UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1603 -i

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

DCMS ANNUAL REPORT AND Accounts 2010-11 and the Responsibilities of the Secretary of State

Thursday 27 October 2011

Jeremy Hunt MP and Jonathan Stephens

Evidence heard in Public Questions 1 - 68

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Thursday 27 October 2011

Members present:

Mr John Whittingdale (Chair)

Dr Thérèse Coffey

Damian Collins

Philip Davies

Steve Rotheram

Mr Adrian Sanders

Jim Sheridan

________________

Examination of Witnesses

Witnesses: Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport, and Jonathan Stephens, Permanent Secretary, Department for Culture, Media and Sport, gave evidence.

Q1 Chair: Good morning, everybody. This is the Committee’s annual session at which we welcome the Secretary State for Culture, Media and Sport, Jeremy Hunt, and the Permanent Secretary, Jonathan Stephens, ostensibly to review the annual report and accounts but generally a wide-ranging exploration of all your responsibilities. Just before we start, two members of the Committee are attending questions but we hope will come to provide reinforcements in due course. I would like to welcome Steve Rotheram as the new member of the Committee; he has replaced Cathy Jamieson, who has been elevated. Not literally; she is now on the Front Bench.

Perhaps I might begin. Secretary of State, you set perhaps one of the most demanding targets in Whitehall in terms of the cost reduction for your own Department, a savings target of 50%. Can you tell us how confident you are that is going to be achieved and what have been the consequences?

Jeremy Hunt: Absolutely, and I may hand over to the Permanent Secretary to put a bit more flesh on the bones of that because he is implementing that particular programme.

Could I just start, as I think this is the first time we have met since the whole phone-hacking issue came to light, by congratulating this Committee on the incredibly important role they played during all those events and in particular, I think, the Select Committee hearings with the Murdochs, which had a very important role in underlining the role Parliament has in getting to the bottom of all these issues. I think that was helpful and extremely important.

Chair: Thank you.

Jeremy Hunt: The 50% target is a huge challenge. It is the biggest in Whitehall. I might start by saying that the reason for that was not because we wanted to cut for the sake of it but because we set as a strategic objective being able to limit the cut to front-line arts and sports bodies to 15%. The only way we could get the numbers to add up if we were going to deliver 15% to people like the British Museum, and the whole sport plans for national governing bodies, was for back-office costs, both at the Arts Council, Sport England and all our arm’s length bodies, as well as ourselves, to be cut by 50%. We are, I believe, on track to deliver that. There is a slightly unusual profile to the cuts because of the Olympics next year, so we will implement a number of them post the Olympics and particularly in the latter half of next year.

But we have had, I think, extraordinary support from the civil servants in my Department, who have been put under huge pressure by having to face change on that scale but, I think, do recognise that as a Department with responsibility for very important sectors in our national life, this is the right thing to do now.

Jonathan, I don’t know if you want to add any details on that.

Jonathan Stephens: Yes, just to say that we are on track against the profile and targets that we have set out, so last year we set out to save £3 million on our pay bill. We slightly overachieved; we reduced it by £3.2 million. In addition we made £1.7 million of savings on non-pay. That, as the Secretary of State said, has been challenging for people in the Department and has caused us to look at how we do things and has caused us to do things in new and different ways that have enabled us in many areas to improve our performance. For example, in correspondence we have gone from close to bottom of the Whitehall league table to close to top of the league table, now, in this current week, achieving more than 60% replies within 48 hours to correspondence into the Department. We’re responding to 95% of PQs within time. In terms of prompt payment of bills, we are paying more than 80% within five days, and more than 90% within 10 days. So, on these key processes our performance has improved.

I am sure you will come on to this later but the Secretary of State, I think, feels that good progress has been made against the policy priorities that he has set. We have also achieved the first major sale of an asset under this Government-the sale of the Tote. Perhaps it is symptomatic of our performance and how we view it that we’ve been asked to take on significant extra responsibilities with the machinery of government shift, and most recently the extra capital programme to extend mobile coverage in rural areas. We’ve taken on the unexpected, as well, in the Royal Wedding.

We are setting ourselves the ambition of being a new model Department in Whitehall terms. We are one of the first to have moved to an all-flexible resourcing model, and other Departments are coming to us to see how it is done, including the Treasury, which is a first in my 28 years of experience in dealing with them.

Q2 Chair: We discussed, I think, in a previous session whether or not you were going to need to make compulsory redundancies. Do you think you can achieve the savings without it, or is that still a possibility?

Jonathan Stephens: I can never rule it out. The savings we have made so far have been achieved without compulsory redundancies. Between now and next year we have agreed to some 79 voluntary redundancies. As the Secretary of State said, our profile requires further reductions in costs and staff after the Olympics and we will approach that on the same basis.

Q3 Chair: The possible move or sharing of a building-is that now off the agenda? Are you staying where you are?

Jonathan Stephens: No. We need to make substantial savings in our non-pay costs as well, including accommodation costs. We have not at all ruled that out. Part of our non-pay savings has been made by quite a determined pursuit of releasing space within our building and then seeking to let it out, so we have secured an extra £1.5 million from increased rental income and we think we can go further in that. If the right offer comes on the table we will certainly look at moving.

Q4 Chair: Looking at the general breakdown of your expenditure by category and the projection over the next four or five years, most areas are suffering reductions but of the same sort of proportion. I could not quite work out-why is it that for broadcasting and media, the resource expenditure drops from about £140 million to £40 million and the capital expenditure goes up from £11 million to £25 million?

Jonathan Stephens: May I ask which table you are looking at?

Chair: I think this is out of your annual report and accounts table 1, pages 15 to 21.

Jonathan Stephens: I most probably had better write with a detailed answer to that, but just offhand I suspect that it may be to do with the shift of responsibility for S4C.

Chair: That would be useful if you could.

Jonathan Stephens: I will certainly write.

Q5 Chair: If I can move on, in terms of the challenges facing the Department, the biggest and most high profile-the one that if it goes wrong, you are dead-is the Olympics. Can you, first of all, say whether there are any things that cause you to wake up sweating in the middle of the night about the Olympics, or are you absolutely confident it is all on track?

Jeremy Hunt: I have not got to the stage of waking up in the middle of the night sweating, but there are always things that you have to be very concerned about. I think transport and security are the two big areas where on a project of that scale there is the most room for unpredictability, and we are doing everything we can to minimise the risks in both those two areas.

At any stage there are things that bubble to the surface as things that need concentrated attention. We have obviously been focusing a lot on the Olympic Stadium recently, and are happy to discuss that in detail. I was at the Olympic Park a couple of days ago to look at the 2012th flat in the athletes’ village, which has now been completed, and I think the transformation of the whole of that area now is extraordinary. It gives great confidence when we are thinking about a legacy, because the key elements now are there: the transformation of Stratford station, which was unveiled at the end of last year; the opening of the Westfield Shopping Centre, which had more than a million visitors in its first week; the 3,000 flats that form part of the Olympic Village, half of which will be social housing; along with all the sports facilities and the modelling of the Olympic Park. I think you have a very strong feeling when you go there that this is an area that is going to be hugely attractive and desirable post-Olympics. In that respect, I think the perennial worry that people have about the Olympics is that we spend a lot of money on the event itself but then you get left with a lot of white elephants afterwards. I think we and the last Government-we need to give them a lot of credit as well for this-have done everything we possibly can to minimise the risk of that happening.

Q6 Chair: It was Jacques Rogge who said he wanted to avoid white elephants and that obviously is desirable, so can you tell us a bit about where we are now on the stadium?

Jeremy Hunt: Yes. Dealing with football clubs is never the smoothest process in the world but we had a process, which the Government and the Mayor of London decided to halt because we were informed by the London Borough of Newham that they were not sure they were able to meet the financial requirements in the bid that they put forward with West Ham and went on to win. We are now going for a different solution, which I think will bring a lot more certainty in the process, which is essentially a leasing solution. We are confident that we will sort out a legacy use for the stadium in perpetuity in the spring, and basically at the moment there is a football option and a non-football option. We are looking very closely at what we can do to make sure we have two good options, both with football use and without football use, so that we have a real choice when it comes to deciding who we would sign a lease with for the use of the stadium.

Q7 Chair: Boris is quoted as saying, "We will keep it in public hands but we will effectively rent it to a football club, almost certainly West Ham." Is that premature, do you think?

Jeremy Hunt: I think it probably is a little bit premature because we are at the start of a process and we will know where we stand, but I think a lot of people in this process have thought that having a football tenant would be the best option in terms of one of the things that would guarantee usage every weekend during the football season. So it is obviously immensely attractive to have a football tenant, but I think we need to be careful to make sure that is not the only option on the table because we want to make sure we have a proper competition, so we want to make sure that we have a viable non-football option as well.

If you look at what is happening in Stratford, you look at Westfield, you look at Stratford station and the transport links, and then you look at perhaps the surprising commercial success of the O2 Arena, it is possible to imagine legacy use that is not football being commercially viable going forward, and I think we need to explore that option carefully as well.

Q8 C hair: On the procedure to reduce the size of the stadium down to 60,000, I understand the cost is estimated to be about £35 million, which previously would have been met by the new owner of the stadium. Were you always going to have to find that cost?

Jeremy Hunt: That was always budgeted for and that was always part of the original proposal.

Jonathan Stephens: Perhaps I could just clarify: what was always in the original budget was the original base case for legacy, which is to reduce it down to 25,000, and that is the £35 million transformation budget that forms part of the £9.3 billion.

Q9 Steve Rotheram: Chair, can I link what you have been saying with something that the Permanent Secretary said earlier? I understand the importance of why DCMS should be located in London with the London Olympics, but post-2012 he was talking about fixed costs such as buildings and reducing that. Both Heseltine and Sir Terry Leahy have produced a report for the Government, and in that they talk about locating Departments out into areas other than London, and one of those suggestions is Liverpool. I think we could make a very attractive offer to the Department to come to somewhere that would have much reduced fixed costs for buildings, and obviously a ready-made work force able and willing. If it is about cost reduction then the Government should be looking at relocating wherever possible, and I can think of nowhere better for DCMS to be than the former European capital of culture.

Jeremy Hunt: Let me congratulate Mr Rotheram on his brilliant advocacy of Liverpool, as ever. From a cultural point of view and a sporting point of view he is absolutely right. Liverpool is a fantastic city. We are looking at all options in terms of how to run a model Government Department. Without wanting to be flippant, one of the things that separates DCMS is that we distribute 93% of the money that we get from the Treasury out to arm’s length bodies, so we have a very different model from other Departments, which run many more of their own programmes. When I started we had about 500 civil servants and that will go down to, more likely, 250, so we are a very small Department in our own right, but I think the real influence that we can have is with our arm’s length bodies and encouraging them to be imaginative about where they locate themselves. I thought you were going to suggest that some of them should locate themselves in the Olympic Park, which has also been discussed as well. But I think it is important that we look at every possible option, and we have responsibilities nationwide so we should be around the country in everything we do.

Chair: I do not want to compete with Liverpool, but the Committee also noticed quite a lot of space at Salford when we went to look at the new media city up there.

Q10 Damian Collins: I am just warming to that theme. I am sure the Permanent Secretary will want to give the Secretary of State options, so I am sure Folkestone could put in an attractive bid for DCMS to be part of the creative regeneration of Folkestone, somewhere the Secretary of State has previously visited.

Going back briefly to the Olympic Park, I wanted to touch on the question the Chairman asked about the cost for refitting the stadium post-Games. Will those costs be dependent on the likely tenants? If it is not football but rugby union or cricket or indeed an athletics stadium with an open-air entertainment space, there may be very different costs and configurations required, depending on the likely tenants.

Jonathan Stephens: Yes, absolutely. The £35 million that is part of the post-2012 transformation budget that is in the £9.3 billion is for a base case reduction down to a 25,000-seater stadium. Building up from that, things that require more would obviously require a different set of costs, and obviously that is something that needs to be covered in the bids we are looking for.

Q11 Damian Collins: I want to ask you questions about football and particularly the Committee’s Football Governance report. Obviously we have had a chance to digest the Government’s response to that, but if I may ask the Secretary of State about this. The Sports Minister was very clear when he appeared before the Committee that the Government would consider legislation as the ultimate sanction if the football bodies refuse to reform, and that again is highlighted in the Government’s response to our report. I wonder if you could say something about that and your appetite for taking that kind of step.

Jeremy Hunt: I think we are very clear that the governance of all our sports is incredibly important. Let me just make it a positive rather than a negative. I think we have an opportunity as a country to be the premier country in the world for hosting major sports events. If you look at the sequence of events that we have coming up after 2012 in this country, it is a big opportunity. It is something we do very well. Two million people come to this country every year to watch or play a major sporting event. That is a big number and helps our tourism industry enormously.

I think there is a very big opportunity there but, as I think you have said in the past, we cannot preach to FIFA about improving their governance unless we are absolutely clean ourselves. So that is why we have to be clear with sports governing bodies, and since the Sports Minister’s comments about football being the worst-governed sport, there seems to be somewhat of a competition among other sports to see whether they can wrest that crown. I think we have to be very clear that sport is a national asset and it needs to be run properly, so we are very serious about being willing to bring forward legislation. I don’t think it would be legislation that was football specific. I think it would be a template that we would expect all sports to follow if they were in receipt of Government money. We would have to think what that would be, but the FA gets £26 million a year from the Government at the moment.

I very much welcomed what the Select Committee said in their report and I hope you, in turn, welcomed our response on 12 October where we basically accepted the case you made for more independent representation on the FA Board, for a licensing system, and for better structures to make sure that supporters have a say in the running of clubs and are potentially able to build up stakes if they want to own clubs.

We have-again being positive-had a pretty good response from the key players in the football world and we have asked them, as you know, to come forward with an agreed set of proposals that meet the issues that you and we raised, before the end of February. Let’s see what happens. I think there is a moment, and I encourage people in the football world to grasp this. We had the massive disappointment of the 2018 World Cup bid but what was impressive about that bid, from my perspective, was the way that all partners in the football establishment came together and put a fantastic bid on the table. There was incredible co-operation between the FA and the Premier League and many other people, and I think there is a moment when we can grasp that to wrestle with some of these longstanding problems, and I am hoping we can give it as big a push as we can to make sure that happens.

Q12 Damian Collins: The Committee has not taken a corporate view on the Government’s response but I certainly was encouraged by the amount of common ground between the Committee report and the Government’s response. I want to ask about two very specific areas, the Government’s position on which in the response I was not 100% clear on. The first was on an issue I raised quite a lot through the hearings: the football creditors rule, by which football debts are paid in full but other debts are not, and therefore communities lose out when football clubs and players get paid in full. The Government has put the challenge to the football authorities to find a way of resolving this issue and finding a modern method of dealing with football debts and other debts of football clubs. There is also a court case pending next month between HMRC and the Football League. If that court case failed and if the football authorities failed to respond to the challenge of removing or reforming the football creditors rule, is there something you would recommend, particularly to the Treasury, in terms of taking action? Many people see this as not purely a football issue, but an issue that affects all businesses and any creditor of a football club, and that affects communities as well.

Jeremy Hunt: We would certainly consider the Government’s position carefully. We need to wait, obviously, until that court case is resolved. I think there is a broader point here, which is that what we are trying to do-one of the most important points we are trying to deal with-in the football governance review is to make sure that football authorities recognise their responsibilities to wider communities. That is why I think it is completely legitimate to say that football clubs are more than just financial assets when it comes to their purchasing or sale. They have huge fan bases and they need to have some responsibility to fans as stakeholders in clubs, and they need to have responsibility to their local communities. I think that one of the reasons why the football creditors rule makes all of us uncomfortable is that it does not seem particularly fair to the Government, but another reason is the local businesses. When you think about the local businesses that suffered when Portsmouth went through its difficulties, you have something there that does not feel right. So I hope that as part of a broader recognition of its responsibilities, the football world does come up with some constructive proposals.

Q13 Damian Collins: One other point-and I would be happy if you answered this question now or in a response in writing at some point after this hearing-is to do with club ownership. The Government’s report was very clear on the need for reform of the club ownership rules in the modern era. We have seen incidents of clubs being acquired by foreign registered companies, organisations, where the ultimate ownership is not known and the football authorities do not have the resources to conduct their own investigations into the ownership. We highlighted the case of Leeds United through the hearings, and there has recently been the case of Coventry City where again, because of the nature of its ownership, it is unclear who the ultimate owners are.

We requested in the report that the Government consider in particular the case of Leeds United and whether there could be a retrospective investigation into whom the owners of the club were before Ken Bates assumed ownership earlier in the year, and whether the Government could talk to HMRC about that. I have had no correspondence with HMRC and of course they will not talk about individual cases. We do not even know whether they have investigated it or not. I would welcome, either now or in writing in the future, a further response from the Government on that point, which was included in our report, because it is not particularly referenced in the Government’s response, although there are general comments about club ownership, which I welcome.

Jeremy Hunt: I will make sure we get you a proper response on the particular Leeds point. I think the general point about ownership of clubs is to get the right balance. I am not in any way against foreign ownership of clubs. I think for every Glazer you have an Abramovich. If you look at the success of the Premier League-the best in the world and something that means that we have fantastic football to watch every Saturday-foreign owners have played a very key role in making that possible, so I think we should welcome good investment.

I looked quite carefully in opposition at whether you could do something around "fit and proper" persons. It is quite difficult because you get people who may not have had the most transparent past in terms of how they made their money, but then turn out to be model owners of clubs. You get other people who may have completely kosher pasts and turn out not to be good owners of clubs, so it is a little bit difficult to make a generalisation. I certainly would not make the generalisation that says foreign ownership is bad and domestic ownership is good. I welcome outside investment but transparency is important, and for me-and I think it is beginning to be solved-the issue that has been a big concern is debt. I think the European Financial Fair Play rules will gradually sort the problem out, but we need to be very careful to make sure that very important community assets are not put at risk by irresponsible financial management. I do not want to suggest that is particularly happening but, given what has happened to the banks and other sectors of the economy, we need to be eternally vigilant.

Q14 Damian Collins: I certainly agree with that. I think the concern about ownership is less whether someone is a foreign owner or a domestic UK owner. It is simply whether people knew who the owner was, which has not been the case.

To move on from football, I want to ask a couple of questions about the communications review and some of the things you touched on in your speech to the Royal Television Society as well, particularly the general area of deregulation. Are there any particular priorities for you in where deregulation could support growth in media industries, or are you going to wait and see what responses you get back from the sector?

Jeremy Hunt: We obviously will wait. We will take seriously any responses we get from the sector, but for me the most interesting and important area of deregulation that we are looking at very closely is deregulation of the ability to use communications assets, in particular to make sure we get the best super-fast broadband network in Europe, which is an absolute priority for the Government. We think that the digital and creative industries are a massive opportunity for the UK. We are the second largest creator of digital content in the world, but we need to have the best digital infrastructure in the world as well and at the moment we don’t. The rules around the use of BT’s poles and ducts is something we have made great progress on. It may not be necessary to have legislation to solve those problems, but we are every keen to make sure that other people are able to use those assets if they want to contribute to the roll-out of, for example, the fibre-optic network. So that will be a particular area of focus.

Q15 Damian Collins: You said in your speech, "I will be talking to Ofcom about any necessary steps to make this happen more quickly." Have you had any further conversations with Ofcom about that?

Jeremy Hunt: I have, and I have had good conversations with BT as well. I think we are making progress. The most sensitive issue of all is the prices that BT charge to BT’s competitors in order to use those ducts and poles, and I am hopeful that we are going to get a very good solution in the next couple of months. My real concern when I made that speech was that if we did not, we would end up in a process of litigation that could slow the whole process down by as much as 12 months, which I am very anxious to avoid because of counties like Cumbria that are itching to sign contracts with suppliers so that they can meet the Government’s challenge to have 90% super-fast broadband coverage. Obviously with our general concern about growth in the economy, we are trying to do everything we can to make sure that the broadband network plays its part.

Q16 Damian Collins: Finally, another issue that sectors within the creative economy lobby Government on in terms of growth is through tax credits, particularly with the success of the film tax credit. You will be aware of the lobbies that exist between the different companies on that. Has the Department made an assessment of the return to the Treasury of tax credits? There has been some analysis of the film tax credit, which suggests that for every pound in tax relief the Treasury gives it generates about £13 in extra income. I wondered if DCMS had looked at studies like that and at how they might apply to other areas of the creative economy like video games or animation television, which is equally seeking that type of financial support.

Jeremy Hunt: We certainly do look at all those figures and what we say to people like the video games industry is, "Please give us the best, the most objective, the most independent research you can because we will be very happy to engage with the Treasury". The video games industry is a huge potential new growth industry. I think the film industry is an area where, if you look at the success of the independent television production sector, which has not had any kind of tax credits, we have not had success with our independent film sector in the same way, and that is a potential new growth industry if you look at the success of British film. If you look at the local television sector, which will launch next year with 20 new licences being awarded for local TV stations, with another 40 the next year, that is going to be another big new sector for the digital and creative industries. We are absolutely prepared to engage in any way we can and try and get to the bottom of these numbers, so we can make the case.

Q17 Damian Collins: Would there be scope for looking at the R&D tax credit, which at the moment is restricted to work to resolve scientific or technological uncertainty? There has been debate about whether this could be also extended to include work that leads to the creation of UK-owned IP, which might be of benefit to particular areas of the creative industries as well.

Jeremy Hunt: We certainly have looked at that. It would not be right for me to go into detail about discussions we have had with the Treasury on those issues. The only thing I would say is that every sector of the economy has a tax break of one sort or another that it says would be absolutely vital, and every sector also says that it would be revenue-positive for the Treasury if it got that particular tax break. The Treasury is quite weary of hearing those arguments. We do make the case for a number of our sectors but we need to be selective and make sure we have a solid case before we push it.

Q18 Steve Rotheram: If we could go back a step, again just on the football issue. I am delighted that this Committee, although I was not a member at the time, took football issues seriously and hopefully that report and the Government’s response will push things forward. In regard to what the Secretary of State said, it is surely just about good owners and bad owners, not about what passport the owners happen to have, and if there are any good owners out there, there is no better football club to invest in than Everton Football Club at the moment. They are looking for a new owner and it does not matter what the passport is. I am telling you, you won’t get a better opportunity.

In the Tory manifesto and in the coalition agreement there were some time-limited recommendations in regard to football in particular. I am wondering now whether the Secretary of State believes that the threat of legislation as the ultimate sanction might just ring a little hollow to the football authorities, given that at the time not just the current coalition Government but previous Governments told them to get their house in order, and they have played at it and have probably paid lip service to what the Government was trying to achieve. I wonder whether you think that this time, you might be able to persuade them or to force them into doing something.

Jeremy Hunt: The advantage of not doing it through legislation is that it happens much more quickly. I agree with you, this is one of those things where actions speak louder than words, but I think we have to be very clear, we do need our major national sports to be governed properly and we do have some serious issues in football governance. I think the fact that the FA has already accepted the need for two independent additional directors, and had moved on that already, is a sign of good faith, but we need to do lots more. Particularly in the coalition agreement we talked about making it easier for supporters to build up stakes in clubs, and that is an area we have not yet delivered on, but we are looking very closely at that.

I am hoping that the willingness of the football authorities to work together, and also the fact that next year is going to be the biggest sporting year in our history as a country, will create a moment when the football authorities will think this is time to grasp the bullet. I am very realistic that this has not happened in the past, and if it has not then the Government will have to come up with sufficient measures to make sure that we deliver on our commitment to ensuring we have good governance of the sport.

Q19 Dr Coffey: I want to go back to broadband, building on what you were saying earlier about the requirement to have the best digital infrastructure. I was encouraged by what you said about how talks with BT are going well, because other providers have said to members of this Committee that they are concerned that if the prices are not right, they will just walk away and we will end up with a BT monopoly. Is it your view that that may happen?

Jeremy Hunt: It is very important that we don’t have a monopoly in this country but, speaking frankly, BT also has an incredibly important role in making sure that we do have the best super-fast broadband network in Europe. They are already investing £2.5 billion in getting fibre to two thirds of the street cabinets in the country, which potentially means that for two thirds of the country they could get, in time, up to 100-meg download speeds, which will put us a long way ahead of many countries in Europe. We have a rural broadband programme designed to deal with the parts of the country that BT do not think they can reach on a commercial basis.

I think competition is important, not just in the process of getting the infrastructure put up. It is also important in terms of take-up, because it is the competition between TalkTalk, Sky, BT and Virgin that has meant we in this country have some of the highest take-up of broadband of any country in the world, and that is what then provides the platform for new businesses like Tesco.com to deliver their groceries to people who book online, and so on and so forth. What we have to be aiming for is not just the best super-fast broadband network in Europe, but we need to aim for at least 50% take-up of that fast broadband because that is when we are going to get the jobs from telemedicine and home education and all these new sectors that are completely nascent at the moment, and that is where competition matters as well. So we need it at both ends of the spectrum. We are doing everything we can to try and inject competition at a local level. It is not easy-I want to be up-front about that, because BT has a huge cost advantage because they have this network there already-but we are trying to do everything we can, talking to people like Virgin, people like Fujitsu, to try to understand what it is they think they need in order to compete and to have a realistic chance of winning these contracts.

Q20 Dr Coffey: Of course I was delighted that Suffolk was added to the list of funding announcements recently. I remember you started off your vision of rolling out the rural broadband programme by saying it would be effectively the responsibility-I am not quoting, it is just my memory: "We would get you a digital pump to every village, and then it is kind of up to you, not completely the community, but up to the service providers, how it gets to your house". BDUK does not seem to have taken that approach, necessarily. In fact, we are seeing different solutions county by county. What guarantee will there be, say to the residents of Suffolk, that they will be able to get that and they will not be part of that missing 10% on the super-fast broadband?

Jeremy Hunt: The broadband roll-out is a real triumph of localism, if I can put it that way, because I did have the option. There was about £230 million of Government money in the broadband pot and then through the licence fee settlement we added £300 million to that-so £530 million. It would have been a very tempting option for any Secretary of State to sign a big deal with BT and hand them a cheque for £530 million. The reason we did not do that was that it would have stamped out any opportunity for local enterprise and local inventiveness in dealing with broadband gaps. What we have done is parcel it up into 40 parcels, and that will mean that we will get a different solution in Suffolk from Norfolk, from Wiltshire, from Somerset, from Scotland, and I am very happy with that because what I have noticed in the counties I have visited is extraordinary enthusiasm. What is exciting and what we have said is, "If you can deliver universal 2-meg connection to everyone in the county and 90% are able to get a super-fast connection, which is 24-meg, then you can have the money."

What is exciting is that lots and lots of counties have come back to us and said, "We would like to see if we can get super-fast broadband to 100%," including my own county, Surrey, and Wales. They are trying to find 100%. Cumbria were talking to me this week. They want to get 100% super-fast by 2020. I think the trick is to have a solution whereby the county delivers on the 90% target for super-fast but makes it possible for local communities to come together who are in that final 10%, and have a community-led solution to that. That is where I think the interesting discussions are happening at the moment and that is where I think the village pump concept is important, because if you are in a remote village-providing that a fibre point is not too far away-then you have a chance of getting on to the national fibre network, and that is the point we are taking.

Q21 Dr Coffey: In your speech last month to the Royal Television Society, I think you were suggesting that consumer demand is growing and if we need speeds of 1 gigabyte by 2020 we are not investing anything like enough at the moment to deliver that. Can you tell me more about why you said that? You talked about ultra-fast; what actual level of investment will it require and whose responsibility will it be to deliver that investment?

Jeremy Hunt: The Chairman asked me about things that keep me awake at night and put me into a cold sweat, and although it is not quite in that category, on broadband my perennial fear-this Government is going to press ahead with HS2 and that is a big commitment to make, given all the other economic pressures. By the time that opens, we will be opening our first high-speed train 45 years after the French opened theirs and 62 years after the Japanese opened theirs. So my concern over broadband is that instead of thinking forward to what broadband needs are likely to be, given that there is a 60% increase in consumer demand for bandwidth every year at the moment, it would be very easy to try and keep pace with that without understanding the big picture, which is that we are going to need not super-fast but ultra-fast speeds going forward. That is why, as well as getting rural areas up to super-fast speeds, 20-meg plus, I think we need to be thinking about the next stage and we are in the process of working up a policy at the moment to see how we can introduce 100-meg broadband into parts of the UK. We have not developed that yet and there is no money around, so it is a challenging thing to do.

But I think we have to be visionary and bold and understand that this is something where there is a real opportunity for Britain to be first. We have such big digital and creative industries-outside America, the biggest concentration of leading-edge technology clusters in the world is in the UK-so there is a big opportunity for us and I want to make sure we grasp it.

Q22 Dr Coffey: I must send you the chapter from the book I wrote. It is interesting you mention High Speed 2 because I think I was suggesting for the £30 billion-plus we are investing in High Speed 2 we could deliver probably that to every single household and perhaps the age of the train may have gone by then.

Jeremy Hunt: I have chosen not to sour relations with the Department for Transport by adopting your cause.

Q23 Dr Coffey: I am not trying to engineer a Cabinet split either. Another delivery of broadband is the mobile broadband and the upcoming spectrum auction. There seems to be some confusion about whether it is delayed or not, but I think, again as you suggested last month, Sweden did theirs two years ago, Germany did it last year, Italy are doing it now. I appreciate we seem to have some extra complexities, which perhaps the Italians decided not to take account of and perhaps may regret later, but can you give us your view on where we should be going with the spectrum auction, and how quickly? Will any of the money that is raised come back and help the delivery of broadband, perhaps the ultra-fast that you were talking about?

Jeremy Hunt: First of all, I think any proper broadband strategy needs to have three elements. It needs to have rural, urban and mobile. It is already starting to happen; I think Ofcom had figures yesterday saying that for young people now their mobile was more important to them than TV. I think we have to assume that most access to the internet will be through mobile devices going forward and the whole new generation of internet products and services will revolve around mobile access, all the sort of things you can do on the move using GPS and so on. We are only at the very start of that revolution so it is very important we get this right.

Let me find a tactful way of putting it. I think our mobile network operators are quite judicially active and that has held up the process of having these auctions. What I was trying to say in my RTS speech is there may be a narrow competitive advantage in delaying the process, but it is in their combined interest and in the national interest that we get on with these auctions, and I am seeing all of them to stress that point. I am seeing O2 on 2 November, and 3 on 10 November, and I think in the first half of November I will be seeing Everything Everywhere and Vodafone as well, to stress this point that it is in everyone’s interest that we proceed with this auction.

At the moment, Ofcom have announced a delay. It should not mean a delay in the actual roll-out of the network infrastructure, because that is not going to be available until the completion of digital switch-over anyway, but I would not want to see any further delays. I think this is a very big priority for the Government, to make sure that we crack on with this auction.

Q24 Dr Coffey: I won’t release our report that we are publishing next week, but the House itself did come to the view in a debate earlier this year that 98% coverage should be the target Ofcom set. How much notice do you think Ofcom should take of the will of the House?

Jeremy Hunt: The Treasury has already taken note of the will of the House, because the Chancellor made an announcement at the Conservative Party conference that we would be extending the coverage requirement for 4G to 95%, which means that 99% of households will get 4G coverage. That is £150 million investment, which I think will transform rural communities. The exciting thing about that is that because it is through the 4G spectrum it is for data as well as voice, so it will provide an alternative in terms of broadband access for communities. It will not be super-high speeds but you should be able to get 5-meg or 10-meg, which is better for a lot of them than they are able to get now.

Dr Coffey: Mr Chairman, I have very two random questions. Can I fit them in now?

Chair: Please do.

Q25 Dr Coffey: Next year DCMS will be facilitating two national/international events. The year 2014 is the World War I centenary, and I understand that Australia is already very advanced in its preparations for that particularly poignant moment. Has any work started in the UK yet on that?

Jeremy Hunt: Yes, it has, and we are looking very closely at what is possible. We are very keen to make sure, for obvious reasons, that we mark that centenary in the appropriate way. I am happy to write to you with some details as to what we are thinking of.

Q26 Dr Coffey: Thank you. My other random question is about BBC financing. It is nothing to do with the licence fee-apart from the actual cash flow of the licence fee. I noticed the financial audit findings did their first ever fee trust statement audit with an unqualified opinion, so no problems there. Just a query really: why is it necessary for the BBC to collect the fee, hand it over to the Treasury and then the Treasury pays them? I know it helps the BBC with their cash flow, but why don’t we just cut out the middle-man of the Consolidated Fund and allow the BBC to collect the money and manage the money it raises through the licence fee?

Jonathan Stephens: I think that would be an interesting and bold suggestion, which we could pass on to the Treasury. The serious point is that this counts as revenue, and there is also the important point of parliamentary control over spending out of the Consolidated Fund, so this is actually part of voted expenditure.

Q27 Dr Coffey: Is that because Parliament agrees through DCMS? I am not quite sure how Parliament agrees that. Are you saying it is part of the comprehensive spending review?

Jonathan Stephens: It is part of the request for resources. It is not part of the departmental expenditure limit, which is set in the spending review, so it counts as part of the other spending, but Parliament does vote on it in one of the DCMS requests for resources.

Dr Coffey: It just seems an unnecessary middle-man, with associated administration, but okay. Thank you, Mr Chairman.

Q28 Chair: Can I come back to the digital areas we were talking about? One of the suggestions was, particularly if a number of different providers are going to be supplying super-fast broadband-maybe ultra-fast in due course-they should, as part of the deal, give an undertaking that they would take measures to prevent their network being used in the distribution of illegal material, pirated. Do you have any sympathy with that?

Jeremy Hunt: I do have sympathy with it. I have sympathy with the sort of broader point, which is that I think that ISPs and search engines all need to take a responsible attitude towards what they can do to combat piracy. I think we have to recognise, as I mentioned earlier, we are the second largest producer of digital content in the world, if you look at what our TV industry, our film industry, our music industry, our video games industry between them produce, so this is a big business opportunity and the internet for us is a new trade route. It enables us to sell that content with virtually no transaction cost or distribution cost to every corner of the world, and so piracy for us is hugely damaging. We need to have a system on the internet where people who wish to give away their content free are able to do so, of course, but people who wish to sell their content are able to get a fair return for it.

Ed Vaizey has been doing a lot of work getting together all the stakeholders. Going back to the earlier discussion on the threat of legislation with football governance, that is another area where we are absolutely clear that we will legislate in the new Communications Act, if we need to; but it does feel like people are willing to co-operate and we are inching towards a solution that I hope will happen much sooner than that. I think the Newzbin judgment that we got yesterday about BT will strengthen the hand of people who think that everyone involved in the internet industry and the broadband industry needs to play their part in combating piracy.

Q29 Chair: Obviously the actions being taken by the rights owners in the courts have made some progress. What appears to have made absolutely no progress is the Digital Economy Act. Here we are 18 months on, none of the letters have gone out, and none of the sites have been blocked. We were told at the time of the legislation’s passage that this was absolutely essential to protect the interests of the creative industries, and yet it just has gone into the sand.

Jeremy Hunt: I think that is perhaps not an entirely fair summary of what we are doing to tackle piracy. We are pressing forward with the Digital Economy Act and Ofcom is shortly going to conclude its consultation, which will allow us to move to the next stage and for the letters to be sent out, but I would just make two points. First, that process is only part of the solution; it is not going to solve the problem. It has an impact, it helps, but it has become clear to me since taking office that there are other things that matter just as much, such as the fact that it is so easy to find people who are distributing illegal content on search engines. That is not covered in the Digital Economy Act at all, and that is something we need to make progress on.

I think we have made progress in those areas. I think the site-blocking measures that were in the Digital Economy Act, as they stood, were unworkable, but I strongly defend the right of the Government, through elected representatives in Parliament, to make it more difficult for people to access sites that are set up to make it easy to distribute illegal or unlawful content. We need to think about a new way to do that because the technical advice that we got on site blocking was that it was not going to work: people would just be able to sidestep it, in the way that it was envisaged in the Digital Economy Act. We are doing a lot of work on that, and I think rights holders are much more optimistic now that the problem is being tackled, but we just need to follow every avenue.

Q30 Chair: As I recall, it was in the wash-up that the Bill was amended and it was at your instigation that site blocking was inserted into the Bill. Are you still hopeful that a way can be found to achieve that?

Jeremy Hunt: I think it is part of the solution but I don’t think it is the whole solution. You are absolutely right: I was involved in negotiations with Stephen Carter about that. It is the "wild west" in parts of the internet at the moment, and I don’t believe that the rule of law should apply in the offline world but not in the digital world. It has to apply equally everywhere. We would not allow a shop to be set up in the high street that was selling fenced goods, and it is exactly the same in the online world. But perhaps regrettably, because the last Government gave the Digital Economy Act such a short period of time, it was not possible to have the scrutiny that would have allowed all of us to work out what measures might work, and I think that was the issue with the site-blocking clauses.

Q31 Jim Sheridan: Secretary of State, can I ask a question that you may or may not have responsibility for but I would certainly welcome your opinion on? The recent joint report on a draft Defamation Bill says in the summary: "Cultural change: defamation law must adapt to modern communication culture, which can be instant, global, anonymous, very damaging and potentially outside the reach of courts." They also say, "Accessibility: defamation law must be made easier for the ordinary citizen to understand and afford whether they are defending their reputation or their right to free speech." As it stands just now, unless you are a millionaire or a famous footballer you cannot afford to take these defamation cases. Do you have a view on what they are saying?

Jeremy Hunt: This is an issue we are looking at very closely. We are waiting to hear from the Joint Committee, which your Chairman is also chairing, to hear what Parliament’s view is on the way that we proceed with respect to privacy law. But I think because of the phone-hacking issue, we are looking much more broadly at the way press regulation works. Lord Justice Leveson has his committee, which is reporting at the moment. I don’t want to prejudge what he says but my own view is that we do need a system where the body that is regulating the press has credible sanction-making power, so that if a newspaper steps out of line they can be credibly sanctioned, and I think there is cross-party agreement that we need to do that.

When it comes to defamation in particular, we have to get the balance right between freedom of expression, which is one of the most important benefits of the internet. It has made freedom of expression much more possible in regimes that have traditionally sought to control free speech, whether it is Syria, China, Egypt or wherever, and I think that is strongly to be welcomed. So we need to be very careful in any measures we take that we don’t restrict that freedom of expression but by the same merit, I completely agree with you: we need to find a solution that gives redress to people whose reputations are unfairly damaged.

I think these are all issues. I am sorry not to give you a definitive answer, but perhaps that shows you the approach that we are taking to it.

Q32 Jim Sheridan: Would that factor in accessibility and affordability for people who cannot afford to go to court?

Jeremy Hunt: I think it goes without saying, although in most cases the difficult issues have been around whether or not newspapers are allowed to publish stories about celebrities-particularly about celebrity sex-as far as I can tell, but there are examples where people who are not celebrities have suffered grievously and we need to make sure that they have proper redress to justice, yes.

Q33 Mr Sanders: My apologies for not being here earlier. I came up in the ballot and had a question downstairs. You have said that half the population will have access to a good-quality local TV service within four years. How will you ensure that it is good quality?

Jeremy Hunt: I have said that I hope-I am just going slightly to qualify what you said-that half the population will have access to a good quality TV service. The reason I say this is because we are not providing these TV services ourselves as a Government. We are making available local TV in 65 towns and cities which cover more than half the population, and I am confident that we will get good bids to run those franchises in our larger towns and cities. It is too early to say whether that will be the case in some of the smaller towns that are on that list.

In terms of quality, I do not want to be too prescriptive. This is a new sector. If it is going to succeed it has to run on ultra-low cost and I am encouraged that I think we are getting a lot of interest now. It has taken a while but we are getting interest now from the local newspaper industry. They might be involved in running those franchises. But the licences will be awarded by Ofcom and all the licensees will have to follow all the regulations laid out by Ofcom in the broadcasting code, in terms of taste and decency, broadcasting standards, political impartiality, so they will have to follow those standards. All I would say is that even now there are some internet-delivered local TV stations of surprisingly high quality. There is one called Helensburgh TV. I think Helensburgh is a town in Scotland with a population of under 20,000, and you look at the local TV that they are doing on Helensburgh and it is very high quality. I think technology makes it possible to deliver high quality local TV at low cost, which is why I think this time, local TV will take off in a way that it has not in the past.

Q34 Mr Sanders: How will quality be measured? That is not something Ofcom does; they do not measure the quality.

Jeremy Hunt: They don’t measure quality. They have regulations to protect abuses of quality, but we have fantastically high quality TV output from the BBC, ITV, Channel 4, our major broadcasters, because we have created an environment in which people want high quality. All the people you speak to who are interested in investing in local TV will tell you that unless they have a high quality product, they do not stand a good chance of getting advertisers to want to invest. I think that, because we have high quality broadcasting in this country, consumers have an expectation about quality, which local TV companies will need to match.

Q35 Mr Sanders: Are you talking about technical quality or the quality of the content?

Jeremy Hunt: Both.

Q36 Mr Sanders: You have also said that by using DTT and IPTV there could eventually be as many 60 local TV stations in any one area. How difficult will it be to regulate and to ensure quality-both technical and other?

Jeremy Hunt: I said 60 across the country-we could license up to 65. It might well be, I agree, as IPTV takes off-and I think that’s the next big revolution that we are going to see in communications over the next couple of years with the launch of YouView-that increasing amounts of broadcasting content will be consumed, without people necessarily knowing it, over broadband lines rather than through satellite and DTT. I think we are moving to the stage-I don’t say it is in the next two years; I wouldn’t want to predict exactly when, but certainly in the next decade-when it will be virtually as cheap to set up a local TV station as it is to set up a local website. It is true that in that situation we could have a dozen local TV stations in Shipley or Torbay, and some of them could be focusing on sport, some on local schools, some on local shopping, and in a way the chaos of the internet will arrive in our living rooms. This is a new sector for the creative and digital industries so I don’t want to stifle it by imposing too many regulations right from the start. But what would success look like? Success for me might not be what all MPs welcome, but look at the way the leaders’ debates transformed the general election. I think it would be fantastic if MPs did local TV debates in their own constituencies in the run-up to elections, because I think it is a brilliant way of the local population getting to see the people who are seeking their support.

Q37 Mr Sanders: There is almost a sad irony, in that you can have this great move forward with local TV at a time when local radio is under threat-obviously, I mean the BBC in particular-where you do have candidate debates in the run-up to elections, but that is unlikely to be able to happen given the cutbacks. I don’t know where you may be able to intervene-if indeed you are able to intervene-and to put the case that you eloquently and rightly put for local TV, for local radio also. I don’t think there is any great move forward if one comes in and the other goes. I think together, there is a future for both, but it does mean a change of decision making by the BBC.

Jeremy Hunt: Let me be clear, I consider myself to be a champion for all local media, and the reason I have particularly focused on local TV is because that is where the gap is. We are one of the few countries in the world that has very little TV provision. But I am a localist. I want local radio, local newspapers to thrive, and in fact I think the important thing going forward is that we develop new business models that-to use a tacky phrase-are platform independent, so you get someone who is providing the news locally and that will be delivered perhaps on an iPad, perhaps on a TV, perhaps online, perhaps through a radio service. That is the kind of model that we need to move to in the digital age. I want to encourage our local media companies to be the first generation of those types of companies anywhere in the world, because I think that is what the future is for local news provision.

With respect to local radio, I think Ed Vaizey said yesterday that DCMS Ministers see themselves as candid friends of the BBC, but it wouldn’t be right for us to tell the BBC what to do because one of the things that matters to most people about the BBC is the fact that it operates at arm’s length and that Ministers don’t tell the BBC what to do once we have done the licence fee settlement. I negotiated that settlement, which I obviously take full responsibility for, and that included a 16% efficiency saving over a six-year period. I would suggest that anyone in the private sector would bite your hand off to get to have to cut their costs by as little as 16% over six years, but the understanding with the BBC was that this would mean that they would protect front-line services to listeners and viewers and seek savings through back-office efficiencies.

What the BBC will say on local radio is that 86% of their listening is happening at breakfast, mid-morning and drive-time, and so where they are seeking the savings is in the other parts of the day that are not listened to by large numbers of people. They are in a consultation that is going on until Christmas. We had 50 MPs yesterday speaking very passionately in the debate about local radio and we had a debate earlier this year. I would strongly encourage you to engage with the BBC, because I am sure they will listen carefully to what parliamentarians say.

Jim Sheridan: Chair, just for the record, Helensburgh is indeed a seaside town in Scotland, at the heart of the Clyde nuclear submarine base, so that may impact on the reason why it will be good, or maybe not so good, quality.

Jeremy Hunt: I think it is great quality, by the way.

Q38 Steve Rotheram: I was going to touch on a point that Mr Sanders raised and perhaps just tease it out a little further. The Secretary of State did say that he was encouraging good quality local TV services by 2015, and the paradox is that by 2015 the cuts to local radio will have bitten and there will be a reduced service. There is real concern in areas such as Liverpool, in that Radio Merseyside, which I am sure you are familiar with, does something that other stations don’t do. Local radio covers various things. There have been a number of tragedies locally-we won’t go through them-that only a local radio station could do justice to, and it did so at the time. It was the voice that was fighting against other media outlets at the time and supporting the city of Liverpool and the families who were bereaved. Perhaps now momentum is on our side and things are starting to come full circle. If we hadn’t had that lone voice at the time, it would have seemed that everybody in the media world was against us. The BBC did an excellent job, along with other radio stations. Don’t you understand the depth of feeling, Minister: that people are genuinely concerned about the loss of that voice; the loss of a friend, if you like, certainly to a lot of older people? You seem to be concentrating on introducing new things through the Localism Bill-regarding TV, for instance-while something that is established may well be lost to those people.

Jeremy Hunt: I wholeheartedly agree with your sentiments, and that is exactly why I am so committed to local media. I would strongly urge you as well to engage with the BBC over Radio Merseyside, and I think the arguments you make are very powerful about the historic role that it has played for the people of Liverpool. What I would say is that what you have in Liverpool and what we have as a country in terms of local media provision is not good enough, and if you had had proper local TV provision in Liverpool you would have had a much stronger local voice even than you had. I don’t want in any way to minimise the good work done by Radio Merseyside, but it is completely crazy that a city like Liverpool hasn’t had its own thriving local TV station. Cities much smaller than Liverpool, in Canada, have not just one TV station but a choice of TV stations-cities that have a very strong sense of identity. In my experience, all cities think they have a strong sense of identity, but I think Liverpool has a particular identity. It seems to me that the Hillsborough issue in particular is a perfect example of where proper local media can do a much better job than the sort of two-minute or one-minute clip that you are going to get on national media.

Just to warm to my theme and make a final point, I think for the future my worry is not just about BBC radio services but about local newspapers, which are incredibly important in local communities as well, and which are losing money hand over fist. A number of them are doing very well-I don’t want to say that is the same for all of them-but I worry about the local newspaper industry and the commercial radio sector as well. I think that for all of those sectors we want to do everything we can to support them. That means helping them to embrace new models that are going to work in the digital age. That is why people talk about my plans as being to champion local TV but that is just part of the picture. One of the things we did was get rid of the cross-media ownership rules that prevent a local newspaper owning a local TV station, because we are trying to make it possible for those new business models to emerge to make sure that we have strong local voices.

Q39 Damian Collins: Following on from that point about local media-local newspapers in particular-in Kent there has been a recent story that the Kent Messenger Group, the largest newspaper group in the county, has put in a bid to acquire seven titles in east Kent which cover my constituency and are owned by Northcliffe Media. The Office of Fair Trading has been looking into this and has decided to refer it to the Competition Commission. The Kent Messenger Group, as a regional newspaper group, is concerned that the costs of following this through are going to be prohibitive and that the deal will collapse. A lot of local newspapers are making a loss and therefore some consolidation in the local news market, no matter how regrettable that might be, may be inevitable. Do you have concerns about whether the way the OFT approaches these sorts of local media consolidations is appropriate, given the economic climate?

Jeremy Hunt: We have a system in this country, which I think is the right system, where mergers are considered by independent, arm’s length bodies, not decided by politicians. I think that is right, so it wouldn’t be right for me to comment on a specific instance, but in terms of the way the technology and media industries are evolving in general, I very much do hope that our authorities take due note of the fact that technology is changing very fast. I remember the European Commission spending years trying to decide whether Microsoft had a monopoly with Windows, and by the time they got to the decision no one was really worried about Microsoft any more because Google had arrived on the scene. I think we have got to be careful that we don’t underestimate the scale of change in those industries, and that does involve allowing a degree of consolidation.

Q40 Damian Collins: Do you think the regulators need-you have talked about this in other areas-to consider the cross-media nature of news now? In the past, local newspapers would have dominated the local news markets in a way that they don’t quite any more, because of perhaps more local television, but certainly local radio, community radio and websites in particular.

Jeremy Hunt: Absolutely, and I think we need to take account of the fact that in the internet world, the cost of entry is much lower for new competitors. So, no, I think we completely need to take account of the way the media industry is working. It is increasingly less logical to think of local news provision on a medium-by-medium basis, because that is not really how the advertising market works, increasingly. As I say, I think it is right that they decide these things independently of politicians, and I wouldn’t want to second-guess that, but I am a champion for understanding the way that technology is changing things very rapidly.

Q41 Damian Collins: You talked a bit about cross-media regulation in your Royal Television Society speech and particularly that a physical printed newspaper is not all that they produce. I recently did an interview about the Dungeness power station in my constituency with the FT, and that was in the newspaper, on their website and in a digital audio clip that they generated as well. Do you think inevitably we will go towards a one-stop regulator-maybe Ofcom-that will oversee everything?

Jeremy Hunt: By the way, thank you for reading my Royal Television Society speech. Three people have mentioned it so far, so it was obviously worth speaking to RTS. That is, I think, the big opportunity. We look at our newspaper industry, and they have so many challenges at the moment. Their business model is moving to digital, but advertisers don’t want to move to digital in terms of spending the same amounts of money they were spending in print. Our national media are incredibly important to our democratic lifeblood and they have to look at new models. A couple of years ago, they weren’t particularly engaged with that. I think now they really are; the iPad has changed a lot in the way that they think about the future. So the question is, what should we do as the Government?

I believe that today or yesterday was the 25th anniversary of Big Bang in the City of London, which was the moment when regulatory structures were changed in the City in a way that gave it a huge competitive advantage. I think we need to look at what the regulatory structures are that would allow our much-respected newspaper industry to develop new models in a world in which their news content is going to be consumed as much on an Android or an iPad as it is through a physical newspaper. So the offer that I made to the newspaper industry is, if they can come up with a successor body to the PCC that has the confidence of the public in terms of being able to respond to issues such as the phone-hacking issue we had this summer, if they can come up with something that has the confidence of the Government and the confidence of the public, we will back that as a one-stop regulator. That could cover not just their newspaper content but their online content, their video on demand, their broadcast content, and I hope that might pave the way for them to develop really radical, interesting new business models that will mean that they don’t just survive but thrive in the digital age.

Q42 Damian Collins: But if they fail to meet your challenge, is the veiled threat then Ofcom being asked to look at how they would do it?

Jeremy Hunt: Ofcom regulates all TV-like content, so that is the status quo that we are in. They spend a lot of time complaining about not wanting their TV-like content to be regulated by Ofcom, so I think that is why it is a big opportunity for them.

Q43 Damian Collins: This is my final reference to your RTS speech. You talked about whether there should be more consistency between media merger law and competition law, with particular reference to the BSkyB takeover. Do you feel you were put in an almost impossible situation in the end with this bid, trying to reconcile public interest and the advice you were getting from the authorities?

Jeremy Hunt: I had a hot potato in my hand for quite a while during that process, but I was satisfied that we followed it in the way that was appropriate, given that it was a quasi-judicial process. One of the points that struck me throughout that process was that, here you had a politician making a decision-no Cabinet collective responsibility; not a Government decision being done in a quasi-judicial way-about something that was directly affecting a big media baron. I tried to give the public confidence in the integrity of the process by asking Ofcom for independent reports at every stage of the process, which I didn’t have to do, but however much I did that, many members of the public were likely to doubt the fact that I was doing this following due process, and would think that I was making my decision on political grounds.

You then look at competition law, which we talked about previously. These decisions were removed from politicians back in the 1980s, when the Secretary of State at the DTI would make a decision on a big merger. That is now decided at arm’s length by the Competition Commission and the OFT, and I think there is a good argument to say that in very specific situations, the public is more likely to have confidence in the decision-making process and the decision itself if it is taken at arm’s length from Ministers.

Q44 Chair: I am interested that in all your answers about cross-media ownership policy and competition policy in the media sector you haven’t mentioned Lord Justice Leveson. I think some of us were rather surprised to discover that Lord Justice Leveson’s remit included these areas. We could see why a judge should carry out an investigation into what appears to have been potential criminality-too close links with politicians and the police and so on-but suddenly the whole area of future media policy seems to be thrown into his brief as well.

Jeremy Hunt: I think the Prime Minister was very determined when the whole phone-hacking events emerged to give the public confidence that Lord Justice Leveson would be able to look at any areas that he thought were relevant to the issues that arose, and that any attempt to constrain the areas that he looked at would be seen by the public, or might be seen by the public, as the Government trying to fix the process. I think the Prime Minister himself was acknowledging that one of the elements of that is cross-media ownership. Media plurality laws are one area, and I think there are a number of things we can learn about that-not just the process but also the fact that the law at the moment is particularly geared up to look at cross-media ownership. It tends to look at a concentration of ownership on particular platforms. So I think that is one area, but another area where I think there was public concern is the closeness of the links between leading politicians and media barons. The Prime Minister thought that it was important that Lord Justice Leveson should be able to look at those areas and come up with any suggestions that he could, in order to give the public confidence.

Q45 Chair: So in actual fact the position is that Lord Justice Leveson should not feel restrained from making recommendations affecting ownership laws, and potentially cross-media ownership, if that is his conclusion, but you are not expecting him to provide you with recommendations on how to change the law, unless there are specific suggestions he feels he wants to make?

Jeremy Hunt: I am not sure I want to say what I am expecting him to say or not, because he is just at the start of the process. It is certainly within his remit to look at those issues if he chooses to, and we will certainly look very carefully at what he comes back with. I have sought to contribute to that debate through my comments in the RTS speech as to some of the specific things we might want to think about with respect to media ownership rules.

Q46 Chair: I think people would find it a little bit surprising that the Government is looking to a panel, which is not expert in competition policy or media law, to make recommendations for the future Government strategy in this area. I am slightly reassured by what you say-that that is not his main brief. You are just drawing his terms broad enough that, if he felt the need to make recommendations, he could-that he should not feel confined from doing so.

Jonathan Stephens: Yes. There is absolutely no suggestion that this constrains the Government from thinking at the same time. It is indeed an obvious part of the work that the Secretary of State has set in train on the communications review that includes the whole area of regulation at large, including competition and cross-media ownership regulation; but obviously, as the Secretary of State says, if the inquiry has something relevant to say on that, we will listen to it and take account of it.

Chair: I think Lord Justice Leveson himself was a bit taken aback. I think he felt he had been given quite enough already without having to rewrite the entire media competition law. So I hope he will take some comfort from that as well.

Q47 Steve Rotheram: I wanted to ask now not just about process but about timing, because if Hackgate had been six months later then the merger or the takeover by Murdoch of BSkyB would have already been through. How would we have unpicked that once it had already happened?

Chair: Or should we have done, perhaps?

Jeremy Hunt: I think the answer to that is that with the law as it stands it is a quasi-judicial process and you can only deal with the facts as they are. It would have been completely inappropriate to consider things that were suspicions or allegations but not things that were established as facts. Even going through the process that we went through, even before Hackgate happened, Ofcom had made recommendations, which I had acknowledged in Parliament, and said that I would look into as to some flaws in the way the process worked. In particular, the point that they drew to my attention was the fact that public interest intervention by a Minister on media plurality grounds can only happen if there is a corporate transaction to consider. It can’t happen if someone develops a huge market share organically, and Ofcom felt that that was a flaw in the process as it stands and I committed to look into that. So I think even before Hackgate there were things that emerged that we thought needed looking at.

Q48 Dr Coffey: A lot of the focus earlier in the year was about certain media groups coming together, including the BBC, to try and raise their concerns about the potential takeover of BSkyB by Newscorp. However, Mr Richard Desmond already has a cross-media ownership and he withdrew from the PCC. I think it is fair to say that his stable of papers seems to be a huge promotional tool for Big Brother and various other things on Channel 5, and then of course there is the Health Lottery. Does any of this worry you?

Jeremy Hunt: I am worried about the Health Lottery, because protecting the income for good causes is a very important responsibility that this Government has. The National Lottery was set up in a way that would generate money for those good causes, and society lotteries are allowed on the basis that they are local lotteries. I want to be sure, and we are doing some work at the moment to look at what the impact of the Health Lottery might be on good cause revenues.

To answer your broader point, first of all I am not against cross-media ownership. I think it is the future. I think a newspaper in Liverpool needs to be broader than just a newspaper in terms of its footprint if it is going to survive in the digital age and I think the newspaper industry needs to modernise. But by the same merit, in a democracy we need to make sure that no one person or organisation has too much control of the media in a given area, and that is why media plurality laws need to take account of cross-media influence and not just influence within any individual platform.

I think the particular issue raised by Richard Desmond is the fact that it was so easy for him to opt out of the PCC and just to say that he didn’t want to be part of it any more. If we are going to have an industry code of practice that the whole of the press adheres to, then we need to look at ways to make sure that it is not so easy for people just to walk out of something when they don’t like a particular ruling. One of the things we talked about earlier was the ability to have credible sanction-making power, but if people can just walk away and say, "I don’t want to be part of this any more," then that undermines the credibility of any sanctions. I am hoping the newspaper industry will come back with some sensible proposals on how we address that; but I do think that is one of the areas of the PCC that is unsatisfactory, to say the least.

Q49 Dr Coffey: I am trying to think how best to pursue it further. I think there is this element of complete almost obsession with certain TV shows that happen to be owned by the same person. Is there something there about the code of practice, when we are talking about cross-media ownership, which I understand and fully support-that we need to be careful to make sure that it is still a competitive market and not just free advertising?

Jeremy Hunt: Yes, I think that is right.

Q50 Chair: Turning to one thing which sparked my interest in your response just then, I know that Camelot are very unhappy about the Health Lottery and have suggested that they are not absolutely sure that it is legal. Have you taken a view on this yet?

Jeremy Hunt: We are looking at that at the moment.

Q51 Chair: But you therefore do not rule out taking action if the advice is that this is illegal?

Jeremy Hunt: It is a matter for the Gambling Commission, I am informed by my Permanent Secretary in a hushed voice; but let me say that if they concluded that what was happening was not legal, I would expect them to take robust action.

Q52 Jim Sheridan: Apologies if my question has already been asked in my absence. Secretary of State, wearing your champion’s hat for local media, can I ask that in the fullness of time, when you get a moment, you look at early-day motion 2255, which talks about the £16 million cut to BBC Scotland’s budget, with a consequential loss of 140 quality jobs? Is there any possibility in the near future that the licence fee settlement could be reviewed, and have you had any representation whatsoever from the Scottish Government about these cuts?

Jeremy Hunt: I am not aware of representation from the Scottish Government about those cuts, but I will get back to you with the details of any contact we have had with the Scottish Government about them. I think it would be wrong to reopen the licence fee agreement. We did cover a bit of this ground earlier, but what the BBC had was a 16% real-terms cut over six years. I think that is a good settlement in circumstances where many other parts of the public sector are facing much greater cuts, and I think it should be possible to find savings from back-office functions and improvements in efficiency over a six-year period to meet that 16% cut; that was the understanding between ourselves and the BBC. In terms of hard-working families who are finding life extremely tough at the moment, they strongly welcome the fact that as a result of that licence fee settlement we have frozen the licence fee in cash terms for the next six years, so that is one bill they don’t have to worry will go up year after year. So I think it would be very unpopular with the public if we were to reopen that.

But I completely understand and welcome the support that you and many of your colleagues have expressed today regarding the importance of local radio and of more localised TV throughout the UK. As you know, that is something that I am trying to promote as much as I can.

Q53 Jim Sheridan: The hard-working families you refer to-140 of them are losing their jobs at BBC Scotland.

Jeremy Hunt: Yes, but the reality is that we have taken a decision as a Government that if we are going to secure a decent future for all hard-working families, then we need to get to grips with our deficit and that means the whole of the public sector going through a very difficult process. Because I am passionate about making sure that we have the highest quality broadcasting, I negotiated a deal with the BBC, which is essentially about efficiency savings rather than impacting on their output, and I think that was the right thing to do.

Q54 Chair: Can I come on to another matter linked to getting to grips with the deficit? We receive letters about many issues that your brief covers, as you will appreciate, but one of the ones generating most concern at the moment concerns what is happening in local authorities with library services. There is the Public Libraries and Museums Act, which requires local authorities to provide a comprehensive and efficient library service. Presumably you judge whether that is happening or not. What do you think is a comprehensive and efficient library service?

Jeremy Hunt: The original definition of comprehensive and efficient came, I believe, in something called the Roberts Review in 1959, which preceded the 1964 Public Libraries and Museums Act. That was set up basically to say that "comprehensive" in that report was really about having a good selection of books at a time when books were more expensive, and "efficient" was about reducing the number of library authorities to reduce administrative costs. We take our responsibilities under that Act very seriously. Our basic position is modernisation yes, vandalism no. We have had extensive discussions and engagement with Brent, Lewisham, Somerset, Gloucestershire and the Isle of Wight about their programmes and it is probably not appropriate for me to comment in detail on the individual cases because a number of them are going through judicial review proceedings. I think we are going to hear about Somerset and Gloucestershire at the end of this month, and I think we will hear from the Court of Appeal about Brent next month. The only thing I would say is that there are 151 library authorities and around 140 of them are managing to modernise and deal with very difficult cuts in public expenditure without having to have large library closure programmes. By the same merit, what we are here to protect under the 1964 Act, I am absolutely clear, is not library buildings but library services, and I think it is very important that we don’t stand in the way of sensible modernisation but we make sure that the local authorities are doing everything they can through their library plans to make sure that they are able to maintain good library services.

Q55 Chair: Your website says, "The closure of one or even a small number of library branches is not necessarily a breach of the 1964 Act". That suggests that the closure of quite a large number almost certainly is. Without wishing you to go into individual authorities, you will be aware that a number are proposing quite substantial cuts in their library provision. Do you think that some, without naming names, are likely to breach or potentially in breach of the Act?

Jeremy Hunt: We are monitoring it very closely the whole time, but if I look at the five authorities that we have spoken to, the Isle of Wight looks like it has found a way for the communities to continue running the five libraries that it has withdrawn funding from. Lewisham also is in the process of finding a community-led alternative and Somerset and Gloucestershire are trying to do that. Brent has taken a different approach, but they are extending library opening at the weekends to seven days in the six libraries that they are keeping open. I think it is not about the number of buildings that are being closed; it is about the availability of the service, going through a proper process and us satisfying ourselves that local authorities are taking responsibility for their statutory responsibilities to provide a good library service. But it is something that we are monitoring very closely the whole time.

Q56 Chair: For the time being at least, do you still see the provision of a wide range of actual hard, physical books as being important? There will come a point-you mentioned the iPad revolutionising so many aspects of life-where it might become much easier to digitally distribute.

Jeremy Hunt: I personally have a great emotional attachment to books. I am sure all of us do, because if you are brought up reading books you think they are wonderful, but I think we have to accept, as the world changes, our commitment must be to reading and to people exploring and enjoying literature in a broad sense. We probably will have increasingly less commitment to an individual way of reading, but I think libraries and library services have a very important part to play in the new digital world as well. So I don’t think that is a reason for not having good library services.

Q57 Chair: While we are on libraries, can I just touch on-I am declaring my interest as the chairman of the all-party writers group-the public lending right? You will remember the Government was going to extend this to digital distribution. That didn’t then happen, and indeed the PLR was cut back and the distributing authority dispensed with. Can you give us an update on where you stand and whether or not you hope to be able to restore the PLR to where it was before?

Jeremy Hunt: The Permanent Secretary may wish to correct me, but my understanding on this is that we protected funding for the PLR. I think they had the efficiency cut of 15% that we imposed on all the bodies for which we were protecting spending allocations. I don’t think we had the budget to expand it to digital usage, but perhaps I could write to you to give you some more detail on what is happening.

Chair: That would be helpful, if you could give us an update.

Q58 Philip Davies: The Chairman mentioned a Bill, an Act, earlier that was concluded in the wash-up in 2010, which appears not to have been wholly successful. Can I just refer to another one that was agreed, finalised in the wash-up in 2005, which appears not to have been entirely satisfactory either, which is the Gambling Act? I do not know if there is a theme there. Is it your view, is it the Government’s view, that the Gambling Act 2005 has been largely a failure?

Jeremy Hunt: I think the truth is that it has not been a success and as a result, on things like casino policy, we are in a kind of limbo at the moment, which I don’t think is healthy. I don’t see any prospect of getting legislative time for a new Gambling Act in the immediate future, given the pressures on the Government’s legislative programme, but I think that there are a number of unanswered questions in terms of the way the Gambling Act is being implemented.

Q59 Philip Davies: Given that you don’t think it has been a success, if there were areas maybe that this Committee could recommend that would improve the situation, does the Government have an appetite to tackle some of those issues or is it paralysed by what might be known as the Daily Mail syndrome?

Jeremy Hunt: I think the issue that is at the heart of the concerns expressed by the Daily Mail, but by many other organisations as well, relates to problem gambling. The area we need to make progress on-and I don’t think this is just a Government issue-is understanding how, if we were significantly to change the licensing structures for gambling, we could contain any growth in problem gambling. I think that is the big question that needs to be addressed before it is going to be possible to make progress.

Q60 Philip Davies: If that was addressed, the Government wouldn’t have any objection to finding ways to improve on the regulations that exist at the moment? There are certain anomalies, aren’t there, and certain arbitrary things like, for example, numbers of machines allowed in certain casinos, numbers of machines allowed in a betting office? People can play on only one machine at a time-two if you are particularly proficient-so whether there is 10 in there or 20, that can’t lead to an increase in problem gambling per se, can it, because you can play on only one or two at a time?

Jeremy Hunt: Let me say that we have, as a Government, nothing whatsoever against responsible gambling and we recognise that it is a huge pleasure for many people to have a flutter and that is part of our national life, but there are inconsistencies in gambling legislation. I think a lot of the reluctance to change things is because of people’s concern that in some countries that have liberalised gambling laws, they have seen quite significant growth in problem gambling at the same time. Sorry to repeat myself, but that is the central issue that the gambling industry needs to address before we are going to be able to make any progress.

Q61 Philip Davies: Does your Department see itself as a champion of the gambling industry within Government or not?

Jeremy Hunt: I think gambling is a very important responsibility that we have. Because of the issues around problem gambling, I think we see ourselves as a champion of responsible gambling but, as I say, there are these issues that still need to be addressed.

Q62 Philip Davies: I think you mentioned that there is great competition at the moment-or seemingly competition-for which is the worst-governed sport in the country. If I may, I will just throw horse racing into the melting pot for you to reflect upon at the moment. Do the Government have any opinions about the recent controversy over the use of the whip in horse racing, and the controversy that has been caused by it and the sport potentially losing some of its biggest draws, like Ruby Walsh and Johnny Murtagh as jockeys in this country, as a result of that? Do the Government have a view on that?

Jeremy Hunt: We don’t, although we are obviously concerned when we see nationally important sports running into difficult issues that have the kind of implications that you suggested, but we do very strongly think that it is for sports to decide the rules under which they operate and not for Ministers, and we respect that.

If you are talking about what is on my plate when it comes to the racing industry, you may recall from a previous appearance at this Committee that I seem to get an annual birthday present from the gambling and racing industry, which is a failure to determine the levy. My birthday is next week, and the day before it is the last day they have to present to me an agreement on the 51st levy; otherwise, it becomes-it will be my second birthday present from the racing and gambling industries and I am very much hoping that they won’t feel it necessary to give me that present.

Q63 Philip Davies: Have you had any indications as to whether they are likely to come to an agreement or not?

Jeremy Hunt: No, so we will have to wait and see.

Q64 Philip Davies: Just linked to that, one thing that the Government has achieved, which previous Governments threatened to do and didn’t, was the sale of the Tote. I just wondered to what extent you felt that the sale of the Tote represented value for money for the taxpayer and also a good deal for racing.

Jeremy Hunt: I will ask my Permanent Secretary to comment in a bit more detail on that. I think it was fantastic value for money for the taxpayer, who netted £90 million from the deal overall, and I think it is a very big opportunity for the Tote itself. It will have the support of an organisation that will be able to invest in it going forward and is totally committed to the Tote, so I am very hopeful that that will end up being a good deal all round.

Jonathan Stephens: I agree. We set very clear criteria for the sale. The first was to make sure that there was a complete exit. Strategically, it is not appropriate for the Government to own or run a bookmaker, but the overriding criteria for the sale and priority was to achieve value for the taxpayer. Alongside that, we also set criteria around support for racing and indeed also taking account of the interests of employees of the Tote, and we had a very healthy competition. We achieved significantly above the estimated value that our advisors put on the business beforehand, and we awarded the sale to the bid that best met the criteria that were set out.

Q65 Philip Davies: Part of the deal was that 50% of the proceeds would go to racing in some shape or form, and I know that there are some complications in terms of state aid rules and whatever. Can you give us an update as to where we are in terms of addressing those state aid issues, and when racing is likely to get its 50% and in what form?

Jonathan Stephens: We are working very closely with racing on the best form of that, and on their proposals for how best to do that. Whatever comes forward will need to be compliant with the state aid rules. Racing have a number of options that they are exploring regarding how that might best be achieved, particularly focused on supporting charitable purposes or non-commercial areas of racing’s activities.

Q66 Philip Davies: Thérèse asked to be indulged in a random question, Chairman, and I am hoping you might indulge me in one random question as well. What caught my eye was the National Audit Office’s summary of your Department’s activities. Coming from an organisation before I got elected to Parliament that was very big on staff surveys-colleague surveys, we used to call them-I did have a quick look at the one that was published in here. I wonder if you could explain why, under the heading of, "When changes are made in the Department, they are usually for the better," only 12% of employees could either agree or strongly agree with that sentiment. It seems rather low that only 12% of your employees can agree with the proposition that when changes are made in the Department they are usually for the better. Is there anything particularly driving that low number?

Jonathan Stephens: I don’t think that is particularly surprising at a time when inevitably, the organisation is having to shrink and make some very challenging and difficult adjustments. In the same staff survey, when asked, staff had very high scores for whether they feel that they are well informed about what is happening. I think, despite the very challenging difficulties of the past year, we were one of the few Departments, if not the only Department, whose scores for leadership and managing change across our policy departments increased year on year last year.

Steve Rotheram: Maybe the change in Secretary of State-that is why it was so low.

Q67 Philip Davies: That score had actually gone down. It was low enough as it was and it went down three points from the previous one. I accept that there has been an improvement in many instances, but it was from a pretty low base, wasn’t it, some of these scores, to be fair?

Jeremy Hunt: Could I make a comment, following Mr Rotheram’s generous suggestion? We do have a new Secretary of State, and we have immensely challenging targets in terms of our own costs and administration. I think we should be judged on what that survey says in a couple of years’ time, when we have implemented those changes and gone through what is a very difficult and challenging period. I think that our success as a Department should not just be how happy people feel working now, although that is a very important element of it, but it should also be what we have delivered for the public. What I will be looking at is-I hope you will challenge me on this when we get to that stage-have we delivered the best super-fast broadband in Europe; have we got the school games being played by a majority of schools as a permanent sporting legacy from the Olympics; have we had the most ambitious tourism marketing plan ever, building on 2012 and all the opportunities that presents? All the other things, the objectives I have set in the last year, very deliberately have tangible outcomes that the public can notice. So it is important that we get our nose to the grindstone on that, and then I think that will in turn help to motivate staff to feel that they are in a Department that is making a difference to the public.

Jonathan Stephens: Could I just perhaps add one thing? I don’t in any sense want to suggest that it isn’t a difficult and challenging time, certainly for our Department but across the civil service and the public sector as a whole. Against those challenging times of pay freezes and reductions in the number of posts, I take enormous pride in the way that people have responded to that and have continued and improved their performance, as I was saying earlier, and secured strong commitment and progress on delivering on the Government’s priorities. That is the measure that I take most pride in, and it does reflect a very strong sense of commitment, engagement and dedication by our people, who are very committed to the issues that they work on.

Q68 Philip Davies: But in all seriousness, are these important factors for you and for your Department, these survey results; or do you just dismiss them as, "Well"-

Jonathan Stephens: No, far from it. We take them very seriously. That particular survey is part of a civil service-wide survey that is done once a year. It has just been repeated this year. We don’t have the results for it for this year. In addition to that civil service-wide survey, which gives us the opportunity to compare and contrast different strengths in different departments, we also do a lot of work internally within the Department-sometimes surveys, sometimes giving people the chance to contribute and comment on changes that are happening in the Department, because it is really important. All the work we do comes down in the end to what our people are doing; and giving them the right structure, the right resources and the right ways of working that enable them to do their best is really important. They have responded to that-for example, they have improved our correspondence rates dramatically, at the same time as we have reduced the number of people working on that. That, in the end, is down to the people doing the process and coming up with the answers themselves-coming up with ideas and better ways of doing it.

Chair: I don’t think we have any more questions. We have ranged pretty widely. Can I thank you both very much for coming; and Secretary of State, can I in advance wish you happy birthday for next week?

Jeremy Hunt: Thank you very much, Mr Chairman.

Prepared 3rd November 2011