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Lord Palmer: This is becoming a fascinating debate and, although I do not agree with the noble Earl, I almost tore up my speech because what he said was so convincing.

I feel that I must declare an interest as a small shareholder in the smallest television company, Border TV, which as many of your Lordships may know has just 1 per cent. of the viewing population. The sheep outnumber the viewers by 5:1. Border TV produced 0.6 per cent. of total ITV revenue.

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Many of us have been lobbied vigorously on the question of Channel 4 funding. There is a danger that we will all become hopelessly confused by claim and counterclaim, by endless references to "reserve funds", "percentages of qualifying revenue", "cash bids", and so on.

The Broadcasting Act 1990 guaranteed that the funding formula would stay in place unchanged until the end of 1997. Going back on that guarantee would mean the Government acting in bad faith. That would be a great pity at this particular moment. I think that even Channel 4 is beginning to accept that a deal was made and a deal has to be adhered to. The shareholders of the ITV companies invested money on that basis. It would be quite wrong to change it.

I accept that after 1997 the argument is more complex, but I believe that it would be entirely misguided to alter one element of the financial balance within the Broadcasting Act while leaving the others unchanged. As a result, we should not abolish the funding formula at the end of 1997. The two channels (ITV and Channel 4) have battled out this issue in the press and elsewhere. The Government's reaction set out in the Bill represents a fair compromise: keeping the funding formula in place but enabling the Secretary of State to regulate a flow of funds from one channel to the other after "the end of 1997".

We have also to remember, as the noble Viscount, Lord Astor, said, that Channel 4 does not pay any tax to the Revenue. When one thinks of the enormous tax bill that the ITV companies pay (£370 million) and that is before corporation tax, we must be extremely wary of this. Nor must we forget that, as it is a publicly owned company, it has no requirement to make profits.

I suspect that in the longer term the right solution will be to spread the payments that the ITV companies make to the Treasury more widely across the whole broadcasting industry, including Channel 4 and the cable and satellite broadcasters. That would create a genuinely more level--although I hate the expression--playing field for the whole of the broadcasting industry. Even so, I do not believe that that should be the intention of the Bill.

The right thing to do is to keep the Channel 4 funding in place along with the other financial aspects of the broadcasting legislation, and review them all at the same time at the end of l997 or even during l998. I believe that it would be good for British broadcasting, fair to all the companies, and, above all, the right decision in the interests of good government.

Lord Burnham: Before the noble Lord sits down, may I ask him whether, as a shareholder in Border Television, one of the smallest companies, he can confirm that in l995 it made a profit of £l.9 million, whereas its subsidy from Channel 4 was £44,405. If that is so, it is scarcely an absolutely vital element in the survival of Border Television.

Lord Palmer: I am not sure how I should answer that other than to say that Border Television has for many years been struggling, but under new and dynamic

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management it is proving to be a much more successful company. Indeed, the share price went up to over £3 this morning. I am not sure how I can reply more logically to the noble Lord.

Baroness Hayman: I shall not detain the Committee long at this time of night, but I shall say a few words in support of the amendment which has been so well argued by the noble Earl, Lord Stockton, the noble Lord, Lord Thomson, and others. I support the propositions that have been put forward, but I shall not follow in all the details the contributions that have just been made.

It seemed to me that the noble Viscount, Lord Astor, was arguing that because, in effect, Channel 4 had taken out an expensive insurance policy for itself in 1990, from 1997 onwards it should take out an expensive insurance policy for the small ITV companies. That cannot be right.

Mention was made earlier of the tendency of broadcasting legislation to predict the past. The provisions in the 1990 Act that we are discussing had the effect of achieving the opposite of what they intended. What was intended in the funding formula as a safety net for Channel 4 ended up, in effect, as a subsidy for the ITV companies. That is what happened. Those were the provisions that were put in place, and those are the provisions that will stay in place until 1997. We have to consider whether it is right that we should continue that situation.

Channel 4 is different from the ITV companies. That takes us into the taxation issues. It is different because of its clear public service responsibility. As has been said, the original proposals were registered as state aid with the European Union in order to sustain quality on Channel 4. I am not sure that anyone could argue that the effect of what has been done has been directly to sustain that quality. However, I believe that in reviewing the funding formula there is an opportunity to fulfill those obligations about sustaining quality in the public service remit if those retained services are not syphoned off into the ITV companies but will accrue to investment within the film industry--I think that the film industry is most relevant here because of the closeness between film and television industries--and to employment in production in the television sector. We should welcome and encourage the willingness that Channel 4 has shown to guarantee that surpluses would be put straight back into programming and to welcome the ITC having a role in overseeing this, and perhaps looking into the issues of regional programming and commissioning as mentioned earlier.

We would be making a great contribution to the future success of Channel 4. It has been a great success and an asset to public service broadcasting in this country. A great deal has been said about the turbulent times ahead and the vast changes that we envisage in broadcasting. In view of that, it is even more important that we should be supporting and sustaining Channel 4's public service remit and not devaluing it by sustaining present funding arrangements beyond 1997. For that reason, I support the noble Earl tonight.

The Earl of Arran: I believe that the amendment has been rottenly argued by my noble kinsman Lord

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Stockton and I am sorry that on this occasion blood is most certainly not thicker than water. I totally agree with the remarks made by my noble friend Lord Astor.

There is no excuse for failing to understand the intricacies of Channel 4's finances because Channel 4 has spent a huge amount of money making sure that we all know about it. Its version of the story tells us of award-winning programmes never made and of opportunities unfulfilled. Channel 4 claims that it has been bled of finance. However, Channel 4 can afford to make a lot of noise because it is now a huge success. When the station began no one believed that to be possible so a funding formula was invented. It is a little like a seesaw. If Channel 4 is struggling ITV will back it up, but if Channel 4 prospers ITV becomes the beneficiary.

I am delighted that Channel 4 is doing so well and I am happy to pay tribute to the considerable commercial acumen of the Channel 4 managers. But their accompanying chorus of bleeding hearts really is a little hard to swallow. We hear a great deal, and we have heard a great deal tonight, about how much the TV giants receive from Channel 4's coffers. We hear nothing at all about the sums that go from Channel 4 to the small ITV companies; money that is never squandered but pays for valuable regional programmes. That money was part of the deal and effectively part of the legislation.

The points, very simply, are these. The Channel 4 funding formula was designed to last until 1998. The Channel 4 funding formula is still essential to small companies. Without it their corporate plans would be thrown into total disarray. Without it their pledges to the ITC would be seriously hampered and without it their viewers would suffer. There may be faults in the funding formula but they can be properly addressed on schedule towards the end of next year. Until then, the whole of independent television should stick to the letter of the binding agreement. A promise is a promise and I suggest that we break it at our peril. I strongly urge my noble friend the Minister not to accept this amendment.

Lord Elis-Thomas: I wish to support the amendment and briefly to point out what appears to me to be a great inconsistency on the part of Members of the Committee who have spoken against it. We have dealt successively tonight with two funding formulas. The outcome of both cases has been different from the predicted intention of Parliament. In one case, the case of S4C, the noble Viscount argues that the formula should be amended because it has been too generous to the authority. In the case of Channel 4, he argues that the formula should not be amended because it has been providing revenue for ITV companies.

Clearly, we cannot have it both ways. If the formula were going through the public expenditure procedure, no doubt he would be in favour of amending the formula. In this case the formula is taking out of public service broadcasting and is providing added value for what is becoming an increasingly commercial sector. It is taking money out of programme production into the interests of shareholders.

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It is for that reason, because potential revenue for production is not being utilised for production, that I support the amendment and make it quite clear that so far as concerns the future of the independent production centre throughout the United Kingdom, there is more future in terms of programming invested in Channel 4 than there is invested in the profits of the current ITV companies.

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