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Baroness Dean of Thornton-le-Fylde: I shall not detain the Committee too long because equally important amendments are down on the Marshalled List. We support the amendment because we feel that what the Government expect S4C to face in 1998 is a cutback in funding which, over the next three years, is projected to be £27 million potentially. Digital is coming on stream, and at the same time the Bill introduces and envisages a new relationship between S4C and Channel 4 which will mean that S4C will have to produce a great deal more of its own programmes to take up the availability of the channel space that it will have. We believe that during that time S4C needs some stability but clearly the Government do not wish to maintain the present formula. While the Minister's amendments are helpful and recognise the problem, they do not go far enough. Amendment No. 175 is in many ways a compromise. It will leave the ceiling at 3.2 per cent. but it could be less depending on the fortunes of the industry in regard to advertising revenue. If there is a downturn in advertising revenue, S4C will experience it, as will other commercial channels.

We believe that Amendment No. 175 is worthy of consideration as are the linked Amendments Nos. 178 and 179. I had intended to speak of the importance of the Welsh language service but in view of the hour I shall say only that I support the amendments.

Viscount Astor: Having looked at the amounts of money that S4C has managed to collect in recent years, I am concerned about the amendment. I understand that under the formula in 1993 it was £56 million; in 1994 it was £58 million; and in 1995 it was £64 million. That represents a percentage increase of 4.4 per cent. in 1993; 10.2 per cent. in 1994; and 14 per cent. in 1995. S4C has done pretty well. In fact, it has done a great deal better than most others; for example, the BBC under the percentage increase in the licence fee. It has had extremely generous treatment.

What worries me about the amendment is that it seeks to link the amount of guaranteed total revenue to a share of all the new channels which are coming on stream. It includes all advertising. I accept that the noble Lord's amendment provides a ceiling of 3.2 per cent., but bearing in mind that the whole pot is becoming much larger than I suspect the Government thought in 1990--and probably more than S4C then thought--I believe that the limit put on by the noble Lord's amendment is perhaps slightly over-egging the pudding. I am all for Channel 4 receiving funding but I wonder whether the Government's proposal is more sensible because it gives the Government an ability to choose the figure.

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As the noble Lord said, this is a difficult area for the Department of National Heritage because if it gets its budget wrong--indeed, if it gets wrong the budget for total television advertising--it will suddenly find that all the money it had intended to spend on other parts of the department has gone on Channel 4. I am sure that the noble Lord will recognise that and the Government appreciate it. I wonder whether we should be hung up on the figure of 3.2 per cent. and I should be interested to hear my noble friend's comments. I believe that we must arrive at an equitable formula but I am not sure that this amendment achieves that.

Lord Geraint: I listened with interest to the remarks of the noble Viscount, Lord Astor. As a Welshman--and I am sure that many others will share my view-- I believe that the S4C channel has been a success for the Welsh people, their nation and its language and culture. I am delighted that the Government and others have spent so much money on the channel. It is a worthy cause and I hope that more help will be given to our channel in Wales.

I wish to comment on Clause 64 and the proposed new subsection (3A) in Amendment No. 179. I am bemused by the preamble to the Bill. It refers to the financial effects of the Bill and states simply that Clause 64,

    "revises the funding formula for the Welsh Fourth Channel".
There is no mention of whether this is a revision with the effect of making public expenditure savings. The fact is that while the current formula--I repeat, the current formula--does not produce certainty because it depends on the variability in advertising revenue it has produced growth in S4C's income in real terms. That is because advertising revenue has been climbing on a trend higher than the RPI.

It seems to me that there is some deliberate element of public expenditure reduction. The calculations supplied to me show that on current projections S4C will lose some £27 million cumulatively by the end of the century. That is not a very good prospect. It is not a small amount for an organisation facing the extra expenditure of digital broadcasting which goes beyond the additional costs for transmission.

I realise that the new formula will not operate until 1998. But the effect of the cut is immediate in that year and cumulative thereafter. All public bodies have to keep their housekeeping in order. But the fact is that S4C's administrative overheads are low. The 1994 annual report states that over 90 per cent. of the channel's public funding is spent on programme services. That is a wonderful achievement in itself. I can understand how the Government would want certainty in a formula and to be certain that the new formula produces lower expenditure--and rightly so. But that treatment comes over as somewhat harsh for an organisation which has so many achievements to its name.

I hope that I express the mood of the Committee when I ask the Government to think again. I am sure that they will do so. There should be room for some transitional arrangements for the S4C channel to cushion the change over, say, the next five or 10 years, corresponding broadly to the period over which we expect analogue broadcasting to be phased out.

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I make a final plea. I am sure that the noble Lord will support S4C's argument. To date, he has taken a realistic attitude of S4C, and rightly so. I am sure that he will continue to give that support to our Channel S4C.

9.45 p.m.

Lord Crickhowell: I do not doubt that anyone who knows me can doubt my support for S4C and Welsh broadcasting. The name is almost engraved on my heart. I was Secretary of State at the time of the controversy that gave it birth and was intimately involved in the decisions that led to that happy event. Therefore, I want to see the company thrive and prosper. I am perfectly happy to hear arguments which say that the Government must be asked to pay a reasonable amount to meet the additional costs that may arise from the introduction of digital broadcasting and such things.

I do not believe that it does S4C any service to produce a formula which is indefensible. I have been around for rather a long time dealing with public expenditure issues. I know perfectly well what happens when a department's budget is wrecked by something which does not stand up to examination. I know what will be the attitude of the Treasury.

We have heard about demands for certainty. In the last year or two the Channel 3 television companies have not lived through a period of certainty but through a period when their share of advertising revenue has been falling because of the arrival of a successful new channel. We are in a period of unprecedented change and the arrival of new channels. It worries me that we are being asked to guarantee a formula which is related to total television revenue. A situation may arise in which, for example, Channel 3 or Channel 4 companies see falls in their share of total revenue but, apparently, a formula which guarantees a percentage for S4C. My worry about that is that far from safeguarding S4C, it will be so open to attack that certainty will be very quickly removed.

Therefore, I am not at all happy that the formula in the amendment moved by the noble Lord, Lord Elis-Thomas, actually gives S4C what it wants. I do not think that it will stand up to examination in five, six or seven years' time against the totality of the situation and the comparative position of other companies. Therefore, I ask the Minister to consider very carefully the arguments that have been put forward for a sound formula to support S4C. But I express quite serious reservations as to whether the formula suggested by the noble Lord, Lord Elis-Thomas, will do what he wants it to do. Indeed, I thought from his reaction to some of the comments made by my noble friend Lord Astor that he may understand that there are some weaknesses in the proposed formula which will need further consideration.

Lord Prys-Davies: I shall not repeat what has been said by the noble Lords, Lord Elis-Thomas and Lord Geraint, except to say that broadly, I am in full agreement with their sentiments.

I propose to take a narrow approach to the new funding formula. The Government propose a new funding formula and there are siren voices from the department advising

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S4C to abandon the existing formula and seek the shelter of a guaranteed sum. Basically, that is the message that has been given to S4C.

But the board and officers of S4C said, "Well, we would have to pay a very high price for that guarantee". That price will be substantially less income for S4C to develop its services at a time when they have to be developed. Therefore, its ability to compete with its competitors will be put in jeopardy.

Was it the Government's intention, by changing the formula, that S4C should receive significantly less funds in future? If that was not their intention but they are persuaded by the board of S4C that that will be the result, will they please reconsider the formula?

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