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Baroness Birk: My Lords, I rise to support these amendments which, but for some unfortunate error, should have had my name attached to them. It seems to me that it is virtually impossible to add to the steady stream of arguments in favour of freeing Channel 4 from the malfunctions of the 1990 funding formula which your Lordships have heard since Second Reading as we have gone through this in Committee, on Report and now at Third Reading.

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There was no way in 1990 of knowing how unfairly the funding formula would work out. Indeed, there are few, if any, who can argue that it has worked as Parliament originally intended. Had we known in 1990 how much effort it would take six years later to right an unintentioned wrong, I am sure things would now be very different. However, these amendments would provide the much needed clarity and certainty from which all sides would benefit and, as was explained by my noble friend Lord Thomson, they would also preserve the flexibility of a safety net which many of us would wish to see, and that safety net is not going to disappear by adopting these new amendments.

The ITC has said that payments from Channel 4 to ITV should cease after the end of 1997. It would seem sensible, therefore, to take steps to adopt that position as soon as possible. These amendments provide for just one more payment to ITV and then settle the matter at nil after 1998.

The latest briefing document I have seen from the ITV association states that it will need a "cushion" as the subsidy from Channel 4 is phased out. Cushions are usually reserved for the slothful couch-potato or for the brittle and unathletic and sometimes for those falling from a great height. ITV may tell us which is more applicable. Channel 4 estimates that this particular cushion will be worth about £25 million. This should be more than adequate, given the huge amounts it has already received from Channel 4.

As a direct consequence of the statements made by the Minister at Report stage, it is clear that the ITV companies can entertain no expectation of further revenues from Channel 4 after 1999. It was good that the Minister made that clear at that stage. But unless this conclusion is written into the Bill there will be a great danger that conflict between ITV and Channel 4 will continue. It would give certainty on this issue, although it is far from the ideal option of abolition which many of us were hoping would be accepted when we argued the matter in Committee. That was our first target, but we now seek to achieve an improvement with these amendments. Writing these provisions into the Bill is important. It is more important even than accepting the good word of the Minister. There is no doubt about what he said, but it does need to be on the face of the Bill.

It would seem that the amendments tabled by the Government will have little real effect. I hope to hear from the Minister, as the noble Lord, Lord Birkett, said, what extra they bring to the Bill. I too find that rather difficult to work out. They are certainly less than could have been expected from the Minister's comments at Report stage, when, as he is well aware, we were not able to see anything in writing. With that in mind, I am pleased to support these amendments, as they incorporate the Minister's express intention to cap the Channel 4 reserve fund. I hope the Government will support this proposal, as it will make a welcome change. It will ensure that these particular changes will be made to the Bill in this House before it goes to another place.

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6.15 p.m.

The Earl of Stockton: My Lords, as at Report stage, I rise to support the noble Lord, Lord Thomson of Monifieth. However, I would like to preface my remarks on his amendments by reiterating my strong belief that there are no grounds of principle or public policy for continuing with this formula. There is, frankly, no reason why Channel 4 should continue to subsidise the ITV companies beyond the end of next year.

My noble friend's Amendments Nos. 18 and 19 are disappointing as well as being impenetrable in that they fail to deliver the expectation which he raised with us at Report stage. His statement then led us to expect a reduction of the payments in two stages, with the latter set at zero. Pending consideration of this, an amendment to end the payments at the end of 1997 was withdrawn. But what he now proposes offers nothing that will guarantee a reduction in two phases; it merely sets the powers to do so at a later stage.

At Report stage we were led to believe that, in line with the ITC position, the second stage would be a reduction of the payments to zero. Now that promise is simply a "maybe". My noble friend's amendments say that these payments "may be nil". That means that the payments may vary anywhere from 50 per cent.--that is £80 million--to nil. It means that they may be altered any, or, indeed, every, year. It means that they may be altered in any way. It means that they may rise as well as fall. That must be a recipe for continuing conflict and for endless lobbying by ITV and Channel 4 at a time when they should be co-operating to introduce digital television. I would have preferred simply to alter "may" to "shall".

The amendment of the noble Lord, Lord Thomson, is itself a compromise. The board of Channel 4 has quite reasonably asked to be relieved from the end of 1997 of a formula which was designed to help it but which everybody now accepts is draining substantial funds from programme making. The amendment asks for an additional--in my view unjustified--payment for 1998. What it offers, however, is that element of certainty which is so badly needed. Without certainty, Channel 4 will find it extremely difficult to plan its film, programme and digital investment budgets for the years following 1997, and without certainty the debilitating wrangling will continue.

This compromise must surely answer all the Government's concerns. The safety net will remain in place, even though Channel 4 does not want it or need it. The Secretary of State will still have power to vary the percentage of qualifying revenue on which the formula is based and so manage any dramatic fluctuation in later years. Nothing more is now needed other than certain figures by which the formula is to be phased out.

I shall be most interested to hear what my noble kinsman Lord Arran, the noble Viscount, Lord Astor, or the noble Lord, Lord Howell, speaking as they do with great affection and support severally and collectively for the independent television companies, have to say in answer to this. By the by, I would also like to ask my noble friend the Minister, who has considerable

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experience at a European level, how he believes that any continuing subsidy payments to ITV after 1997 can pass scrutiny by the commission, since the funding formula was registered as state aid with the sole purpose of supporting Channel 4.

My noble friend the Minister has himself conceded that early action needs to be taken to stop the payments from Channel 4 to ITV. Those words, "early action", are his in col. 443 of the Official Report of 7th March. So action--and action on the face of the Bill--is what we need. Intentions, statements, promises and maybe's are not enough. They cannot bind this Government or any future government and they do not in my view respond to the widespread agreement among many of your Lordships that we ought to put right in this Bill what has clearly gone wrong in the last one.

Lord Crickhowell: My Lords, there is a certain familiarity about this debate. There have been a number of previous rounds, although unavoidably I missed the last one. However, I have carefully read what was said on 7th March. On this occasion, as on previous occasions, I must declare an interest as a director of an ITV company, HTV.

I was glad that the noble Lord, Lord Thomson of Monifieth, brought us back to the gap year. I had looked at his amendment with a certain amount of surprise, noting as I did the absence from the Marshalled List of another amendment from him on the gap year. I well recall him saying when we debated the gap year that he would be looking closely again at the issue and might well return to it. At that time I said that I would support him. But the impact of his amendment is in a sense to bring that issue right back to the fore again. My noble friend the Minister argued on 7th March that effectively the compromise he advanced had gone a long way to close the gap. That was acknowledged at the time by the noble Lord, Lord Thomson of Monifieth. But, by now accelerating the process, the issue is inevitably reopened.

The noble Lord, Lord Birkett, said that we can foresee better than we could in 1990. But back in 1990 the television companies which were bidding--those that did not get their licences had the same problem--had to bid into a very deep fog indeed. The noble Lord, Lord Thomson of Monifieth, is right in saying that the two points need to be looked at together. If a violent change is to happen at the end of 1997 there has to be a re-examination of the total position and not just a part of it. The noble Lord is proposing a fairly sharp change--a reduction in one year of two-thirds of the money at present going to Channel 4 companies. I am not arguing for a moment that there does not need to be a phasing out of these arrangements but it seems to me that the Government are right in saying that it is sensible to leave flexibility and to set the rate of phasing in the light of circumstances as they are in 1997. Only then will we be able to gauge the impact of Channel 5, measure the impact of the proposed digital or satellite channels--there could be a large number of them--and take account of the economic climate and the impact on the Channel 3 companies in the light of the advertising revenue for those companies at that time.

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The Government put forward a particularly sensible compromise on the last occasion, in that it allowed for some adjustment at the time in the light of circumstances. I find myself in perhaps the rather unusual position in debates in this House, in which I have sometimes been a little difficult with my noble friend, of being the first person to speak in favour of the Minister's solution as advanced on Report. I believe that he got it right then and I hope he will stick to that solution.

I have only one other thought to put to him. He said that, as the payment for 1997 is made in 1998, that in effect eliminates the gap year and is a factor to be taken into account. He referred to the fact that that was a cash flow impact. But in terms of the way in which companies do business and prepare their accounts--this is the almost universal practice--they account for those funds in the year to which they refer. Therefore, in planning their expenditure and their income, they relate to the year to which they refer and not to the fact that the cash comes in a month or two later. That is a cash flow impact. It is not an accounting impact; it is not the basis on which companies can plan their business. My noble friend must consider that matter but stick to his guns and retain the flexibility that he has given himself. I hope that he will reject the amendment.

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