Select Committee on BBC Charter Review Minutes of Evidence

Examination of Witnesses (Questions 1880 - 1899)


James Purnell MP

  Q1880  Chairman: Let's then go back to where we were and what you referred to as the BBC's "opening bid". The history over the last 20 years has been quite interesting because the licence fee was first linked to RPI in 1988 and until 1998 it went on matched to RPI and below. Since 1998 the licence fee has been more than RPI in each year and we are now coming to the situation where if the BBC's proposal were to be accepted it would be RPI + 2.3 per cent and that does not take account of the costs of switchover so it could be in fact with the elderly and disabled something like 2.8 per cent. Do you think that this size of increase is sustainable year after year after year?

  James Purnell: As I was saying before we broke, I am not going to give a running commentary on what we expect the level of the licence fee to be however I think we can set out some clear principles. We will look at the services proposed by the BBC, we will take an overall policy decision on what the BBC should be doing for the next Charter review period, and we will want to make sure that the BBC is adequately funded. We will look at their financial proposals and we will scrutinise them in an extremely robust way and we will also want any decision we arrive at to be bounded by the public acceptability of the licence fee. So those are the principles within which we will make that decision, but I cannot at this stage give you an indication of where that will end up.

  Q1881  Chairman: Just taking those principles, what you said about public acceptability seems to me very important. Are you not concerned that if it goes on like this year after year after year the public acceptability of the licence fee is going to reduce if not disappear?

  James Purnell: I think public acceptability is a very important point. The next Charter review period presumably in 10 years' time will be happening in an all-digital environment (assuming the Government's policies are successful) and to achieve Charter renewal at that time the BBC will have to have a significant level of consensus for the continuance of its role in a digital world, and acceptability of the way that it is funded will be an important part of that.

  Q1882  Chairman: So I think we can take it from what you are saying, leaving aside what the figures are, that you are seeking to work to oversee this bid and if possible to bring it down?

  James Purnell: Yes, we want a strong and independent BBC. We will look at what services will be necessary to deliver that. We will be robust in the way that they propose to finance those services and we take the acceptability of the licence fee into account in making those decisions.

  Q1883  Lord Holme of Cheltenham: I understand that you do not want to negotiate publicly with the BBC at a delicate moment, and that is quite understood, but since one of your principles is public acceptability, would it not be fair to say that the reaction to the BBC's opening bid was surprise and I would even say shock at the quantum that they seem to envisage as being necessary to discharge their responsibilities?

  James Purnell: I do not want to start sounding too much like a broken record but there are pitfalls on both sides here. If the BBC were not adequately funded to deliver services which would enable it to retain audience reach in particular, having services which people are using pretty much every week and which they value and see as an important part of British culture, if they were not doing that, there would be a problem with acceptability. On the other hand, if they also thought that they were not getting good value for money from the licence fee then that would also be a problem, so acceptability and the value for money of the BBC's services will be a key part of how we decide to level the budget.

  Q1884  Lord Holme of Cheltenham: And you could not imagine any situation where they would get more than what they have asked for?

  James Purnell: I think that is unlikely.

  Q1885  Lord Maxton: I argued at the last review for RPI plus on the basis that one of the things that has to be done is the digitalisation of the whole archive of the BBC however the only way really that the public can have access to it is through the Internet through the BBC's website, and that is great, that is fine, and I fully support that. The problem is that that archive is not just available to the licence fee payer in this country; it is available to every person on the Internet in the whole world, and that means the licence fee payer is basically subsidising the broadcasting of material for other people elsewhere, is he not? I believe it is right but I think there is an argument there that people will increasingly make.

  James Purnell: Yes, at the margins I think that is true. It would be interesting to think through whether that is a good thing or bad thing overall for Britain, in the same way people using the World Service is a good thing for Britain in a general sense for people understanding us and our point of view. Whether the cost of preventing access to those programmes (and I do not know if it would be possible) would be justified, given the marginal benefit of other people around the world seeing it I do not know. Obviously the BBC does exploit its programmes in other markets and should continue to be able to do so.

  Q1886  Lord Maxton: In my view, by the time of switchover in 2012, and I will come to digital switchover, most broadcasting will be done by broadband in this country and elsewhere so, given that, why has the Government set its face, as it already has, against the proposal in our first report that the taxpayer should pay for the digital switchover rather than the BBC, which is only one of the broadcasters of course which will benefit?

  James Purnell: We will be commenting formally on the recommendations in your previous report—

  Q1887  Lord Maxton: In a Parliamentary Question on 19 December the Secretary of State made it clear—

  James Purnell: We will be reporting back to you on your recommendations, again very shortly before the White Paper is published and we will give full responses to all of the points that you made. As you say, the Secretary of State answered a question on that and indeed I gave evidence to the Culture, Media and Sport Select Committee on this issue last week. The reasons are that we believe that supporting and spreading Digital Britain is an important part of the BBC's role. It has always been part of the BBC's role to support new technology and to provide content for new technology, for radio when it was created, television, the Internet and now digital TV. Therefore we think there is a general public benefit in the licence fee being used for that. We also think there are important BBC-specific reasons. First of all at the moment the BBC is funding a number of services that people can only access with digital television and we think that is right. It is right for the BBC to be able to pioneer technologies that are not yet universally available but I think there comes a point at which you do have to seek to make universally available the BBC-funded services. This approach will mean that everybody will have the opportunity to have digital television and be able to access BBC Three and Four and other services on digital. Also there is a benefit for the BBC—and I think the BBC said this in their last session to you—which is they share an interest in there being universal access to public service television. They also share a financial return because they will not have to broadcast in analogue and digital. I think for all of those reasons it is quite appropriate to use the licence fee to support switchover costs and also the package for the vulnerable that we have identified.

  Q1888  Lord Maxton: Let's leave the package for the vulnerable to one side. The actual switchover cost will be of benefit to a small percentage by 2012 who are not already paying for digital. A large percentage of us are already paying. It is not rich and poor, by the way. If you go to any council house area in Glasgow and see the number of Sky dishes and so on there, you will know it is not a poverty thing, it is an area thing and a variety of other reasons. So why should those who have already got digital be paying for the rest of the population to get it?

  James Purnell: Your first point is quite well made which is the difference in proportion of people who have digital TV between the top half of the income scale and the lower half is pretty minimal, but we think this is an important use for public money from the licence fee for exactly the reasons I have just laid out, which is that we think people should have access to services they are paying for. They are paying for BBC services through the licence fee and therefore they should have access to them. Also in general if we did not have a policy of switchover, in effect, people would be wasting a public resource. The spectrum is a very important public resource and it is important—

  Q1889  Lord Maxton: No-one is arguing with the importance of switchover. What we are arguing about is whether it should be the BBC who pays for it rather than coming out of general taxation when, after all, it is the government and the taxpayer that is going to benefit from the sale of the analogue spectrum, not the BBC, unless you do intend giving all the money from the analogue switchover to the BBC and reducing the licence fee.

  James Purnell: I would question your premise that it is the government and the taxpayer who are going to benefit from switchover. I think it is right for the country and I think it is right for British television. British TV, arguably, has been the best in the world because we have been at the forefront of technology and I think we need to maintain that. If we did not and if we started to go to a world where we were falling behind compared to other countries then I think in 10 or 20 years' time people would criticise us for not having taken the right decision. I think the BBC is the right way.

  Q1890  Chairman: We are slightly at cross-purposes. The point being made is who actually bears the cost? Is it the licence fee payer or is it the taxpayer? This Committee supports the licence fee but we do understand that it is a regressive form of taxation, there is no question about that. Would it not be fairer and more sensible for the switchover costs to be borne by the general taxpayer?

  James Purnell: No, I do not agree with that. I do not want to repeat myself but we think there are BBC-specific reasons for why the licence fee is the appropriate way to do this. We think it helps make sure that the BBC's digital services are universally available. We think that it is a progressive use of the licence fee because it will be benefitting in particular people who are vulnerable—people over 75 and people who are disabled. I think that helps to answer the point about regressivity. As the BBC themselves said, they share an interest in there being universal access to digital television and they will also share an interest in their not having to broadcast both in analogue and digital. We think that using the licence fee (which is paid by virtually everybody in the same way that taxation) is the appropriate way of funding it.

  Q1891  Chairman: Okay, we will go on to the value of the spectrum and Lord Holme but just to pick up the point on the response from the Secretary of State to our first report, you said shortly; in fact, you mean on this occasion very shortly because I think it has to be by the end of this month?

  James Purnell: That is right.

  Chairman: Just so we are planning on the same basis. Lord Holme?

  Q1892  Lord Holme of Cheltenham: I would really like to pursue the point we have been talking about because presumably you would concede that if the BBC are to bear the cost as the Government proposes then whatever the increase in the licence fee would have been it will be higher because of that?

  James Purnell: Because of the cost of the spectrum?

  Q1893  Lord Holme of Cheltenham: No, the switchover. Whatever the increase in the licence fee would have been it will be higher if the BBC is bearing the cost?

  James Purnell: Of switchover, yes.

  Q1894  Lord Holme of Cheltenham: This brings us to the question of spectrum because the analogue spectrum that is left after this switchover of course is of value and it is of value two ways. We have the Government's own estimate that it is worth between £1.1.and £2.2 billion to the economy but there is also the issue which we explored with Ofcom, whom I gather will be charged with selling it, of the potential sales value of the spectrum. So the Government and the Treasury, and I do not know whether it is an uncovenented bonus, but they certainly have a bonus accruing both to the economy and specifically in terms of revenue coming. I think that this really makes the previous questioning by Lord Maxton and the Chairman even more relevant because what does the Government propose to spend that money on? Why would it not most appropriately be spent on paying for the digital switchover which is highly relatable?

  James Purnell: I think we are a long way from being in a position of deciding how to spend any of that money. If I can just lay out the process by which this happens. The decisions about how to allocate spectrum in particular and whether to charge for it are for Ofcom. That decision was taken by the House of Commons and the House of Lords in the Communications Act and we charged Ofcom with that responsibility. Ofcom will now carry out what they call their digital dividend review in which they will look at the uses to which the spectrum will be put and the most effective way of allocating it. The general approach of Ofcom and the Government is we believe that the market mechanism is the right way of ensuring efficient allocation of spectrum, but we will make those decisions taking into account the interests and the views of other stakeholders including the public service broadcasters. So we have not completed consultation, we do not know what the spectrum will be used for, and we have not got anywhere near allocating it, so decisions about what to do with any money which was raised by this would be made by future Ministers.

  Q1895  Lord Holme of Cheltenham: You do not even have any estimates of what the likely revenue or possible revenue might be or a min and max range of revenues?

  James Purnell: No, we do not and we have answered Parliamentary Questions on that. It is important to realise that the policy is generally not led by a desire to raise revenue; it is led by the importance of allocating the spectrum efficiently. I am sure that you would all accept and support the importance of spectrum allocation. If we do not use it properly we are preventing people from launching new services, we are damaging consumer interests, we are potentially raising prices, we are undermining the competitiveness of British industry, and therefore spectrum allocation is an important issue that needs to be led not by any revenue raising goals but by the issue itself, how you promote efficient spectrum allocation.

  Q1896  Lord Holme of Cheltenham: It is very difficult to argue with that but I think the thing that is exercising this Committee is there is direct cause and effect here. As a result of switchover revenues will accrue, so if you look at the whole project, Project Switchover let's call it, it seems difficult to understand why at least a possibility would not be to defray or meet the cost of switchover from these uncovenanted revenues that accrue as a result of this switchover. I think that is the part people find very puzzling.

  James Purnell: We are firm in our belief that we think the licence fee is the right way of funding the switchover. As I say, we think there are general public reasons but also BBC-specific reasons why the licence fee is the right way of doing it. One of the BBC's specific purposes is to build Digital Britain. It is in keeping with their tradition of supporting the spread of radio, television, the Internet and digital TV. As I have just explained, that revenue if it does materialise is dependent on a whole range of decisions which have not been taken yet and so therefore we think that is the right way of approaching that policy.

  Q1897  Lord Peston: I am very lost by all this. I used to be a Reader in Public Finance in the University of London when I taught the subject and anything that was right for the country I then went on to say therefore that is what you use taxation for. I am totally at a loss as to what has happened to economics since I gave up the subject, and everything you are saying is denying that proposition. I simply do not understand the BBC-specific thing that you mentioned. That means the BBC will get gains that no other broadcaster will get; is that what you are saying?

  James Purnell: Yes.

  Q1898  Lord Peston: Could you give us some examples?

  James Purnell: I thought I just had. They will not have to broadcast both in analogue and in digital. They are providing services at the moment to homes which have got digital and once we have analogue switchover every home that has a digital TV will be able to receive that and that is a specific gain for them, that they will be funding services which everybody can receive. At the moment we get quite a lot of criticism saying, "My licence pays for BBC Three and BBC Four, I cannot receive it, that is not acceptable." The BBC's specific gain would be by having universal access everybody will be able to receive those services.

  Q1899  Lord Peston: I thought what you meant by BBC-specific—and obviously I do not fully understand this—specific to the BBC and not to any other broadcasters.

  James Purnell: Both of those are BBC-specific.

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