Select Committee on BBC Charter Review Minutes of Evidence

Supplementary evidence from the BBC


  At the Select Committee session in Manchester there were three questions where we offered to provide additional information.

1.  Why has the projected total cost of the move to Manchester been cut by 33 per cent while the projected annual cost has dropped by 50 per cent?

  The original cost estimate for the project—dating from December 2004—was £530 million to £640 million. This represents the total costs that will be incurred in completing the move, irrespective of how these costs are funded or who provides the capital.

  This total splits down into two categories of cost: those paid by the BBC directly; and those financed via third party capital (which is subsequently repaid by the BBC over a number of years). An example of the former is the redundancy and relocation costs that will be incurred as a result of moving over 1,500 jobs to Manchester. An example of the latter is the construction cost of the building, which will be financed by a third party and then repaid by the BBC, either in the form of a rent or a repayment of some form of debt facility.

  The figure of £45 million for the annual cost to the BBC also dates from December 2004 and represents the cost to the BBC of that second category: elements originally paid for using third party capital. Therefore, it is not an additional cost, but the same cost represented in a different way.

  Over the last 12 months, considerable work has been undertaken by the project team to turn the original plans for a high level strategy to a detailed implementation plan, a process which has allowed us to introduce efficiencies into the plans. For instance, a thorough assessment of the accommodation requirements of each of the relocating divisions has been undertaken resulting in a reduction in the space requirement for the new centre, and a decision to rely on the market to provide the required studio facilities has reduced the level of funding the BBC would have to raise. As a result, the latest projection for the total cost of the project (irrespective of who funds it) is roughly a third lower than the December 2004 estimate. This in turn has had the effect of broadly halving the annual amount payable by the BBC for those elements originally funded by third parties.

  There are two reasons why the annual cost to the BBC has dropped by a larger amount than the total project cost. First, in the revised plan a greater proportion of the costs are paid directly by the BBC, thus the level of third party capital required has fallen by more than 33 per cent. Secondly, we have done further work to look at how that external capital could be raised and, as a result, have revised the financing cost assumptions downwards. Together, these two reasons account for the greater reduction in the average annual cost to the BBC.

2.  How many years will it take for the Manchester move to pay for itself?

  The key driver for the move to Manchester is not to generate savings, but is instead about creating a more representative BBC that will connect with audiences from across the UK. Therefore, the concept of a payback period in purely financial terms only represents part of the picture. However, we clearly want to identify the most cost-effective way of undertaking the move and are endeavouring to realise savings wherever possible.

  In relation to the people-related costs, they will pay for themselves over 25 years, with annual "London weighting" savings offsetting the upfront relocation and redundancy costs. We are looking at alternative HR strategies to identify whether we can reduce the costs further and hence reduce the payback period.

  Property-related savings as a result of the space vacated in London are currently in the process of being determined by BBC Property. Since the project is not happening in isolation, these savings need to be determined as part of BBC Property's wider property strategy, which is also tasked with delivering significant savings as part of the efficiency targets included elsewhere in the licence fee bid. We believe that further savings are possible, but it is clear that the property element of the project will remain a significant net cost. The payback for the project as a whole is dependent on the savings that we can realise from the accommodation that will be vacated in London. However, the move is not happening in isolation and hence any savings need to be determined by the BBC's wider property strategy, factoring in the implications of the numerous other changes occurring at the BBC. Detailed work is underway to address the complex issues involved in developing this strategy, to determine how the vacated space as a result of the move can be converted into disposals of whole buildings.

3.  How many staff are currently employed in London, outside London and at BBC Manchester?

  As of 31 August 2005, the BBC employed 23,163 people, of which 14,219 were based in London and 8,944 outside. Of those based out of London, 678 were working in Manchester.

  I hope this addresses the outstanding queries. One further point of clarification is that in one of our responses in the committee session, we underestimated the number of hours of radio drama output currently made from Manchester. The correct figure is actually 74 hours, not 60 as we had stated.

  At the time of the Select Committee in Manchester we were midway through our detailed negotiations with the owners of the four "media zone" sites, which made it difficult for me to discuss that part of the project in detail. We have subsequently concluded the first phase of the site selection process and are today announcing the two shortlisted sites that the BBC and the Regional Development Agency intend to take forward into the next phase. They are the "Central Spine" site near Whitworth Street in central Manchester and the Quays Point site at Salford Quays near the Lowry and Imperial War Museum.

  Although the existing ITV site did not make the final shortlist the BBC shares your observation that the greatest benefits can be achieved by the Media Zone if the media sector shares facilities. The BBC, the NWDA and the two city councils believe this is possible whichever site is finally chosen. We would all welcome ITV's involvement, either as a user of the Zone's studio facilities or as a fellow tenant alongside the BBC.

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