House of Commons - Public Accounts

Select Committee on Public Accounts First Report

FIRST REPORT

The Committee of Public Accounts has agreed to the following Report:

COLLECTING THE TELEVISION LICENCE FEE

INTRODUCTION AND LIST OF CONCLUSIONS AND RECOMMENDATIONS

The television licence fee is collected by the BBC and used to fund public service broadcasting throughout the United Kingdom. A television licence is required for the installation or use of any equipment for the purpose of receiving television broadcasts in the United Kingdom.[1] The current cost of a colour television licence is £112, and a monochrome licence is £37.50.

The licence fee money collected by the BBC is passed to the Department for Culture, Media and Sport (the Department) and then surrendered to the Exchequer. The Department issues a grant to the BBC, in practice equivalent to the licence fee income collected, less the Department's costs.[2] In 2001-02 the licence fee income collected was £2.5 billion. While the BBC is responsible for issuing licences, collecting licence fees and enforcing the licensing system, the Department retains an overall responsibility for licence fee policy including setting the level of the fee.

On the basis of a Report by the Comptroller and Auditor General,[3] the Committee examined the Department and the BBC on the level of licence fee evasion; catching evaders; the penalties for evasion; and the BBC's accountability to Parliament.

Our main conclusions are:

Television licence evasion reduces the money available for programme making and potentially increases the cost of a licence for those who do pay. The BBC has made good progress in reducing the evasion rate, from an estimated 12.6% in 1990-91 to 7.9% in 2001-02. But with some 2 million evaders, costing the BBC over £200 million a year, evasion remains a significant problem.

The BBC should reduce the number of wasted visits made by enquiry officers. Enquiry officers made 3.5 million visits in 2001-02 but caught only 459,000 of the two million suspected evaders, and four out of every five visits resulted in no customer contact. Enquiry officers visited some 657,000 properties that were vacant, under construction or did not exist, and 71,000 properties that were already licensed. Improving the quality of data should be a priority, preferably through specific surveys rather than as a by-product of enquiry officer visits. Visits could then be better targeted to yield more licence sales.

The current situation where the Comptroller and Auditor General has no right of access to the BBC to examine how more than £2 billion a year of taxpayers' money is used, and to provide independent assurance to Parliament, is anomalous. The consideration being given to regulation and oversight of the BBC in the context of the Communications Bill is an opportunity to correct the position and we have pressed the Department to do so.[4] In addition, the BBC should look for ways of minimising the inconvenience it causes by pursuing people who do not have a television.

Our further conclusions and recommendations are:

It has taken four years to revise the statistical model for estimating the evasion rate. In the meantime there has been no reliable estimate of evasion, and it now turns out that in the past the evasion rate has been as much as one and a half times greater than reported. The Department and the BBC should keep the model up to date by checking each year that the baseline data (such as the number of potentially licensable places) and underpinning assumptions (such as the proportion of households with a television) remain valid.

As the BBC's financial planning is linked to assumptions about future sales of licences, it should make sure that its targets for reducing evasion are realistic and set clear milestones so it can monitor progress.

The BBC has contracted out the bulk of licence fee collection, so contingency plans for maintaining licence fee income are needed in the event of contractor default. As the appointment of the current contractor took at least 15 months, it is not clear that the BBC would be able to appoint another quickly enough to avoid a break in licence fee collection.

The accuracy of the BBC's database of licensable properties, which is central to the enforcement effort, is being reduced by the failure of some television dealers to comply with the statutory requirement to notify the BBC of sales. Up to 40% of sales are not being notified, and the licence sales lost as a result could be over £7 million a year. The BBC should work with dealers to see what can be done to make the notification system more efficient and effective, for example by extending the use of electronic notification, which could also reduce the administrative burden on dealers.

Prosecution is having no effect on large numbers of television licence evaders. More than half of those convicted for evasion are not paying the fines imposed by the courts, and around a third of those convicted are prosecuted a second time because they continue to evade. In our separate Report on the Collection of Fines and other Penalties in the Criminal Justice System (HC 999, Session 2001-02), we make a number of recommendations to the Lord Chancellor's Department including the implementation of management information systems to facilitate proper debt management and assist magistrates when sentencing; reviewing the scope for incentives or penalties to encourage prompt payment of fines; and widening the sentencing options available to the courts when dealing with defaulters.

THE LEVEL OF LICENCE FEE EVASION

In 2001-02 the BBC issued 23.7 million television licences and collected income of £2,533 million. Although there had been a downward trend in evasion there were still some 2 million evaders and an estimated £ 218 million was lost through evasion. This was equivalent to an evasion rate of 7.9%, compared to an estimated 12.6% in 1990-91, a figure the BBC expected to reduce to 4% by the time its current Royal Charter expired in 2006.[5]

The estimated evasion rate was based on an updated statistical model the Department and the BBC had been revising since 1998. The new model assumed the proportion of households or business premises with televisions had increased from 97.25 to 97.6%, and included previously excluded properties such as second homes, student halls of residence, military establishments, hotels and hostels.[6] Figure 1 compares the evasion rate since 1990 under the new and old models and shows that under the old model, which was used until early 2002, evasion was understated.

Note: The original model does not continue beyond 2001. However, for the purposes of comparison, the evasion rate in 2001-02, calculated on the same basis as the original model would be between 4.0 and 4.5%. For the purposes of illustrating the trend, the midpoint of this range, 4.25%, is shown for the original model for 2001-02, and the figures for the new evasion model have been extrapolated back to 1990-91.

CATCHING LICENCE FEE EVADERS

The bulk of the collection and enforcement is contracted out to the TV Licensing agent, historically the Post Office and its subsidiary companies. In 1998 the BBC opened up the contract to competition and the contract was awarded to Envision Licensing Limited—a special purpose consortium of the Post Office (then Consignia Customer Management Limited), the marketing agency WPP Limited and Bull Information Systems Limited—for seven years from 1 April 1999.[7]

However, Envision did not achieve the sales expected in 1999-2000 and 2000-01 and as a result experienced financial difficulties. The shortfall also meant that, had the trend continued, net revenue to the BBC would have been an estimated £200 million lower than planned over the period 1999 to 2006. To maintain continuity of licence fee collection the BBC and Consignia entered an agreement whereby Envision would continue to administer the licence fee regime until March 2001, when the contract was terminated. The BBC then set up interim arrangements with Consignia while it re-competed the contract. Capita Business Services Limited was appointed for ten years with effect from 1 July 2002. The BBC confirmed that it had investigated reported instances of poor performance by Capita on other contracts before making a decision, and were confident that Capita's was the best bid.[8] Given the abortive exercise with Envision and what the Committee of Public Accounts established when investigating Capita's role in administering Individual Learning Accounts, where significant fraud occurred, the Committee suggests that the BBC should set in place continuous and rigorous controls on the performance of this company in collecting licence fees.

To identify potential evaders and plan enforcement activity, including visits by the TV Licensing agent's field force of enquiry officers, the BBC has a database of licensable properties and licences in force. But inaccuracies in the database arise as properties are built, demolished or converted to new uses such as separately licensable self-contained flats, and as people changed address.[9] There have also been design problems with the database, including the limited amount of data that could be stored.[10] The BBC was looking to the new TV Licensing agent to deliver a new version.

At 3.5 million, the number of visits made by enquiry officers in 2001-02 far exceeded the estimated 2 million total number of evaders. They caught 459,000 suspected evaders, but over 2.9 million visits, almost 84%, did not result in customer contact. Moreover, some 594,000 visits were to properties vacant or under construction, and a further 63,000 visits were to properties that did not exist (Figure 2). The BBC said that it had been necessary to visit some properties more than once, and that visits had a deterrent effect. But there had also been no other way of knowing which of the unlicensed properties on the BBC's database required a licence.[11]

In addition, some 115,000 enquiry officer visits were to properties which they found to be properly licensed or did not require a licence. The BBC's duty was to enforce the law and to try to ensure that the honest majority was not disadvantaged, and as one in five people who claimed not to have a television did in fact have one, the only way to be sure was to visit. The BBC had no automatic right of entry so it asked for co-operation and insisted only if it had a search warrant.[12]

Another way of keeping track of licensable equipment is the statutory requirement on television retailers to notify the BBC of sales. But up to 40% of sales are not being notified, and in 2000-01 this could have cost £7.7 million in lost licence sales. The BBC had been taking action to strengthen the arrangements for ensuring compliance by visiting television dealers, and some 4,200 dealers had been visited in the previous year. It was also prosecuting dealers who failed to comply, and nine prosecution statements had been taken in the last year. To improve the notification process, one company now used electronic point of sale notification as a result of being prosecuted.[13]

Keeping up with emerging technologies, and defining what constituted licensable equipment, was a challenge. The Government was looking at ways to preserve the principle that those who receive services should pay, and personal computers capable of receiving television signals through an aerial already required a licence. There were currently no proposals to require licences for signals received through the internet but there will have to be provision to define dealers and television sets in different ways in the future, to keep up with the challenge ahead.[14]

THE PENALTIES FOR EVASION

Decisions about whether to prosecute evaders are made within an overarching policy of providing those who are caught every opportunity to pay, and prosecuting those who consistently refuse to pay. The BBC only prosecutes as a last resort, so although some 366,388 prosecution statements were taken in 2000-01 only 151,312 cases were heard. The level of fine, within a maximum of £1,000, was a matter for the courts, and the 128,894 people convicted had been fined a total of £12,923,610—an average of £100.26. In addition the average costs awarded were £40.57.[15]

However, over the last three years some 56% of fines had not been paid, and conviction did not mean that the offender automatically bought a licence. In 2000-01 40,000 people were prosecuted a second time because they continued to evade after being convicted, and in 2001-02 the figure was 44,000. The Department thought confiscation of televisions would be problematic because the licence was for an entitlement to receive the service and the BBC did not own the equipment. Replacement televisions could also be bought quite cheaply second hand.[16]

The penalties for licence fee evasion were being considered in the light of the October 2001 report on the Review of the Criminal Courts of England and Wales. That report, prepared for the Lord Chancellor, the Home Secretary and the Attorney-General, had recommended that the use of a television without a licence should be dealt with in the first instance by a fixed penalty notice, discounted for prompt purchase of a licence and payment of penalty.[17]

THE BBC'S ACCOUNTABILITY TO PARLIAMENT

The Comptroller and Auditor General has access to the BBC to examine the arrangements for the collection of the television licence fee. He also has access to examine the use made of the grant the BBC receives from the Foreign and Commonwealth Office to support the World Service. But he does not have access to the BBC to examine and report to Parliament on how taxpayers' money in the form of the Department's grant of more than £2 billion a year is spent.[18]

Arguments in favour of extending the Comptroller and Auditor General's rights of access to the BBC have been repeatedly and forcefully advanced by this Committee, by the Culture, Media and Sport Select Committee, by Lord Sharman in his review of audit and accountability for central government and by Members of Parliament on both sides of the House. Gavyn Davies, before he became Chairman of the BBC, advocated the Comptroller and Auditor General having access to the BBC.

The Department said that access was a matter of policy for Ministers to decide, and that Ministers were looking at the regulation and oversight of the BBC generally in the context of the Communications Bill and the creation of the new regulator, the Office of Communications (OFCOM).[19] The Committee therefore wrote to the Department about the lack of access to the BBC by the Comptroller and Auditor General so that Ministers could take account of the Committee's concerns. The Committee's letter is published here as Appendix 2.[20]

1 C&AG's Report, paras 1-2, 1.2 Back

2 Ibid, para 1.4 Back

3 C&AG's Report, The BBC: Collecting the television licence fee (HC 821, Session 2001-02) Back

4 Ev 25 Back

5 Qq 6, 88 Back

6 Qq 88, 175, 236-237; C&AG's Report, Figure 10 Back

7 Q 69; C&AG's Report, paras 3, 1.7, 2.23, Figure 4 Back

8 Qq 15-19, 69-70, 150; C&AG's Report, para 3, Figure 4 Back

9 Qq 8, 153; C&AG's Report, paras 11, 2.12, 3.16-3.17 Back

10 Qq 153-154 Back

11 Qq 7, 92 Back

12 Qq 21, 30-31, 33-34, 124, 129 Back