House of Lords - The future of investigative journalism

The future of investigative journalism - Communications Committee Contents

CHAPTER 5: Funding investigative journalism

Zero-rating VAT status for newspapers

171. Newspapers, journals and periodicals receive certain financial benefits for delivering news content in the form of zero-rated VAT as outlined in Section 30 of the Value Added Tax Act 1994.

172. Schedule 8, Group 3 to the Act lists newspapers, journals and periodicals as articles which may be zero-rated. For the purposes of the Act, a newspaper is defined as a publication if it is: "issued at least once a week in a continuous series under the same title. Each issue is usually dated and/or serially numbered. They usually consist of several large sheets folded rather than bound together, and contain information about current events of local, national or international interest. Publications which do not contain a substantial amount of news are not newspapers." Journals and Periodicals are similarly defined as: "magazines issued in a series at regular intervals, more frequently than once a year, either in newspaper format or as paper-bound publications."[132]

173. The UK Government is able to set this zero-rate under the transitional terms of the Principle VAT Directive.[133] These powers are provisional and the European legislation allows, but does not require, the zero-rating for newspapers. It is therefore in the hands of the UK Government to cease to provide this support at any time should it wish to do so by amending the relevant UK legislation.

174. In written evidence, the Department for Culture, Media and Sport (DCMS) noted that zero-rated VAT was available "to UK print media, although this is not available for electronic versions." The Government noted that:

"The majority of EU Member States are predicted by HMRC to be against any attempt to widen the concession to non-print media, although France has classified media on a CD as liable to a reduced rate. Reasons given for this include difficulty in defining the target market and insufficient evidence to show that the benefit of a lower VAT rate for electronic platforms would be passed on to consumers if adopted by the UK."[134]

175. Zero-rating VAT is a form of state support for the newspaper industry which is a transitional power open to the UK Government to implement as it deems appropriate under the terms of the EU Directive. Given the economic pressures facing the newspaper industry, we believe it is appropriate that the Government should maintain zero-rated VAT for newspapers in order to provide a continued form of public support for this struggling and vital industry.

176. It has been suggested that only those newspapers which are members of the Press Complaints Commission (PCC), or any successor body, should receive this zero-rating. This is on the face of it an attractive proposition. It would give a newspaper a significant financial incentive to be a member of and to adhere to the rules of the press's regulatory body. However, we suspect that any proposal to limit zero-rating in this way might be illegal under European Community law. VAT is subject to the principal of fiscal neutrality which precludes treating similar goods or supplies of services differently for VAT purposes. The principle is engaged when goods are identical or similar from the point of view of the consumer and meet the same consumer needs. It seems likely therefore that tying a newspaper's receipt of zero-rating for VAT purposes to its membership of an industry regulatory body would be deemed to breach this principle.

177. We recommend that the Government should consider further the legality of any proposals to limit the receipt of zero-rating for VAT purposes to those newspapers which are members of the PCC (or any successor body).

The BBC licence fee

178. Another form of public support for investigative journalism is the BBC licence fee which is used to pay for BBC content and services. Guardian journalist Nick Davies said that: "I think it is vital to protect the BBC. You have what you might loosely call a business model, a funding model, that works."[135]

179. In written evidence, the BBC explained that a few years ago it "reduced the budget and the number of hours of factual programmes on BBC television, concentrating on more ambitious, larger-scale projects. The overall evidence suggests that the audience impact and perceived value of these programmes has risen. The same principles will guide the BBC in its strategy for journalism generally and investigative journalism in particular."[136]

180. As part of its proposals to the BBC Trust on how it will deliver cost savings in order to meet the terms of the last licence fee settlement, BBC management has announced that it intends to safeguard the budget for investigative journalism on Panorama.

181. However, this does not mean that the BBC current affairs budget will not be affected by the cost-cutting proposals. The National Union of Journalists (NUJ) told us that it was "most concerned about the effect of cuts at the BBC on the future of investigative journalism."[137] The NUJ continued that:

"Mark Thompson has given the impression that investigative journalism will be safeguarded. But that is not the case. Editions are being cut from Radio 4's Law in Action, and The Report, while Beyond Westminster and Taking a Stand will come to an end. On BBC Radio 5Live, the 5Live Investigates programme will be scrapped. The regional TV investigative programme, Inside Out, faces 40 per cent cuts. Cuts are underway in National TV Current Affairs (makers of Panorama) based in London and have been since February 2010. There are plans to axe 31 posts and as a result there will be no current affairs programmes on BBC 4. There will be a cut of about nine hours per year of ad hoc current affairs series on BBC2. Despite promises of new money for Panorama in the future, there is no guarantee that it will be inflation-proofed. If not, it could actually mean a further real-terms cut."[138]

In early January 2012, the BBC issued five compulsory redundancies for staff working on the BBC Panorama programme.[139]

182. At a local level, we have also heard concerns expressed by witnesses about the impact which the proposed BBC budget cuts will have on local radio stations, which may affect their ability to provide journalism in certain areas due to a loss of local journalists and staff cuts. Mr Roger Bolton, Presenter, BBC Radio 4's Feedback, and former Editor of Panorama and This Week, explained to us his fear that, "the cutting back of BBC local radio and regional television means that that ability, the expertise, and the resources to use that expertise in scrutinising what is happening at a local level is diminishing."[140]

183. In response to these criticisms, the BBC submitted further written evidence to the Committee. While this broadly confirms the outline of cuts depicted by the NUJ, it also makes a number of additional points. While conceding that current plans include the termination of Taking a Stand and Beyond Westminster and a reduction in editions for Law in Action, it claims that plans do not exist to reduce the number of editions of The Report; instead, five of its editions are due to become updated repeats rather than original investigations. Moreover, the BBC rejects the suggestion that any of this represents a blow to its investigative journalism as it claims "none of these would be normally classified as investigative" in the first place.[141] However, the BBC's latest evidence does note that two of the areas picked up by the NUJ have also been highlighted by the BBC Trust's own Interim Findings, released in January 2012, on the Executive's programme for cuts. In the case of 5Live Investigates, the Executive's proposals have been rejected by the Trust, and in the case of Inside Out, the Executive have been asked to reconsider their plans in light of the value audiences place on local and journalistic content. More broadly, the Trust has made clear that it remains "to be convinced that the savings for regional current affairs can be achieved without undermining the BBC's journalistic aspirations" or the "overriding principle ... that local radio must stay local for most of the time to continue to have impact."[142] The BBC is clearly having to make difficult decisions in its cuts programme, Delivering Quality First, but it is important it does so with sensitivity to its role in sustaining—among other things—proper, investigative journalism from the international to the local level. We, therefore, note the Trust's Interim Findings following its consultation in 2011 and look forward to the Executive's updated proposals, as well as to the Trust's final conclusions due in spring 2012.

184. Given that the BBC receives public money in the form of the licence fee in order to deliver a public good, we believe that it should continue to provide high-quality investigative content in both its television and radio services, including at a regional level. We are concerned about the reported cuts in staff on the flagship investigative programme, Panorama, but we welcome the BBC's commitment to continue to invest in investigative content at international, national, regional and local levels. We encourage it to continue to do this, despite the cost-saving measures which the corporation must make.

Alternative funding models for investigative journalism in newspapers

185. Traditionally newspapers were owned by shareholders, either a few major shareholders, or a range of smaller shareholders, or a combination of the two. Over the years other ownership models have developed, initially driven by businesses seeking to protect themselves from Inheritance Tax and its predecessors. The character and structures of ownership are very important for a news organisation. In addition, the preferences and personality of the owner play an important role in determining a media organisation's commitment to investigative journalism. For example, a generous proprietor or shareholders are philanthropists to the extent that they are prepared to forgo profit in order to support the publication of information that is in the public interest.

186. Mr David Mahoney, Head of Content Policy, Ofcom said:

"I think that ownership structures are very important and I think that charity and trust models have a potentially very interesting role to play in, if you like, guarding against pure commercial interest in decisions about news and programming. What I do not think that ownership models can do—and we have a number of ownership models today, we have a different ownership model for the BBC, for Channel 4, for ITV and then you have the Scott Trust, which is a limited company but based on a trust, the history of the Scott Trust—what I don't think it can do is solve the problem of funding. So I think you have to have the funding in place and then you can look at the ownership structure that best delivers the public and social purposes and that can help guard against purely commercial decisions and protect journalistic integrity and all those sorts of things. But I think you need the combination of the two, which is an ownership structure that suits the delivery of news and the funding that facilitates strong investigative journalism."[143]

187. We heard about a number of different organisations with ownership structures which differ from the traditional ownership model of private ownership or a company limited by guarantee. One example is the Scott Trust, which owns the Guardian Media Group, and is "a limited company with exactly the same purposes as the trust. It distributes no dividends; it has other more stringent conditions about changing membership and things like that."[144] We also heard from the Camden New Journal, which was set up by Eric Gordon (who remains the paper's editor) and other journalists in 1982 as a company with a limited guarantee helped by the Co-operative Development Agency.[145] Mr Gordon told us that he and his colleague bought the newspaper from an owner "who thought the paper had no future"[146] and that they had turned it from a paid-for paper into a free-sheet. The West Highland Free Press on the Isle of Skye is an employee-owned co-operative which is "run basically along the lines of the John Lewis mutual employment society."[147]

188. Martin Trepte, Editorial Director, Maidenhead Advertiser, told us that his newspaper is:

"Wholly owned by the Louis Baylis (Maidenhead Advertiser) Charitable Trust, which was set up in 1962 by the then editor and proprietor Louis Baylis, basically to safeguard the independence of the paper. Effectively, the trust is the single shareholder of the paper and receives 75% to 80% of its profits, which it then distributes to good causes in the community. The trust is effectively the sole shareholder, so we are run as a company that publishes the Maidenhead Advertiser and the Slough & Windsor Express series. It is run as a company with business plans and everything to deliver a profit to our shareholder—the trustees—so our management structure and methods are very businesslike."[148]

189. We have found that what matters in terms of ownership and support for investigative journalism is not the type of ownership structure but whether the owners be they an individual, a company, a charity, trust or co-operative, are prepared to ensure the money to support this type of journalism.

Charity ownership

190. Later on in this report we will consider the emergence of charitable organisations such as The Journalism Foundation which are focussed on the mentoring and training of investigative journalists. In this section, however, we will concentrate specifically on the role charities can play in the ownership structures of newspapers and other organisations engaging in investigative journalism. Outwith the UK, for example, some newspapers have been set up by foundations which have similarities with, but are far from identical to, UK charities. The differences may appear at first glance to be slight, but in reality they may make a significant difference to the activities in which the organisation can participate. One attraction of being a charity in the UK is that the organisation can be the beneficiary of philanthropic donations in return for constraints on what it can do.

191. In England and Wales the law of charities is governed by the Charities Act 2006 and in Scotland by the Charities and Trustees Investment Act 2005, which is overseen by a Charity Commission in each jurisdiction.

192. Investigative journalism is not currently recognised as a charitable purpose in its own right in Charity Law, as "a commercial undertaking such as a conventional newspaper company is likely to be disqualified from charitable status because its underlying purpose is to generate a financial return for its owners, regardless of any beneficial effect on the public that might result from some of its work."[149]

193. There are, however, two principal ways in which a charity might be involved in the running of a newspaper. First it might own the paper and run it, and secondly it might own shares in a non-charitable company which runs the paper, as is the case for the Maidenhead Advertiser. In the first example the charity must behave charitably, within the law as defined by the Charity Commission's guidelines. It is reasonably clear that a conventional newspaper falls outside of these guidelines, not least because campaigning cannot be charitable.

194. If a charity were to support investigative journalism, a possible problem might arise through the charity owning shares in an unprofitable company (after all, newspapers are struggling financially at present) in which case it would have no income to distribute to those entitled to benefit.

195. On the issue of whether newspapers might be charitable in line with the Charity Commission guidelines, Dr David Levy, Reuters Institute for the Study of Journalism, suggested this might be possible at a local level. He said:

"I can see that there would be opportunities to do charitably funded newspapers ... in the UK that had a very clear community focus. Some people argue that this would be absolutely possible within existing UK charity laws in terms of the community purpose and community benefit that these organisations could commit themselves to. My worry is that it would be rather more difficult to do at the national level where ... an investigative story might be seen as more partisan or as running some kind of line and it might be more difficult to say that it complied with existing UK charity law."[150]

However, as highlighted by World in Action Editor and Executive Producer, Ray Fitzwalter, "charitable status is exceptionally difficult to get."[151]

196. A charity must protect its limited resources, and as highlighted by the Charity Law Association:

"One of the distinctive difficulties for any investigative journalist is the uncertainty, when he or she sets out on a new project, of there being any beneficial outcome at the end of that project. Much painstaking work may be necessary before any useful results are achieved and it would be particularly difficult for a charity, whose funds may only be applied for charitable purposes, to commit itself to providing financial support for an investigation that might quite possibly disclose nothing of any benefit to the public. Charity law does permit trustees to take certain risks and to support projects whose intended outcomes are not guaranteed ... However, any decision to commit funds to investigative journalism would need to be justified by a reasonable expectation of a beneficial outcome."[152]

197. The Charity Law Association called for investigative journalism to be included as a charitable purpose in its own right. They said that: "On the basis of anecdotal evidence offered to the working party, it appears that the main impact of any of the above measures would be threefold:

(a) To enable donations from private individuals or businesses wishing to support investigative journalism to attract charity tax reliefs;

(b) To enable an existing charity to make grants to support appropriate investigative journalism; and

(c) To enable an organisation that carries out or commissions investigative journalism to enjoy charity tax reliefs (including relief from business rates payable on its premises)."[153]

198. If investigative journalism in its own terms were to be included as a charitable purpose, this would require legislative change, for which the Government do not at present have any plans. In his supplementary written evidence, the Secretary of State wrote that: "There have been no calls from the public or the charity sector to recognise investigative journalism as a charitable purpose so ... Government is not currently inclined to legislate."[154]

199. In the circumstances, the only immediate step appears to be to seek assistance and guidelines from the Commissions as to what extent and in what ways charities might be involved in the provision of investigative journalism.

200. Some of the alternatives to charitable ownership, such as the employee-owned model of the Camden New Journal and the West Highland Free Press are not charities but could still be possible beneficiaries of philanthropy. The model of an industrial and provident society (they can, but need not also be a charity, and hence subject to Charity Commission rules) is probably the type of alternative structure which is most relevant in this context. However, as far as can be established, no newspaper business is registered as such.

201. We call on the Charity Commission to provide greater clarity and guidelines on which activities related to the media, and in particular investigative journalism, are charitable in the current state of the law. Furthermore, we ask the Charity Commission to take into consideration both the current pressures on investigative journalism as well as its democratic importance when interpreting the relevant legislation.

202. While recognising the Government's current disinclination to legislate in this area, it seems to us that reform of charity law is the only way in which certainty in this area could be achieved. We therefore urge the Government to reconsider.

Non-traditional funding models for investigative journalism

203. A development which may be an indicator of ways in which investigative journalism might be funded in the future is the development of various organisations which may or may not be charitable and are sometimes associated with universities or NGOs and which carry out investigative activities and publish their findings online or through other forms of distribution but are not embedded in a newspaper or other media organisation. John Lloyd, Reuters Institute for the Study of Journalism, spoke of the "extremely encouraging signs of not-for-profit money coming in to investigative journalism in particular. In this country, it is not in a huge way, but in a significant way, in the Bureau of Investigative Journalism, which is attached to City University, and in the States there is much more."[155]

204. The thinking behind this originates in the USA where there is a tradition of free standing philanthropic institutions uncovering what has been hidden in pursuit of the public interest. The best known and probably the most prominent of these in this field is the ProPublica Institute which is based in New York. Richard Tofel, the General Manger of ProPublica, told us of some of the investigations which the organisation had done in recent years:

"In 2008 we began reporting on police violence in the city of New Orleans in the wake of Hurricane Katrina. By the time that reporting had played out in 2010, we had established that the police had shot—and killed in some cases—a number of innocent people and that there had been a range of police violence ... In 2009, we reported on the difficulties of nursing oversight in California ... the State of California was taking up to six years to discipline dangerous nurses. That story was published in the Los Angeles Times on a Sunday, the then Governor of California, Arnold Schwarzenegger, read it and on Monday morning dismissed almost the entire California Nursing Board and set in motion a chain of reform there."[156]

205. The closest equivalent to ProPublica in the UK is the Bureau of Investigative Journalism. Iain Overton, Managing Editor, Bureau of Investigative Journalism, described the role of the Bureau:

"[It] is the first not-for-profit body of investigative journalists of its kind in the UK. We are loosely based on a similar model in the US, the ProPublica model, which effectively gives away its information for free. We have a slightly different remit where we have both a desire to bolster investigative journalism, which we have done with a £2 million grant from the David and Elaine Potter Foundation, but we also have a commercial element to what we do. We get commissions ... to do broadcast journalism. We have worked with all of the major national papers. We have been operating since April 2010. We have had 26 front page stories in that time. We have won an Amnesty Award and a Thompson Reuters Award. We have just been nominated for a Foreign Press Association Award. We have been mentioned around 12,500 times in different articles internationally."[157]

206. Mr Overton cited a recent example of the Bureau's work which had had a significant impact:

"We did a recent examination of drone attacks in Pakistan, which has had a huge impact in the States particularly. What we did was quite a forensic analysis of the number of attacks that had happened by US drones in Pakistan ... the end result of that was that we effectively proved that the CIA's declaration that no civilians had been killed in the last 12 months by US drone attacks in Pakistan was not true ... this has caused quite a huge debate and ended up being a leading editorial in the New York Times and a front-page story in the New York Times, but what I think makes it very good investigative journalism is that we have created quite a strong follow-on debate from it."[158]

207. Organisations such as the Bureau of Investigative Journalism and ProPublica are funded primarily from grants, although they also seek other sources of funding. The Bureau of Investigative Journalism (unlike ProPublica) sells some of its content to a range of media outlets in order to help with the cost of producing it. However, Iain Overton explained that the Bureau does not make a profit from this: "I have had only a small number of stories that have funded themselves, and that is generally when you go through to one player and they agree to match your costs."[159] Mr Overton identifies philanthropy as "... really the way that I am getting my funding." He said that: "In the last three weeks, I have had four people emailing me asking me whether I would like to meet them to discuss them funding me, so I think I am showing that it can work ... two weeks ago, I submitted a tender to the European Union, who asked me to show how much investigative journalism had changed corruption in the European Union. That was a €60,000 tender ..."[160]

208. Much of ProPublica's income, given that it offers its content for free, comes from the grant which it received from the Sandler Foundation. The remainder is raised through fundraising. Mr Tofel explained that ProPublica was seeking to build the amount of funding which came from alternative sources to the grant. This would help the organisation to build a more sustainable business model. Mr Tofel said that: "In 2009 we got contributions of $1 million from other donors, or about 12% of the total. In 2010 contributions from people other than the Sandlers went up to about $3.8 million, about 39% of the total. This year ... we will be over $4 million and somewhere in the 40 per cent of contributions from other donors."[161]

209. Whilst we were engaged with this inquiry, the Institute of Journalism at the Technical University of Dortmund produced a report which examined the field of foundation funding for journalistic enterprise in the United States.[162] In February 2012, the Carnegie Trust published a report which recommended new investment from civil society organisations to help fund new and innovative journalism initiatives.[163]

210. We also heard evidence that some investigative journalists were now employed by NGOs who were sponsoring investigations into areas within their own sphere of interest. Paul Lashmar, investigative journalist and Lecturer in Journalism from Brunel University, told us that: "NGOs ... have the money and the patience to do these things well ... there are seven or eight [investigative journalists] that I can think of immediately who are now working for NGOs and doing really good work ... they are using their expertise and bring professionalism and they now work with the media and are much more proactive."[164] Some NGOs have a particular point of view which they want to promulgate to the public and so there is a danger that the material they produce could be partial. Mr Lashmar sought to reassure us that: "If an NGO puts it out on their own website you have to go with their reputation. Their reputation hangs on that for better or worse."[165]

211. We admire the non-traditional model of providing investigative journalism which originated in the USA with organisations such as ProPublica and we welcome its development in the UK with organisations such as the Bureau of Investigative Journalism. Whereas in the past investment in long-form investigative stories relied on support and continued investment from a newspaper proprietor or broadcaster; newspapers and television and radio stations are increasingly outsourcing this to—or responding to initiatives from—specialist organisations. We encourage UK broadcasters to support these organisations by working in partnership with them.

Public subsidy for investigative journalism

212. As highlighted earlier in this chapter, investigative journalism is supported by public funding via the television licence fee which funds programmes such as Panorama and File on Four on the BBC. Zero-rating VAT for newspapers is a form of public support for the newspaper industry.

213. We have heard differing views from witnesses on the issue of public support for newspaper ownership. The Department for Culture, Media and Sport (DCMS) noted in written evidence that: "Anecdotal evidence picked up from different parts of the press at different times suggests that generally they are against direct support because it detracts from their independence, but internationally there are a range of support mechanisms, including support for publishing plant and journalists' costs."[166]

214. The National Union of Journalists (NUJ) wrote that: "Industry levies—a tax or charge on the revenues or profits of media organisations—common in many European countries is one option to provide subsidies elsewhere in the industry."[167] Direct public subsidies for journalism are available in Finland, the Netherlands and France. The NUJ argued that: "All these measures helped ensure the press increase its reach, helped smaller publications survive, and helped bigger ones increase both their profits and their potential to do public good."[168] However, we are concerned that if these are levied on struggling or loss making organisations they will merely compound the problem of pressure on limited financial resources, not help to solve it.

215. Furthermore, Dame Liz Forgan DBE, Chair, the Scott Trust, warned against any Government intervention in investigative journalism, saying that: "... a direct government subsidy for investigative journalism seems to me a bit of a contradiction in terms."[169] Similarly, in his evidence before this Committee, the Secretary of State for Culture, Olympics, Media and Sport, Jeremy Hunt MP, talked about the curiosity of "protecting something that is designed to make my life difficult."[170]

216. We recognise that public funding is a potential model for financing investigative journalism and one which works in other European countries. However, given the strong independent character of the printed press in the UK and our political traditions, we do not believe that it would be appropriate for the UK Government to fund investigative journalism directly in the form of state subsidies other than with the continued support for zero-VAT rating for newspapers and of the BBC licence fee in broadcasting.

An investigative journalism fund

217. One possible way forward might be for the successor to the Press Complaints Commission (PCC), whatever that might be, and the statutory regulator for broadcasting, Ofcom, to distribute some or all of the fines which they collect for breaches of the relevant Codes (or may collect if the new system of press regulation has the power to impose fines) to an organisation which could be used to fund investigative journalism or the training of investigative journalists. If this were to be adopted, there would need to be a fair and transparent criteria for and means of distributing the funds to which all investigative journalists could apply.

218. While it might be tempting when considering how to fund an effective regulatory regime for the printed press to consider using this money in order to finance the regulatory system itself, it seems more appropriate for it to be used to reinforce journalism. If broadcast journalists were to be equally able to apply for this funding, it would seem appropriate that a proportion of the funds generated from fines for breaches of the Ofcom Broadcasting Code were allocated to this fund, rather than to Her Majesty's Treasury which is where all broadcasting fines currently go.

219. If fines are introduced for breaches of the Editors' Code of Practice by newspapers and magazines under a new system of press self-regulation, we recommend that a proportion of all media fines (including fines for breaches of the Ofcom Broadcasting Code) should be allocated to a fund reserved for financing investigative journalism or for the training of investigative journalists. This fund should be open to all investigative journalists and journalism organisations—big and small, who publish in print, broadcast or online. The money would need to be distributed fairly by an independent regulatory body, such as Ofcom or the reformed PCC and there would need to be a system of accountability in place to ensure that the money was used appropriately, bearing in mind that, due to the nature of investigative journalism, some investigations would not lead to material which could be published.

132 Zero-rating of Books etc., HMRC Notice 701/10, December 2011 Back

133 Directive 2006/112/EC, 28 November 2006 on the Common System of Value Added Tax Back

134 DCMS Back

135 Q 110 Back

136 BBC Back

137 NUJ Back

138 NUJ Back

139 Panorama faces industrial action threat over BBC job losses, The Guardian, 4 January 2012. Back

140 Q 203 Back

141 BBC 2 Back

142 BBC Trust, Interim Findings on Delivering Quality First, January 2012, available online: http://www.bbc.co.uk/bbctrust/assets/files/pdf/review_report_research/dqf/interim_findings.pdf Back

143 Q 515 Back