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.
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.
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. Of the remaining
£164 million savings, the BBC has classified £64 million
as "at risk".
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.
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.
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).
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.
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.
By publicly underestimating what it can achieve, the BBC risks
undermining confidence in its financial management and its openness.
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.
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.
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
2 C&AG's Report, paras 1.5 - 1.6 Back
C&AG's Report, para 1.12 Back
C&AG's Report, para 1.13 Back
Qq 8-10 Back
Qq 1, 3 Back
Qq 1, 11-17 Back
Qq 15-20 Back
Q 69 Back
Q 81 Back
Qq 2, 4-5 Back
Qq 33, 48 Back
C&AG's Report, paras 2.1 - 2.2 Back
Qq 53-56 Back