4 New responsibilities |
48. In this chapter we look, in more detail,
at the extent to which the benefits of the BBC's new responsibilities
are likely to outweigh the downsides. It is not possible accurately
to ascribe costs to 2016/2017 for each of the BBC's individual
new responsibilities, as in some cases (for example the World
Service) the amount of future BBC funding is dependent upon the
extent to which the BBC is able to make efficiency savings through
restructuring and deliver an acceptable level of service. In the
case of S4C, the terms of the settlement do not set the exact
level of BBC funding beyond 2014/2015. The following table is,
therefore, indicative only.
The BBC's financial Settlement Commitments
||BBC to set budget. Annual level of Government funding at hand-over will be £227M
||BBC to set budget.
||BBC to set budget.|
||£76M||Funding subject to review
||Funding subject to review
||||BBC to set budget. Annual level of Government funding at handover will be £20.2M
||BBC to set budget.
||BBC to set budget.||BBC to set budget.
||||Up to £25M (capital costs)
||Up to £5M (to acquire content)
||Up to £5M (to acquire content)
||Up to £5M (to acquire content)
The BBC World Service
49. In financial terms, the largest new BBC responsibility
is the BBC World Service, which accounts for roughly two thirds
of the total new financial commitment. In order for the BBC to
take over this funding commitment from the FCO, the Government
has had to amend the terms of its Agreement with the BBC as previously
the BBC was inhibited under the terms of the agreement from using
licence fee payers' money for the World Service.
In their evidence to the Committee, both Sir Michael Lyons and
Mark Thompson were very positive about the implications of this
change. Mark Thompson explained that it was:
] a big opportunity potentially, in much more
closely combining there's some dangers and risks as well
the World Service with BBC News, our domestic news operation,
in the new Broadcasting House and around the world.
He told us that the BBC had been interested in the
idea of the licence fee funding the World Service for some time
and that the BBC had received a positive reaction when it tested
the idea with the public in the summer:
] it turned out that an awful lot of licence
payers already believed that it was being funded by the licence
payer and that broad support for the World Service is very high
amongst the British public.
Overall, he expressed confidence that "the public
would want to make sure the BBC was a really good custodian of
its international services as well as of its home service".
From the BBC's perspective, therefore, this new commitment is
a win-win for both it and the licence fee payer, and for both
the World Service and BBC News.
50. The BBC World Service broadcasts in more
than 30 languages to some 180 million listeners around the world.
As the Foreign Secretary told the Foreign Affairs Committee (FAC),
which has recently published a report into the implications of
cuts to the World Service, it is "of fundamental importance
to this country's presence in the world" and a key means
for exerting "our soft influence".
In recognition of the strategic importance of the World Service
to the UK, we pressed the BBC for more assurances about the level
of funding that it would make available for the BBC World Service.
Under the terms of the settlement, the BBC does not formally take
over funding responsibilities for the World Service until 2014/2015.
In the three years before this, FCO Grant-in-Aid for the World
Service will be cut by 16%, though Mark Thompson explained to
] the particular character of the World Service,
the fact that its baseline this year was reduced significantly,
in a sense before the CSR began, mean that the actual savings
the World Service is going to have to make over the next three
years are significantly deeper than the headline numbers suggest
are looking at savings of around 19%.
The implications of these cuts are explored in detail
in the report of the Foreign Affairs Committee, which expresses
concern about the adverse impact of the cuts proposed in the CSR
on World Service services.
51. Mark Thompson was able to offer some reassurance
on future funding levels. He noted that the Government had committed
to allowing the BBC to use some licence fee funds to support the
World Service in the three years before it received full funding
of the World Service.
In his letter to the Chairman, the Secretary of State confirmed
On 14 February, I laid in Parliament an amendment
to the BBC Agreement that ensured the BBC Trust can decide to
use licence fee money to contribute to the cost of restructuring
the World Service ahead of it transferring to the licence fee
Mark Thompson also affirmed that it was the BBC's
intention "if we can, to slightly increase the funding for
the World Service in year four [2014/2015]".
Sir Michael Lyons was anxious not to raise expectations too high,
however, observing that:
Just let me underline that whilst the BBC would like
to ameliorate the impact of this very concentrated reduction,
in time, we can't avoid the scale of reductions that the Director-General
is talking about.
He also affirmed that there would be no ring-fencing
of the World Service budget once the BBC had taken on responsibility
for it, and that no final decisions had been made on future funding
52. 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
53. 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.
54. Like the Foreign Affairs Committee, though
perhaps with a slightly different emphasis, we are concerned with
governance issues arising from the new relationship as well as
with funding issues. One benefit of the change in funding arrangements
is that it becomes easier to show that the World Service is independent
from Government. A potential disadvantage for the BBC, however,
is that because the Government retains the final say on opening
and closing World Service services it has, for the first time,
a direct influence on expenditure allocation within the BBC.
55. We pressed the BBC on the nature of the relationship
it would have with the Foreign Office once it became responsible
for funding the World Service. How, for instance, would the situation
be resolved if the FCO wanted the BBC to open a new service that
the BBC felt was unaffordable? Sir Michael Lyons replied that
the current arrangements under which the Foreign Secretary
has the final say would remain in place. The FAC, however,
has concluded that when the BBC holds assumes financial responsibility
for the World Service, governance arrangements will inevitably
change, noting that "whoever holds the purse strings exercises
a great deal of power". It recommends that a formal concordat
be drawn up between the BBC and the FCO, under which the Foreign
Secretary would "have the right to stipulate minimum levels
of service provision which the BBC will have a formal responsibility
to fund". The
risk of this approach, however, is that it could threaten
or be seen to threaten editorial independence: a core
principle of the BBC.
56. 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.
57. After the World Service, the next biggest
new financial commitment for the BBC under the terms of the settlement
is S4C, worth £76 million a year in 2013/2014 and 2014/2015.
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.
It is, perhaps, revealing that the minutes of the BBC Trust meeting
held on the morning of 19 October 2010 to discuss the terms of
the proposed settlement merely noted "the complexities associated
with entering an even more extensive partnership with S4C"
and that while "it was unclear whether other parties had
been consulted", this "was a matter for the Government".
With considerable understatement, when the meeting resumed later
in the day, the Trust member for Wales is recorded as noting:
The potential difficulties in Wales over the Government's
proposed new partnership model for S4C, especially as it had become
apparent that S4C was not fully aware of this being a possible
When S4C gave evidence to the Welsh Affairs Committee
in December 2010, they were clear that they had been completely
unaware of the proposal until after the deal was done.
58. In defence, Sir Michael Lyons told us that
it's very important that the BBC doesn't leave you
with the impression that we went looking to fund S4C. We did not.
] it was indeed a component of the initial negotiations,
which we were most wary of for two reasons: firstly, that there
might be a danger of top-slicing, and we think we've got a way
round that. Also, we know that in Wales, the issue of the independence
of S4C is felt very strongly and the BBC did not want to leave
any suggestion that it was somehow the pioneer of this proposition.
This reluctance is in stark contrast to the keenness
of the BBC's desire to take on funding responsibilities for the
BBC World Service. Mark Thompson sought to put a more positive
spin on the nature of the S4C agreement by stressing the partnership
element and highlighting synergies: the BBC, like S4C, has "a
profound interest in the Welsh language";
S4C's core news and current affairs spine is BBC branded; and
"many of the most popular programmes on S4C are BBC programmes
such as Pobol y Cwm, our soap opera, and our sports coverage
and so forth".
However, the overall impression was still that the BBC felt it
was doing the Government a favour by offering a more sustainable
means of supporting S4C.
59. The problem the BBC has set itself with S4C
is that it needs, on the one hand, to ward off accusations that
this is "top-slicing" as covered in the previous
chapter by arguing that it will retain oversight over
how S4C spends licence fee money, while, on the other hand, to
refute accusations that it is in effect looking to take over S4C.
We suggested that it was very hard to see how S4C could be both
independent and subject to BBC Trust oversight. In response, Sir
Michael Lyons suggested that the relationship between the BBC
Trust and S4C might be analogous to that which currently exists
between the Trust and the BBC Executive, fronted by the Director-General,
the Trust lay[s] down the strategy advised by the
Director-General, but the day-to-day decisions, and the running
of that, all of those matters, rest entirely with the Director-General
and his staff. 
When we suggested that this model sounded more like
a takeover than a partnership, Sir Michael Lyons said that the
BBC's motivation was the critical issue:
There is no motive here for the BBC to take this
over. It is basically an initiative of the Secretary of State
with the BBC contributing, in the spirit of partnership, to see
if it can find a solution for Welsh language broadcasting.
60. The extent of the practical difficulties
associated with this part of the settlement can be gauged from
the fact that arrangements for S4C cover over a page of the four
page letter from the Secretary of State to the Chairman of the
BBC Trust detailing the settlement. A sense of the strained nature
of subsequent negotiations to pin down the new arrangements can
be gleaned from the tone of correspondence between the interested
parties. On 10 November 2010, Sir Michael Lyons wrote to John
Walter Jones, then S4C Authority Chairman, stating that "the
BBC has no ambitions to take over S4C" and affirming a commitment
to "a creatively independent S4C".
On 18 November 2010, John Walter Jones responded welcoming the
first statement, but challenging the second:
In your letter you refer to a 'creatively independent'
S4C. These are your words, not mine. The S4C Authority, along
with a large number of organisations in Wales, believes that the
independence of S4C, both editorial and operational, is of the
utmost importance, and your use of the term 'creatively' implies
something that falls far short of meaningful 'independence' [
On 7 December 2010, John Walter Jones wrote to the
Secretary of State observing that "the situation pertaining
at S4C cannot be allowed to continue" and confirming his
intention to retire as Chair of the Authority with immediate effect.
61. A clause in the settlement appears to rule
out an alternative solution whereby a part of the licence fee
is used to fund non-BBC public service content, with no strategic
In the event that a new partnership model does not
prove viable for any reason, the Government will not take licence
fee money itself for this purpose
The implication is that, if the new BBC/S4C partnership
does not work, then the Government will resume funding S4C, presumably
at a lower level. In this event, presumably to deter the BBC from
pulling out (despite the fact that this option might be attractive
to licence fee payers) the licence fee would be reduced by an
amount "equivalent to the contribution that the BBC would
otherwise have made to S4C".
62. 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.
63. 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.
64. After the BBC World Service and S4C, BBC
Monitoring is the third largest new financial commitment taken
on by the BBC as part of the settlement. BBC Monitoring is part
of the BBC Global News Division, which also includes the BBC World
Service. It is currently funded by the BBC World Service and Government,
but has complete editorial independence. It is an open source
news and information publisher, which compiles political news,
comment and reaction from the world's press, radio, TV and the
internet. Reports are translated into English from more than 100
languages. It is available on subscription, and is used by Governments,
NGOs, analysts, academics, multi-nationals, journalists and individuals
worldwide. Although part of the BBC's global news division, its
priorities are also influenced by its Government stakeholders
the Cabinet Office and agencies, the Ministry of Defence
and the FCO. The Cabinet Office is the lead stakeholder, and currently
provides the Government funding. As with the BBC World Service,
under the SCR agreement Government funding will reduce in the
years before the BBC takes charge of the budget in this
case from £23 million in 2010/11, to £21.7 million in
2011/2012 and £20.2 million in 2012/2013. Under the terms
of the licence fee settlement, BBC Monitoring will become part
of the licence fee funded BBC from 2013/2014.
65. BBC Monitoring is a strategic asset, with
the Government being the main customer. There is arguably little
direct benefit to licence fee payers, who are less likely to be
aware of, or to avail themselves of, the service. Once the BBC
assumes budgetary responsibilities, it will need to agree a new
framework for the adequate supply of monitoring services to the
Government. Although the changing nature of the partnership has
understandably received far less scrutiny than the more high-profile
BBC Worldwide, there is again scope for tension under the new
funding arrangements if the Government stakeholders wanted to
maintain or expand monitoring services that the BBC judged to
be unaffordable. 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.
66. Under the terms of the settlement, the licence
fee money currently ring-fenced for digital switchover will be
increased from £133 million per annum to £150 million
from 2013/2014 to 2016/2017, but reallocated to ensuring access
to broadband across the UK. Mark Thompson justified this additional
financial responsibility as consistent with BBC public purposes.
However, one issue we have not had clarified to date is the extent
to which the BBC retains control of the share of the licence fee
earmarked for broadband. 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
67. The final, and least costly, additional responsibility
for the BBC is supporting the Secretary of State's initiative
to establish local TV in the UK. In our most recent evidence session
with the Secretary of State, we were left in no doubt as to the
importance he attached to this initiative. When we asked him what
he would like his time at DCMS to be remembered for, a "a
thriving local TV sector" was the first thing he cited.
This is perhaps, surprising, given widespread scepticism that
this is a viable option.
68. The settlement commits the BBC to playing
an active role in supporting new local television services through
a partnership fund providing capital costs of up to a total of
£25 million in 2013/2014 for up to twenty local TV services,
and by committing ongoing funding of up to £5 million per
annum from 2014/2015 to acquire content for use on its own services
from these new services. The BBC justified this partnership as
consistent with BBC public purposes. Sir Michael Lyons also stressed
that the BBC was making "a very modest contribution to the
capital start-up costs [
] of a much lower value than the
BBC has offered in the past", with viewers benefiting from
any purchase of local TV content.
69. We put it to the BBC that the Government
was effectively calling on the BBC to subsidise an initiative
that was not commercially viable. Mark Thompson responded by saying
The debate about whether it's necessary and sustainable,
and whether there's a long-term commercial model, is all to come.
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.
70 Q58 Back
BBC Annual Report and Accounts 2009/10, p1-13 Back
Foreign Affairs Committee, Sixth Report of Session 2010-12, The
Implications of Cuts to the BBC World Service, HC 849, p.14 Back
Ev 64 Back
Foreign Affairs Committee, Sixth Report of Session 2010-12, The
Implications of Cuts to the BBC World Service, HC 849, paras
81 and 83 Back
Minutes of the BBC Trust meeting, 19 October 2010 Back
Welsh Affairs Committee, S4C, transcript of oral evidence,
14 December 2010, HC 614-iii Q265-273 Back
Letter from BBC Trust Chairman to S4C Chairman, 10 November 2010 Back
Letter from the Secretary of State for Culture, Olympics, Media
and Sport to BBC Chairman, 21 October 2010 Back