The BBC's efficiency programme - Public Accounts Committee Contents

Conclusions and recommendations

1.  The BBC has made good progress towards the efficiency target set by the BBC Trust in 2007, but its assumptions about the savings it could achieve were unambitious. In negotiating the licence fee the BBC had claimed it would already be at its "efficiency frontier" by 2008, yet the BBC is comfortably on track to exceed the 3% annual savings target that was subsequently agreed. The BBC claims that it will have a better understanding of the scope for efficiency savings by the time the BBC's Royal Charter is renewed and the level of the licence fee renegotiated in 2016. This should not be left to chance. The BBC should establish a clear methodology for assessing how efficient it can be and where it can make the savings. Our recommendations are intended to help the BBC make the necessary progress.

2.  The BBC did not base its understanding of the scope for efficiency savings on a proper analysis of the cost of services and how much they are valued by licence fee payers. Making cuts to services without such analysis risks inadvertently harming highly valued services, such as local radio. We welcome the BBC Trust's interim report into Delivering Quality First, which recognises the importance of BBC local radio to the communities it serves. The BBC should make sure that all proposed cuts are supported by good evidence of what services cost and a rounded assessment of how much they are valued by licence fee payers.

3.  The BBC does not know with confidence whether the savings it has delivered have affected the quality of its services. In future the BBC will be going beyond efficiency savings by making cuts to services, and it must be clear about the distinction between the two. The BBC should publish how it expects cuts to impact on services, the level of impact it is willing to tolerate, and how it will respond if these levels are breached.

4.  With funding falling, the BBC will need to get better at challenging what its services should cost to deliver. The BBC faces legitimate challenges in comparing the cost of producing its services with those of other broadcasters but acknowledged that there is still more it can do. The BBC should challenge the cost of its services more vigorously, through greater use of internal benchmarking across the BBC and, for example, by gathering intelligence on costs from other broadcasters, from overseas, or from individuals with relevant experience.

5.  The BBC's plans for increasing commercial income, from £280 million to £320 million a year by 2016-17, are unambitious in the context of the financial pressures it faces. We understand that the BBC Trust, which has to ensure that the BBC's commercial activities do not unduly distort the market, set the level of increase at "the lower end of the spectrum". We accept that the BBC Trust should consider what impact the BBC's commercial activities have on the wider market. Nevertheless, the BBC Trust should formally revisit whether the target for commercial income can be increased. If the target remains unchanged, the Trust should provide us with a clear explanation of why £40 million is the tipping point beyond which further rises would distort the market or be over ambitious.

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Prepared 6 March 2012