The BBC's efficiency programme - Public Accounts Committee Contents


1  Delivering efficiency savings

1.  In 2007, after the Department for Culture, Media and Sport set the level of the television licence fee, the BBC Trust set the BBC the target of delivering 3% efficiency savings each year for the five years to 2012-13. The savings have to be sustainable - permanently reducing costs - and have to be measured net of any implementation costs.[2] To meet its target, the BBC needs to be delivering annual savings of £487 million by the end of 2012-13, equivalent to 15% of its 2007-08 expenditure.[3]

2.  The BBC is managing its programme to deliver these savings well. By April 2011 it had delivered annual savings of £396 million and was forecasting that it would deliver £560 million by the end of the programme, comfortably exceeding its target.[4] Of the remaining £164 million savings, the BBC has classified £64 million as "at risk".[5]

3.  In negotiations about the level of the licence fee set in 2007 the BBC had claimed that by 2008 it would be at the "efficiency frontier" - the point at which it would not be able to deliver further efficiency savings without the development of new technologies.[6] The BBC then proposed it could deliver efficiency savings of up to 2.5% a year, yet in the first year of its programme managed to find savings of £237 million - equivalent to more than 7%. It is unclear what proportion of these savings came from the development of new technologies.[7]

4.  Overall the BBC is on track to deliver savings of 3.5% a year, compared to the 2.5% it had claimed was the limit of what was possible. Over the period of the programme this means the BBC will deliver approximately £175 million more efficiency savings than it believed it could (based on the BBC's estimate that one percentage point is worth £35 million a year over the five years of the programme).[8] Moreover, outside of its efficiency programme, the BBC has also had to manage other unexpected cost pressures including the need to pay more than it predicted into its pension scheme.[9]

5.  It is clear that there was far greater scope for savings than the BBC believed possible in 2007, and that it was the pressure of the licence fee settlement that drove the BBC to find these savings.[10] By publicly underestimating what it can achieve, the BBC risks undermining confidence in its financial management and its openness.[11] The BBC acknowledged that its approach to challenging efficiency and controlling costs had been worse in 2007 than it is now, and stated that it would be disappointed if it has not improved further by the time of the next Royal Charter renewal in 2016.[12]

6.  In October 2010, the Department for Culture, Media and Sport agreed a new television licence fee settlement with the BBC Trust. This settlement freezes the licence fee at its current level until 2016-17 and also requires the BBC to pay for the BBC World Service, the news analysis service BBC Monitoring, and the Welsh television channel S4C, as well as providing money for local television and broadband roll out.[13] In October 2011 the BBC published Delivering Quality First, which sets out its proposals to make £700 million of annual savings by 2016-17 to cope with this settlement. These proposals involve cutting an estimated 2,000 jobs, almost 10% of the BBC's UK workforce.[14]



2   C&AG's Report, paras 1.5 - 1.6 Back

3   C&AG's Report, para 1.12 Back

4   C&AG's Report, para 1.13 Back

5   Qq 8-10 Back

6   Qq 1, 3 Back

7   Qq 1, 11-17 Back

8   Qq 15-20 Back

9   Q 69 Back

10   Q 81 Back

11   Qq 2, 4-5 Back

12   Qq 33, 48 Back

13   C&AG's Report, paras 2.1 - 2.2 Back

14   Qq 53-56 Back


 
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© Parliamentary copyright 2012
Prepared 6 March 2012