BBC Licence Fee Settlement and Annual Report: Responses to the Committee's Fourth Report of Session 2010-12 - Culture, Media and Sport Committee Contents


Appendix 1: Government response


Letter from Rt Hon Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport, dated 6 July 2011

I was interested to read the Culture, Media and Sport Committee's report, BBC Licence Fee Settlement and Annual Report: Fourth Report of Session 2010-12. I have considered very carefully the evidence presented to the Committee and the conclusions and recommendations of the report. I welcome the report's contribution to the on-going debate about the role and funding of the BBC.

I am pleased to present the Government response to the recommendations in the report aimed at Government as an annex to this letter.

Annex

GOVERNMENT RESPONSE TO THE CULTURE, MEDIA AND SPORT COMMITTEE'S REPORT, BBC LICENCE FEE SETTLEMENT AND ANNUAL REPORT: FOURTH REPORT OF SESSION 2010-12

Introduction

The Government welcomes the report and has considered very carefully the evidence presented to the Committee. The Government notes the conclusions and recommendations set out in the report and is pleased to be able to present its response.

Conclusions and recommendations

1. The Government's proposal to have the BBC fund the cost of free licences for the over-75s would have had a significant impact on the BBC's finances, and the present Trust and management clearly regarded this as unacceptable. This may well have made them more amenable to other suggestions and to the eventual outcome. It was inevitable that the BBC would be required to contribute to the effort to reduce the overall level of Government spending but the broadening of this negotiation into a licence fee settlement was not necessary and has weakened the distinction between the BBC and other publicly funded bodies.

Response to 1: This has not weakened the distinction between the BBC and other publicly funded bodies. I am clear about the BBC's unique role but it was important to explore all possible options for reducing the fiscal deficit. As a large-scale public body, with public service obligations in its Charter and in receipt of public funding to the value of £3.5bn, it was entirely appropriate to include the BBC within the scope of the exercise.

2. We recognise that the Government made the first move, that time was of the essence and that the BBC seized the opportunity to pursue a wider settlement, securing its immediate financial future. We consider, however, that the decision to leave the vast majority of the negotiations with the Government to the BBC's Editor-in-Chief and senior management further weakened the arm's length principle. In future licence fee negotiations, we would expect the Trust Chairman, as head of the independent Governing Body, to play a more prominent lead role, acting as a buffer between the BBC and Government.

Response to 2: We do not agree that the arms-length principle has been weakened. It is for the BBC to decide which individuals should represent the BBC. Government was satisfied that the individuals with which we were dealing had the full authority of the Trust Chairman and that the Chairman was being kept fully in the picture. Furthermore, the final settlement was agreed between the Government and the Trust, as set out in the Secretary of State's settlement letter to the Trust.

3. If the BBC is to continue to benefit from a universal licence fee then it is vitally important that both licence fee payers and Parliament should have some involvement when far-reaching decisions about funding and the responsibilities are taken. It is regrettable that the decision to broaden the negotiations over expenditure into a full licence fee settlement meant that the opportunity for this was lost, thus undermining confidence in both the Government's and the BBC's commitment to transparency and accountability. We recommend that it should not become a model for the next round of licence fee negotiations for the post 2016/2017period.

9. The Welsh Affairs Committee has recently undertaken a detailed inquiry into S4C and we do not propose to repeat all its findings here. We do, however, find it extraordinary that the Government and the BBC, which is fiercely protective of its own independence, should find it acceptable to agree a change in the funding and governance arrangements for another statutorily independent broadcaster, S4C, without the latter having any involvement, say or even knowledge of the deal until it has been done.

Response to 3 and 9: Given the scale and pace of the licence fee agreement discussions, it was not practical to have in-depth discussions with all interested parties. The Secretary of State was focussed on the interests of licence fee payers and taxpayers and the timeframe reflected the Government's desire to put the UK's finances in order.

We have responded separately to the Welsh Affairs Committee's recent report on S4C. It is proposed that any changes to S4C's statutory arrangements will be made by order under the Public Bodies Act once that Bill receives Royal Assent. Those changes will be subject to public consultation.

5. It seems evident to us that some of the additional responsibilities that the BBC has taken on under the terms of the settlement widen the scope of licence fee spending beyond any previous interpretation of the BBC's mission and purposes. By any normal definition, this constitutes "top-slicing". The challenge for both the BBC and the Government over the rest of the Charter period will be to demonstrate a clear benefit to the licence fee payer from the BBC taking on additional responsibilities outside its core remit.

Response to 5: The Government disagrees with the Committee's assessment. All the BBC's new funding responsibilities arising from the licence fee settlement are consistent with the BBC's Public Purposes.

6. We share the concerns of the Foreign Affairs Committee regarding the risk to BBC World Service services arising from the proposed 16 per cent cuts in the years 2010 to 2014/2015 before the BBC has taken on responsibility for its funding. We strongly believe that, for relatively modest expenditure, the BBC World Service delivers huge benefits in terms of extending Britain's reputation and influence overseas. We are concerned at the proposed closure of a number of services and, although we have not examined the scope for efficiency savings, we agree with the Foreign Affairs Committee that there is a case for reversing some or all of the planned reduction in funding. We also support its view that this could be achieved by meeting part of the funding requirement from the Department for International Development budget.

Response to 6: The Government has noted the concerns of both the Culture, Media and Sport Committee and the Foreign Affairs Committee, as well as the comments raised in the House during the debate on the World Service on 19 May. The Foreign and Commonwealth Office was invited to review the reduction of the budget of the World Service. This they have now done, and the result was announced in a Written Ministerial Statement laid before the House on 22 June. We attach a copy of the Written Ministerial Statement for the ease of reference of the Committee.

The Government has made clear that the original funding settlement for the BBC was proportionate and fair, with all parts of government having to find difficult savings to address the fiscal legacy of the last government. But in light of events in the Middle East and North Africa since October last year, the FCO looked again at options to enable the BBC Arabic Service to continue its valuable work. To this end, the WMS announces that the FCO will provide additional funding of £2.2m per annum to enable the World Service to maintain the current level of investment in the BBC Arabic Service.

The Foreign Affairs Committee has welcomed the Government's response to their Report.

7. While acknowledging the importance of an adequately funded World Service, there is also a separate funding issue for the licence fee payer; namely the extent to which domestic services and content might be adversely affected if additional funding is diverted to the World Service. This is, of course, the mirror image of concerns expressed by the Foreign Affairs Committee that the BBC may seek to "raid" World Service funding to support domestic services. Together with that Committee, we will follow closely BBC plans to strike a balance between its new World Service and existing domestic priorities.

Response to 7: The Government is confident that the BBC can arrange for sufficient funding for the World Service without significant detriment to core services.

8. Like the Foreign Affairs Committee, we believe that there is a need for clarity as to how the dynamics of the new relationship between the BBC and the Foreign Office will work in practice. A formal concordat between the Foreign and Commonwealth Office and the BBC World Service might provide the desired clarity, so long as it did not undermine BBC editorial independence. We will continue to monitor closely the BBC's progress in securing a positive future for the World Service and the balance of its relationship with the Government.

Response to 8: The rights and responsibilities of all sides will be set out in an amendment to the BBC Agreement, which is an agreement between the Secretary of State for Media, Olympics, Culture and Sport and the BBC. This will include the role of the Foreign Secretary in setting the priorities, objectives and targets of the World Service, and that his written authority would be required for the opening or closure of any language service. We are discussing how the relationship between the BBC Trust and the Foreign and Commonwealth Office will develop once the funding transfers to the licence fee, including a formal exchange of letters between the BBC Trust and the Foreign Secretary to confirm the provisions of the amended BBC Agreement.

Once the funding moves to the licence fee, the Government believes that the proposed new World Service Operating Licence, issued by the BBC Trust, will enable the public and Parliament to see the proposed level of service required from, and funding available to, the World Service.

10. We remain unclear as to how S4C can retain its independence if the BBC Trust is involved at a strategic level. While there may be benefits to both parties from the partnership, there can be no doubt that substantial public funding otherwise available for other BBC content and services will be diverted to S4C. The shotgun marriage of S4C and the BBC is an awkward match, and we shall monitor developments closely to see whether this aspect of the settlement really does represent best value to the licence fee payer.

11. Should it become apparent that the partnership agreement is not the best way forward, or that S4C is unable to maintain sufficient editorial or operating independence under the agreement, then an alternative funding mechanism will be needed. In this event, we recommend that consideration be given to sharing the licence fee in support of increasing public service content choice in Wales without involving the BBC in S4C governance arrangements, as well as to a reduction in the level of the licence fee and alternative funding for S4C.

Response to 10 and 11: The Government is committed to the future of S4C as a strong and independent Welsh language broadcaster, retaining its editorial distinctiveness, and the best way of securing the long-term future of S4C and Welsh language broadcasting is through partnership with the BBC. The Government envisages that the partnership model will provide greater opportunities for value-for-money arising from synergies and efficiencies.

There will be a further review of S4C's strategy and finances, to conclude in good time before the end of the period covered by the Comprehensive Spending Review. The outcome of this review will inform decisions on future funding of S4C.

12. We recommend that the Government and the BBC identify how the licence fee payer benefits from BBC Monitoring and clarify how the decision-making process regarding prioritisation and funding allocation for BBC Monitoring will work once the BBC assumes budgetary responsibilities.

Response to 12: BBC Monitoring supports the BBC's Public Purposes, particularly in bringing the world to the UK, and increases the BBC's ability to maximise scope for sensible efficiencies and economies across the whole of the BBC family. How BBC Monitoring features in the BBC's budgets is a matter for the BBC.

13. We recommend that the Government clarifies the BBC's involvement in the broadband rollout programme and the extent to which it will be involved in the allocation of licence fee money earmarked for broadband.

Response to 13: The Secretary of State and the BBC have agreed that the BBC Trust should be given an appropriate role in the oversight of the broadband rollout programme. DCMS and the BBC Trust will put in place arrangements that fulfil that agreement.

14. Plans for local TV are only in their formative stages and we look forward to the Government's decision, hopefully before the summer, on how it intends to proceed. We applaud the Secretary of State's commitment and enthusiasm, but the project will certainly merit close scrutiny as to its viability. It remains, therefore, to be demonstrated that the admittedly modest funds the BBC has undertaken to commit to this project represents good value for the licence fee payer. We urge the Government and the BBC to clarify the extent to which the BBC will retain control of the licence fee resources allocated to local TV, and the pre-conditions for such an outlay.

Response to 14: The Government is working with the BBC to consider how the BBC's contribution will help support local television services and ensure value for money for licence fee payers. A summary of the 140 responses to the Government's consultation on Local TV was published on 2 June, with the vast majority supportive of the principle of Local TV. The responses produced a wide range of views about how local television could be delivered in the UK and the Government is currently considering the statutory and regulatory options available to enable Local TV to emerge in the UK. The government's final proposals will be published in July and will take account of the settlement reached with the BBC regarding its contribution to this area.

19. We welcome the commitments the BBC Trust has now made on transparency. We are, however, disappointed and frustrated that the banded information on talent salaries is still not in the public domain, given that it was July 2010 when Sir Michael Lyons announced that the BBC would publish it. This is another example of the long gestation time between the BBC identifying a need for policy change and delivery of that change.

20. We assess that the BBC still needs to raise the bar with regard to transparency. We welcome its commitment to go further in this area, and will continue to monitor its publications and statements closely for signs of change.

Response to 19 and 20: The Government strongly encourages the BBC to meet the highest standards in relation to transparency and value-for-money.

21. Having originally made a clear commitment to allow the National Audit Office unfettered access to the BBC, we are very concerned that the Government's proposals fail to deliver this. We urge the Government to address the concerns expressed by the Comptroller and Auditor General and to reach an agreement that will give the National Audit Office all the powers it needs to provide independent assessments of the value for money of BBC expenditure. These should be reported to Parliament rather than to the Secretary of State through the BBC Trust.

Response to 21: The Government is committed to giving the National Audit Office full access to the BBC's accounts to ensure greater transparency. The Government is currently in discussion with the BBC and the National Audit Office about the detail of the new value-for-money arrangements and the National Audit Office's rights of access.

Given the BBC Trust's independence from Parliament and its ultimate responsibility for value- for-money at the BBC, it is appropriate that the National Audit Office reports are presented to the Trust. Under the new arrangements, therefore, the National Audit Office will continue to present its reports to the BBC Trust.

July 2011



 
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Prepared 28 July 2011