BBC Licence Fee Settlement and Annual Report - Culture, Media and Sport Committee Contents

3  Outcome

33.  This chapter looks at the broader implications of the settlement, assessing how good a settlement it is both for the BBC and for licence fee payers.

34.  Under the terms of the settlement, the annual licence fee will remain at £145.50 until the end of 2016/2017. The BBC will take on a suite of additional spending requirements, including the BBC World Service, a significant contribution to S4C, and support for local television. The Government undertakes during this period not to impose any new financial requirements or fresh obligations of any kind on the BBC and/or licence fee revenues except by mutual agreement. According to both the Government and the BBC, the BBC will need to make savings of 16% over the four years from 2013/2014 to 2016/2017 if it is both to absorb the additional responsibilities and adjust to a freeze in the level of the licence fee. The saving to the Exchequer is estimated at some £340 million annually from 2014/2015. Sir Michael Lyons told us that the 16% figure is the joint assessment by the Government and BBC of the impact of the agreement.[47] In more recent statements, he has also emphasised that the 16% figure assumes inflation at only 2%, and that, therefore, "the full impact on BBC services depends very much on the level of cost inflation over the next five years, and no-one knows what will happen there".[48]

The BBC's defence of the settlement

35.  Defending the settlement requires a difficult balancing act for the BBC as it has to respond to criticisms that it is both too harsh and too lenient. Understandably, both before the Committee and elsewhere, the BBC has tried to navigate a middle course, arguing that the settlement is hard but fair and thus represents good value for the licence fee payer. Sir Michael Lyons was clear that "this is a tough settlement for the BBC that will require changes in the way we do business".[49] He strongly refuted the suggestion that there were "whoops of joy" in the BBC Trust when the settlement was agreed.[50] Mark Thompson told the Committee that the settlement was tough but that:

[…]Nonetheless, given the length of time and certainty about the BBC's future funding and moreover the guarantees from Government about not adding additional obligations either to the BBC or to the licence fee until the next Charter can be debated, these benefits were sufficiently good that we could recommend the deal.[51]

He emphasised that the BBC would need both to become more efficient, producing as good or better quality services for less, and to make cuts, reallocating resources away from some services, to meet its obligations, but that the certainty of funding was "itself precious, and more or less unique in an industry which, wherever you look in the world, is facing enormous threats".[52] In his speech to the VLV, Mark Thompson appeared thankful that the settlement had effectively staved off what he saw as unreasonable demands for a root-and-branch debate about what the BBC should and should not do.

The financial settlement and its critics

36.  With regard to the financial side of the settlement, the majority of the criticism appears to have been based on the notion that it was too lenient rather than too harsh. This is partly because it is not always clear from BBC statements where it is being forced into making new savings as opposed to merely implementing existing programmes and pre-settlement plans. Sir Michael Lyons appeared to imply that the 16% savings requirement was on top of existing programmes when he told the Committee that it:

[…] is not affected by and doesn't take into account the track record in earlier efficiency savings —the efficiency savings and other measures required by the BBC Trust to live within a fixed licence fee for the last two years of this settlement.[53]

However, this assertion is not always reflected in other BBC statements about savings measures following the settlement. In his evidence to the Committee, for example, Mark Thompson spoke of how productivity gains from new digital broadcast and production centres opening in West One and Salford would contribute to the 16% savings. These are both pre-existing programmes. He also referred a proposal to "reduce our spend on our website by 25%",[54] which first surfaced during the Trust's strategy review process and again pre-dates the settlement. In its BBC strategy review interim conclusions published in July 2010, the BBC Trust observed that "an average of £100 million per year is projected to be released through a new BBC-wide efficiencies programme from 2013/2014".[55]

37.  There are other variables too, which will help the BBC to stay within the financial confines of the settlement. As Mark Thompson observed during evidence to the Committee:

we expect the number of households paying a licence fee to go on growing and that obviously, to some extent, increases the amount of money you get from the licence fee. We believe that we can make further significant strides in terms of the cost of collecting the licence fee and in terms of further reductions in evasion of the licence fee. Depending on a number of other assumptions, we would expect commercial revenue to the BBC to continue to grow fairly rapidly […][56]

All in all, it does appear reasonable to suggest that the BBC has already identified headroom to absorb at least some of its new responsibilities from existing programmes and plans. It may well be that, in practice, the BBC will have to make rather less than 16% new savings.

38.  In the current climate, the financial terms of the settlement appear to us, on balance, to be reasonable. In reaching the agreement, the BBC clearly believed that the terms were worth the certainty given by a licence fee agreement securing its financial future to 2016/2017. We urge the BBC to make it very clear in future financial statements where they are proposing new savings measures, and where they are simply progressing previously announced plans.

Wider concerns

39.  The BBC's mission is "to enrich people's lives with programmes and services that inform, educate and entertain". In order for the BBC to fulfil its mission, the Royal Charter and Agreement sets out six public purposes:

  • sustaining citizenship and civil society;
  • promoting education and learning;
  • stimulating creativity and cultural excellence;
  • representing the UK, its nations, regions and communities;
  • bringing the UK to the world and the world to the UK; and,
  • delivering to the public the benefit of emerging communications technologies and services.

Although the above values are admittedly potentially very broad, it is debatable whether they can reasonably be expanded to capture all the new responsibilities.

40.  The BBC has sought to portray the settlement as a logical end point. In his speech to the VLV, Mark Thompson saw it as a "highwater point" for the BBC taking on new responsibilities, and emphasised that it "sets out clearly that there should be no further calls on the licence fee, no new commitments".[57] It could equally be argued, however, that the settlement paves the way for further demands on the licence fee, if not during this Charter period, then during the next one. The suggestion is that if the licence fee can be put to such diverse ends as the World Service, S4C, broadband and local TV, then the boundaries as to what the licence fee can be used for have been breached. This matters for the BBC, because it has long regarded the licence fee as being exclusively for the use of the BBC and BBC content/services. It has set itself against the alternative view that there can be benefits from using the licence fee to promote wider public service content. In evidence to our predecessor Committee, Sir Michael Lyons conceded the principle that the setting of the licence fee and the use to which it was put was a matter for Parliament and not the BBC, but added the strong caveat that:

It is a matter of some public moment, I think, if, after 50 years of the licence fee having been collected solely on the premise that it is to fund the BBC and nothing else, that any change in that is a matter that the public need to be very clear about the pros and cons and the risks that might flow from that.[58]

In assessing, therefore, whether the settlement is a good deal for the BBC, it is important to consider the extent to which the settlement departs from this principle — whether, for instance, it actually involves the "top-slicing" of the licence fee to fund non-BBC activities. After all, as recently as August 2010, Mark Thompson felt able to claim during his MacTaggart lecture that "top-slicing is firmly off the agenda".[59]

41.  Sir Michael Lyons told us that "all the proposals […] are consistent with the BBC's public purposes and the BBC Trust oversight of money is maintained".[60] In his speech to the VLV, Mark Thompson posed the question as to whether all the additional responsibilities were consistent with the BBC's mission and values, and answered "yes, I believe they are".[61] In the BBC's view, there is, therefore, no deviation in the settlement from the principle that the licence fee is for the use of the BBC and BBC content/services, nor from the BBC's mission and public purposes. During oral evidence we challenged this view.

42.  There are, for example, similarities between the BBC's new funding responsibility for broadband and its funding for the Digital Switchover Help Scheme. In September 2005, the then Secretary of State for Culture, Media and Sport announced details of a comprehensive Digital Switchover Help Scheme that the BBC would fund via the licence fee.[62] Those eligible can receive equipment, help with installation and follow-up support, either free or for a subsidised fee. The Help Scheme is available to people who are aged 75 or over, or registered blind or partially sighted, or entitled to certain social security benefits.[63] The funding for the Help Scheme, ring-fenced and set aside from the licence fee for this purpose, will be increased and reallocated for ensuring access to broadband across the UK.

43.  We put it to the BBC that there was a clear welfare element associated with funding broadband roll out, as it aimed to reach those groups who would not have been reached had it been left to the market. Sir Michael Lyons responded that "the momentum here is essentially one of national economic importance,[64] while Mark Thompson observed that broadband rollout "will mean that all these households can receive BBC public services - our website, iPlayer and so forth".[65]

44.  We also asked how the BBC could justify putting more money into S4C than it was putting into any other region of the UK, given its commitment to represent all the nations equally. We suggested that it must, instead, be an example of "top-slicing" in support of wider public service content. In his response, Sir Michel Lyons stated firmly that:

[…] it's not top-slicing, because top-slicing would only be the case if it was inconsistent with the public purposes and there was no oversight by the BBC Trust.[66]

We suggested — given that money was being taken away from the BBC and transferred to S4C — that to argue that this was not "top-slicing" was dancing on a pin-head. Sir Michael Lyons replied that the money was not being taken away from the BBC because, although S4C would have creative independence, the BBC Trust would retain oversight "to ensure the licence fee payer's money has been spent wisely".[67]

45.  We pressed too on the precise nature of the arrangement for the BBC's funding of local TV, a high priority project for the Secretary of State, under the terms of the settlement. Moving into local TV appears to be in direct contradiction to the BBC's intent, stated in the Strategy Review, to pursue its central mission by doing fewer things better. Sir Michael Lyons responded that the BBC had a long-standing interest in developing local coverage, because audiences would like to see more of it. He described the relationship as one of partnership working, and also saw a clear benefit to the BBC from its commitment to purchase £5 million a year of content. Mark Thompson further observed that Nicholas Shott's report to the Government on local TV was clear on the wider benefits of BBC involvement in the development of local TV. He argued that "what Nicholas Shott is seeing is that a partnership model with significant BBC engagement has potentially powerful benefits to it. That doesn't sound like simple top-slicing".[68]

46.  In his letter to the Chairman dated 9 March, the Secretary of State confirms that "the settlement means that the licence fee will be used to support non-BBC services to a far greater extent than at present".[69] Whether such financial support is considered good or bad for the licence fee payer depends on two things. First, the importance attached to retaining the licence fee exclusively for BBC content and services. Second, even if it is accepted that there may be benefit in using the licence fee to promote wider broadcasting in the public interest, including communications infrastructure benefiting both public service and commercial providers, whether the additional responsibilities under consideration do actually add such value.

47.  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.

47   Q119 Back

48   The BBC Trust - Past Reflections, Continuing Challenges, Speech by BBC Trust Chairman Sir Michael Lyons at the London School of Economics, 9 March 2011 Back

49   Q119 Back

50   Q119 Back

51   Q77 Back

52   The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 Back

53   Q119 Back

54   Q118 Back

55   BBC Strategy Review: Initial Conclusions, BBC Trust, July 2010 Back

56   Q117 Back

57   The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 Back

58   Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBCAnnual Report 2008-09, HC 515, Q4 Back

59   James MacTaggart Memorial Lecture, speech by the BBC Director General Mark Thompson at the Media Guardian Edinburgh International Television Festival, 27 August 2010 Back

60   Q122 Back

61   The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 Back

62   Tessa Jowell confirms Digital Switchover Timetable and Support for Most Vulnerable, DCMS Press Release 116/05, 15 September 2005 Back

63   Switchover Help Scheme -  Back

64   Q125 Back

65   Ibid. Back

66   Q127 Back

67   Q129 Back

68   Q130 Back

69   Ev 64 Back

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© Parliamentary copyright 2011
Prepared 19 May 2011