5 The future funding and governance
of the World Service
66. In addition to the financial settlements
announced in the Spending Review, the Government also announced
a change to the method of funding of the World Service: "from
2013-14, responsibility for funding the BBC World Service will
transfer to the BBC".
In its written evidence to the Committee the BBC World Service
confirmed that from April 2014, it would be financed from the
UK Licence Fee, rather than through the existing Grant-in-Aid
delivered via the Foreign Office.
The Foreign Secretary clarified that:
From 2014/15, the BBC will provide World Service
funding from the Licence Fee, and the amount I had allocated (£227
million for resource and capital) will be cut from the FCO's baseline
[...] Until then the FCO will continue to fund the BBC World Service
in line with the (CSR10) settlement figures.
The TV licence fee has been frozen at £145.50
a year for the next six years as part of an agreed 16% cut in
the BBC's budget.
The BBC World Service noted that "after extracting an efficiency
dividend", the BBC would commit to providing sufficient investment
in the World Service to support its current plans for the period.
67. Giving evidence as part of our FCO Performances
and Finances inquiry in November 2010, our witnesses from
the World Service and the FCO supported this change. The World
Service stated that "the move away from direct government
funding will further reinforce BBC World Service's reputation
for independence" and that "BBC World Service will be
strengthened by its ability to draw on the full resources of the
BBC [...] without being constrained by the barriers that have
been required by separate funding sources".
Peter Horrocks told us that "we [the BBC] can be confident
about this new arrangement", and that it was something he
had always thought to be a good thing.
He was clear that this change was "in the best interests
of the World Service".
The FCO argued that day-to-day governance as a result of this
change would not differ from current practice: the objectives,
targets and priorities of the World Service would continue to
be agreed between the BBC Trust and the Foreign Secretary, whose
consent would continue to be needed to the closure of foreign
language services (see paragraph 68 below). Simon Fraser told
us that the "terms of the relationship remain unaffected,
other than in the sense of who holds the purse strings".
68. The BBC's written evidence to our previous
inquiry set out the basis of the Government's new agreement with
the BBC Trust in relation to the Service's governance from 2014-15:
- The BBC Trust sets the overall
strategic direction of the BBC including the World Service;
- The BBC World Service will remain editorially
independent and will be answerable to the BBC Trust;
- The BBC will continue to set the objectives,
priorities and targets for the World Service with the Foreign
- The Foreign Secretary's written approval will
still be needed for the opening and closure of any language service.
69. When we took evidence in November 2010 there
had yet to be a formal concordat drawn up between the FCO and
the BBC over the future management of the World Service. Peter
Horrocks assured us at the time that "the right measures
would be put in place" to prevent any possible risk of the
World Service budget being 'siphoned off' to fund other BBC activities.
He was sure that the World Service would "be able to reassure
the Committee in relation to those mechanisms once they're agreed
in the next period."
Timing of the decision
70. During our original inquiry, it became apparent
that part of the reason for the lack of detailed information about
future governance arrangements for the World Service arose from
the last-minute nature of the decision to transfer funding responsibility
to the BBC. In November 2010, Peter Horrocks told us that "the
actual decision to do it, or the likelihood of it, only happened
about 10 days or two weeks prior to the announcement",
and the process "suddenly accelerated because there were
proposals from the Government to which we needed to respond. It
was something that we had put thought into in advance, but, of
course, it happened more quickly than any of us had expected."
Simon Fraser told us that "the discussions on the handling
of the BBC World Service came relatively late in that negotiation".
71. In March 2011, Mark Thompson provided further
information on just how 'last minute' the decision to transfer
funding responsibility had been. He told us that he was aware
of discussions "in the air" and he had discussed the
possibility of this change "throughout the summer" with
Mr Horrocks. Mr Thompson added that, prior to formal request from
Ministers in October 2010, the BBC had "modelled the funding
of the World Service":
we, at the top of the BBC, had in our own time and
on our own terms in that summer discussed, researched, considered
and come to the conclusion that, on balance, the merits of moving
to licence fee funding over grant in aid funding outweighed the
demerits. We came into the conversation with Ministers in October
with a considered and carefully researched view that under the
right circumstances this could be a good idea.
Notwithstanding these earlier "modelling"
exercises carried out by the BBC during summer 2010, the first
formal conversation on the matter with the Secretary of State
for Culture, Media and Sport had taken place in "early October".
that conversation, the Secretary of State had asked the Director-General
whether "there was any kind of Government expenditure currently
on the national accounts that the BBC might potentially be prepared
to fund through the licence fee" and "first raised the
idea of whether the licence fee could take over funding the World
Service." Mr Thompson recalled that he had met the Foreign
Secretary twice during the Spending Review process: "immediately
prior to the announcement of the Spending Review" and then
after the settlement decision to discuss options in terms of closures
72. In subsequent written evidence, the World
Service provided us with a "Summary of events during licence
fee settlement negotiations between the BBC and the Government
in October 2010".
The first event listed occurred on Monday 11 October (nine days
before the Spending Review announcement), when "the BBC was
advised (both Trust and Executive) that as part of the Spending
Review the Government was actively considering the funding of
free television licences for the over-75s and the funding of the
World Service, and was considering transferring funding responsibility
for both from the Government to the licence fee".
The "exploratory" conversation with the Secretary of
State for Culture, Media and Sport that Mr Thompson had mentioned
in his oral evidence had taken place on the following day, Tuesday
12 October. Negotiations had continued throughout the run-up to
the SR2010 announcement. A set of draft Government proposals was
not prepared "for review by the Executive Board and the [BBC]
Trustees" until Monday 18 October.
73. The Foreign Secretary confirmed to us "that
the final agreement within Government on this was only reached
shortly before the Comprehensive Spending Review was finalisedthe
day before, I think". He went on to present the change in
management and governance of the World Service, not only as a
benefit to the World Service but also to the Exchequer:
This is an attractive option on the grounds of a
secure future for the World Service, and a genuine reduction in
public expenditure. It is a huge saving off the FCO baseline.
It is a genuine public spending reduction, because it then goes
into the licence fee. However, there were other options available
to the Chancellor and the Government which were also looked at
up to the last momentI think up to the day before the comprehensive
74. The FCO subsequently informed us that Mr
Hague agreed to the transfer of the funding of the World Service
to the licence fee on Monday 18 October 2010. They added:
There were discussions over the formal wording of
the DCMS [Department of Culture, Media and Sport] Settlement letter
and of our settlement letter on 19 October and the announcement
was made on 20 October. The Foreign Secretary met Sir Michael
Lyons and Mark Thompson on 20 October.
75. The decision to transfer
funding responsibility for the BBC World Service from the FCO
to the BBC will have major long-term ramifications for the future
of the World Service. We were told that the BBC carried out "modelling"
of a transfer of funding during summer 2010, because such a decision
was, according to the Director-General, "in the air"
during the run-up to the Spending Review. We recommend that, in
its response to this Report, the Government should clarify exactly
when and by whom such a transfer was first mooted in discussions
between the Government and the BBC, who initiated those discussions,
and to what extent the BBC's "modelling" work and internal
discussions about a transfer carried out prior to October 2010
were encouraged by the Government. We note that following this
preliminary work by the BBC, discussions between Ministers and
the BBC about a funding transfer did not take place until nine
days before the formal announcement of the change on 20 October
2010, and the agreement of the Foreign Secretary was secured only
48 hours before. We conclude that taking this decision in such
a short space of time cannot have allowed the FCO to consider
the full range of options and implications. We further conclude
that the decision was essentially financial, taken at very short
notice, with the full agreement of BBC top management.
Future governance arrangements
76. We pursued the question of future governance
arrangements for the World Service during our session on 9 March.
Representatives from the trade unions recommended that a combination
of continued Parliamentary scrutiny of the World Service, and
an internal ring-fence, guaranteeing the World Service a set percentage
of the overall BBC budget, could help protect its budget from
any risk of its being siphoned off to other areas of the BBC.
We raised these suggestions with World Service management. Peter
Horrocks reiterated that the transfer of funding responsibility
was to the benefit of the Service. He also made clear that he
and the FCO had not seen eye to eye in recent months:
As long as the understanding of the need for the
World Service is there, and the BBC Trust puts in place the right
mechanisms, and has a way of being able to assess the difficult
judgment between the delivery of services to UK audiences and
the delivery of services to international audiences [...] I believe
that we will be in a better position, not least because of the
experience of recent months, when it has been difficult to share
with the Foreign Office the judgments that I have been outlining
through the course of my evidence.
Mr Horrocks stated that a concordat over governance
would be devised in due course: "within the licence agreements
the protection will be there. It will not be possible under those
mechanisms for the budget to be raided month by month or year
77. Mark Thompson elaborated on these proposed
arrangements, which, he suggested, would provide "a higher
level of protection than that which the World Service has enjoyed
up until now". He told us that:
The expectation is that there will be some form of
service licence; that is, a formal document that requires the
BBC to pay within a certain parameter plus or minus x% of the
licence fee to this service. That will be accounted for, and it
will be audited afterwards.
In common with Mr Horrocks, he was critical of the
FCO's past exercise of its responsibilities for the World Service:
our current system has led to a very substantial
and damaging reduction in the funding of the World Service. We
are moving to a system where that will be harder and much less
likely to happen. I think that there will be more security in
the future than there manifestly is in the current arrangements.
78. Mr Thompson also argued that a planned new
management structure at the BBC would help guarantee the World
Service a voice at the senior levels of the BBC:
Under the new arrangements there will be a director
of news [...] who will be on the executive board of the BBC and
who will be in charge of delivering all the BBC's journalism.
They will have explicit objectives in ensuring that the BBC's
international journalistic services, and specifically the BBC
World Service, are delivered to the highest possible standard.
[ ...] within her brief, I am clear that she will be charged and
held to account for the quality and support of the international
79. The Foreign Secretary described the proposed
change to World Service governance as "an attractive option
on the grounds of a secure future for the World Service".
He added that:
The governance mechanisms are to remain essentially
the same [...] Such provisions that are in the existing agreement,
which mean that the Foreign Secretary has to approve the opening
or closure of new language services, will be retained in the new
arrangements. I agreed that with the BBC Trust at the time of
this change [...] So those safeguards will be there for the future.
He also indicated to us that the FCO, despite transferring
funding responsibility for the World Service to the BBC, would
monitor the BBC's management decisions in respect of the World
Service and would intervene if necessary: "If the BBC set
about systematically running down the entire thing in the way
described, it would be open to us to change the arrangements again."
80. We do not believe that the
decision to transfer funding responsibility for the World Service
from the FCO to the BBC will make the World Service's funding
more secure. We are concerned that, despite the mechanisms and
procedures we have been assured will be put in place, this decision
could lead to long-term pressure on the World Service budget,
with the risk of a gradual diversion of resources from the World
Service to fund other BBC activities. The freezing of the BBC
licence fee for six years from October 2010 may increase the temptation
for BBC senior management to "raid" World Service funding.
In addition, the BBC may be vulnerable to media campaigns confronting
the British public with a choice between, for instance, BBC spending
on popular light-entertainment programmes and spending on news
services in foreign languages in remote parts of the world. There
is also a risk that Parliament's current ability to oversee the
work of the World Service, in particular through select committee
scrutiny, may be weakened under the proposed new arrangements.
We therefore recommend that no transfer of funding responsibility
for the World Service from the direct FCO Grant-in-Aid to the
BBC should take place until satisfactory safeguards have been
put in place to prevent any risk of long-term erosion of the World
Service's funding and of Parliament's right to oversee its work.
81. The FCO has attempted to
reassure us about governance arrangements after the proposed transfer
of funding, by arguing that "the terms of the relationship
[will] remain unaffected, other than in the sense of who holds
the purse strings". Unfortunately, whoever holds the purse
strings exercises a great deal of power. It is not difficult to
imagine a situation some years in the future in which the BBC
Trust might present the Foreign Secretary of the day with a fait
accompli, along the lines of, "You can have a
Russian service or you can have an Arabic service, but you can't
have both because we are not prepared to fund both". We therefore
conclude that a formal concordat should be drawn up between the
Government and the BBC Trust, to make detailed provision for future
funding and governance arrangements for the World Service. We
recommend that this concordat give the Foreign Secretary not only
the final decision over service closures, but also the right to
stipulate minimum levels of service provision which the BBC will
have a formal responsibility to fund.
82. In the event that the proposed
transfer of funding in April 2014 goes ahead, then, in view of
the Foreign Secretary's retained oversight responsibilities for
the World Service, we intend to continue after that date, in conjunction
with our colleagues on the Culture, Media and Sport Committee,
to monitor the funding, policies and performance of the World
Service, its links with the FCO, and its role as an important
projector of the UK's influence and 'soft power'.
83. We further recommend that,
if the transfer of funding takes place, the Foreign Secretary
ensure that the World Service is adequately represented at the
top levels of BBC management; and in particular that the Director
of the World Service should have a place ex officio
on the new Executive Board of the BBC, and that the International
Trustee of the BBC Board of Governors should be given the specific
responsibility of representing the interests of the World Service.
104 Spending Review 2010, October 2010, Cm 7942,
p. 59, para 2.90 Back
Foreign Affairs Committee, Third Report of Session 2010-11, FCO
Performance and Finances, Ev 71-78 Back
FCO Performance and Finances, Ev 35-36 Back
Tara Conlon, 'How the BBC Licence Deal was done', The Guardian
Unlimited, 21 October 2010 Back
FCO Performance and Finances, Ev 71-78 Back
Ibid., Ev 78 Back
Ibid., Q 59 Back
Ibid., Q 65 Back
Ibid., Q 160 ff. Back
Foreign Affairs Committee, Third Report of Session 2010-11, FCO
Performance and Finances, Ev 71-78 Back
FCO Performance and Finances, Q 72 Back
Ibid., Q 62 Back
Ibid., Q 63 Back
Ibid., Q 118 Back
Q 110 Back
Qs 111, 106 Back
Qs 106-118 Back
Ev 41-42 Back
Ev 41-42, para 11 Back
Ev 41-42 paras 1-3, 12 Back
Ev 45 Back
Q 15-17 Back
Q 58 Back
Q 60 Back
Q 103 Back
Q 103 Back
Q 121 Back
Developments in UK Foreign Policy, Transcript of session
of 16 March 2011, Q 80 Back
Developments in UK Foreign Policy, Q 81 Back
Developments in UK Foreign Policy, Q 81 Back