HM Treasury and Negative Resolution procedure. Regulations
under the Wireless Telegraphy Act 1967 could amend Schedule 2
to that Act to alter the particulars to be notified by television
dealers to the BBC.
Would the changes proposed on pages 108 and 147
of the Davies Panel Report relating to the National Audit Office
require a change to either the Royal Charter or Agreement or both?
We consider that it would be open to the Government
to introduce the proposed changes on pages 108 and 147 of the
Davies Panel's Report and we are not aware of any amendment to
either the Charter or Agreement that would be required to do this.
The National Audit Office has indicated that it has the legal
competence to carry out the studies.
Would any other legislative change or changes
to the Royal Charter or Agreement be required to give effect to
the recommendations of the Davies Panel Report?
We are not aware of any further changes that
would be required.
What action has the Department taken in response
to the proposal on page 54 to commission a report on efficiency
savings by the BBC? If such a report has been commissioned, when
will it be made available to this Committee?
See above. A Management Summary will be published
when the Government announces its conclusions on the review during
the course of next January. Unfortunately, it is unlikely that
the results of the independent review will be available before
the Committee draws up its Report.
November 1999
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