BBC Licence Fee Settlement and Annual Report - Culture, Media and Sport Committee Contents

4   New responsibilities

48.  In this chapter we look, in more detail, at the extent to which the benefits of the BBC's new responsibilities are likely to outweigh the downsides. It is not possible accurately to ascribe costs to 2016/2017 for each of the BBC's individual new responsibilities, as in some cases (for example the World Service) the amount of future BBC funding is dependent upon the extent to which the BBC is able to make efficiency savings through restructuring and deliver an acceptable level of service. In the case of S4C, the terms of the settlement do not set the exact level of BBC funding beyond 2014/2015. The following table is, therefore, indicative only.

The BBC's financial Settlement Commitments
New commitment 2011/122012/13 2013/142014/15 2015/162016/17
World ServiceBBC to set budget. Annual level of Government funding at hand-over will be £227M BBC to set budget. BBC to set budget.
S4C£76.3M £76MFunding subject to review Funding subject to review
BBC MonitoringBBC to set budget. Annual level of Government funding at handover will be £20.2M BBC to set budget. BBC to set budget.BBC to set budget.
Local TVUp to £25M (capital costs) Up to £5M (to acquire content) Up to £5M (to acquire content) Up to £5M (to acquire content)
Additional broadband £17M£17M £17M£17M
Indicative Total£138.5M £345.2M£345.2M £345.2M

The BBC World Service

49.  In financial terms, the largest new BBC responsibility is the BBC World Service, which accounts for roughly two thirds of the total new financial commitment. In order for the BBC to take over this funding commitment from the FCO, the Government has had to amend the terms of its Agreement with the BBC as previously the BBC was inhibited under the terms of the agreement from using licence fee payers' money for the World Service.[70] In their evidence to the Committee, both Sir Michael Lyons and Mark Thompson were very positive about the implications of this change. Mark Thompson explained that it was:

[…] a big opportunity potentially, in much more closely combining — there's some dangers and risks as well — the World Service with BBC News, our domestic news operation, in the new Broadcasting House and around the world.[71]

He told us that the BBC had been interested in the idea of the licence fee funding the World Service for some time and that the BBC had received a positive reaction when it tested the idea with the public in the summer:

[…] it turned out that an awful lot of licence payers already believed that it was being funded by the licence payer and that broad support for the World Service is very high amongst the British public.

Overall, he expressed confidence that "the public would want to make sure the BBC was a really good custodian of its international services as well as of its home service".[72] From the BBC's perspective, therefore, this new commitment is a win-win for both it and the licence fee payer, and for both the World Service and BBC News.

50.  The BBC World Service broadcasts in more than 30 languages to some 180 million listeners around the world.[73] As the Foreign Secretary told the Foreign Affairs Committee (FAC), which has recently published a report into the implications of cuts to the World Service, it is "of fundamental importance to this country's presence in the world" and a key means for exerting "our soft influence".[74] In recognition of the strategic importance of the World Service to the UK, we pressed the BBC for more assurances about the level of funding that it would make available for the BBC World Service. Under the terms of the settlement, the BBC does not formally take over funding responsibilities for the World Service until 2014/2015. In the three years before this, FCO Grant-in-Aid for the World Service will be cut by 16%, though Mark Thompson explained to us that:

[…] the particular character of the World Service, the fact that its baseline this year was reduced significantly, in a sense before the CSR began, mean that the actual savings the World Service is going to have to make over the next three years are significantly deeper than the headline numbers suggest…we are looking at savings of around 19%.[75]

The implications of these cuts are explored in detail in the report of the Foreign Affairs Committee, which expresses concern about the adverse impact of the cuts proposed in the CSR on World Service services.

51.  Mark Thompson was able to offer some reassurance on future funding levels. He noted that the Government had committed to allowing the BBC to use some licence fee funds to support the World Service in the three years before it received full funding of the World Service.[76] In his letter to the Chairman, the Secretary of State confirmed that:

On 14 February, I laid in Parliament an amendment to the BBC Agreement that ensured the BBC Trust can decide to use licence fee money to contribute to the cost of restructuring the World Service ahead of it transferring to the licence fee in 2014-2015.[77]

Mark Thompson also affirmed that it was the BBC's intention "if we can, to slightly increase the funding for the World Service in year four [2014/2015]".[78] Sir Michael Lyons was anxious not to raise expectations too high, however, observing that:

Just let me underline that whilst the BBC would like to ameliorate the impact of this very concentrated reduction, in time, we can't avoid the scale of reductions that the Director-General is talking about.[79]

He also affirmed that there would be no ring-fencing of the World Service budget once the BBC had taken on responsibility for it, and that no final decisions had been made on future funding levels.

52.  We share the concerns of the Foreign Affairs Committee regarding the risk to BBC World Service services arising from the proposed 16 per cent cuts in the years 2010 to 2014/2015 before the BBC has taken on responsibility for its funding. We strongly believe that, for relatively modest expenditure, the BBC World Service delivers huge benefits in terms of extending Britain's reputation and influence overseas. We are concerned at the proposed closure of a number of services and, although we have not examined the scope for efficiency savings, we agree with the Foreign Affairs Committee that there is a case for reversing some or all of the planned reduction in funding. We also support its view that this could be achieved by meeting part of the funding requirement from the Department for International Development budget.

53.  While acknowledging the importance of an adequately funded World Service, there is also a separate funding issue for the licence fee payer; namely the extent to which domestic services and content might be adversely affected if additional funding is diverted to the World Service. This is, of course, the mirror image of concerns expressed by the Foreign Affairs Committee that the BBC may seek to "raid" World Service funding to support domestic services. Together with that Committee, we will follow closely BBC plans to strike a balance between its new World Service and existing domestic priorities.

54.  Like the Foreign Affairs Committee, though perhaps with a slightly different emphasis, we are concerned with governance issues arising from the new relationship as well as with funding issues. One benefit of the change in funding arrangements is that it becomes easier to show that the World Service is independent from Government. A potential disadvantage for the BBC, however, is that because the Government retains the final say on opening and closing World Service services it has, for the first time, a direct influence on expenditure allocation within the BBC.

55.  We pressed the BBC on the nature of the relationship it would have with the Foreign Office once it became responsible for funding the World Service. How, for instance, would the situation be resolved if the FCO wanted the BBC to open a new service that the BBC felt was unaffordable? Sir Michael Lyons replied that the current arrangements — under which the Foreign Secretary has the final say — would remain in place. The FAC, however, has concluded that when the BBC holds assumes financial responsibility for the World Service, governance arrangements will inevitably change, noting that "whoever holds the purse strings exercises a great deal of power". It recommends that a formal concordat be drawn up between the BBC and the FCO, under which the Foreign Secretary would "have the right to stipulate minimum levels of service provision which the BBC will have a formal responsibility to fund".[80] The risk of this approach, however, is that it could threaten — or be seen to threaten — editorial independence: a core principle of the BBC.

56.  Like the Foreign Affairs Committee, we believe that there is a need for clarity as to how the dynamics of the new relationship between the BBC and the Foreign Office will work in practice. A formal concordat between the Foreign and Commonwealth Office and the BBC World Service might provide the desired clarity, so long as it did not undermine BBC editorial independence. We will continue to monitor closely the BBC's progress in securing a positive future for the World Service and the balance of its relationship with the Government.


57.  After the World Service, the next biggest new financial commitment for the BBC under the terms of the settlement is S4C, worth £76 million a year in 2013/2014 and 2014/2015. The Welsh Affairs Committee has recently undertaken a detailed inquiry into S4C and we do not propose to repeat all its findings here. We do, however, find it extraordinary that the Government and the BBC, which is fiercely protective of its own independence, should find it acceptable to agree a change in the funding and governance arrangements for another statutorily independent broadcaster, S4C, without the latter having any involvement, say or even knowledge of the deal until it has been done. It is, perhaps, revealing that the minutes of the BBC Trust meeting held on the morning of 19 October 2010 to discuss the terms of the proposed settlement merely noted "the complexities associated with entering an even more extensive partnership with S4C" and that while "it was unclear whether other parties had been consulted", this "was a matter for the Government".[81] With considerable understatement, when the meeting resumed later in the day, the Trust member for Wales is recorded as noting:

The potential difficulties in Wales over the Government's proposed new partnership model for S4C, especially as it had become apparent that S4C was not fully aware of this being a possible outcome.

When S4C gave evidence to the Welsh Affairs Committee in December 2010, they were clear that they had been completely unaware of the proposal until after the deal was done.[82]

58.  In defence, Sir Michael Lyons told us that

it's very important that the BBC doesn't leave you with the impression that we went looking to fund S4C. We did not. […] it was indeed a component of the initial negotiations, which we were most wary of for two reasons: firstly, that there might be a danger of top-slicing, and we think we've got a way round that. Also, we know that in Wales, the issue of the independence of S4C is felt very strongly and the BBC did not want to leave any suggestion that it was somehow the pioneer of this proposition.

This reluctance is in stark contrast to the keenness of the BBC's desire to take on funding responsibilities for the BBC World Service. Mark Thompson sought to put a more positive spin on the nature of the S4C agreement by stressing the partnership element and highlighting synergies: the BBC, like S4C, has "a profound interest in the Welsh language";[83] S4C's core news and current affairs spine is BBC branded; and "many of the most popular programmes on S4C are BBC programmes such as Pobol y Cwm, our soap opera, and our sports coverage and so forth".[84] However, the overall impression was still that the BBC felt it was doing the Government a favour by offering a more sustainable means of supporting S4C.

59.  The problem the BBC has set itself with S4C is that it needs, on the one hand, to ward off accusations that this is "top-slicing" — as covered in the previous chapter — by arguing that it will retain oversight over how S4C spends licence fee money, while, on the other hand, to refute accusations that it is in effect looking to take over S4C. We suggested that it was very hard to see how S4C could be both independent and subject to BBC Trust oversight. In response, Sir Michael Lyons suggested that the relationship between the BBC Trust and S4C might be analogous to that which currently exists between the Trust and the BBC Executive, fronted by the Director-General, where:

the Trust lay[s] down the strategy advised by the Director-General, but the day-to-day decisions, and the running of that, all of those matters, rest entirely with the Director-General and his staff. [85]

When we suggested that this model sounded more like a takeover than a partnership, Sir Michael Lyons said that the BBC's motivation was the critical issue:

There is no motive here for the BBC to take this over. It is basically an initiative of the Secretary of State with the BBC contributing, in the spirit of partnership, to see if it can find a solution for Welsh language broadcasting.[86]

60.  The extent of the practical difficulties associated with this part of the settlement can be gauged from the fact that arrangements for S4C cover over a page of the four page letter from the Secretary of State to the Chairman of the BBC Trust detailing the settlement. A sense of the strained nature of subsequent negotiations to pin down the new arrangements can be gleaned from the tone of correspondence between the interested parties. On 10 November 2010, Sir Michael Lyons wrote to John Walter Jones, then S4C Authority Chairman, stating that "the BBC has no ambitions to take over S4C" and affirming a commitment to "a creatively independent S4C".[87] On 18 November 2010, John Walter Jones responded welcoming the first statement, but challenging the second:

In your letter you refer to a 'creatively independent' S4C. These are your words, not mine. The S4C Authority, along with a large number of organisations in Wales, believes that the independence of S4C, both editorial and operational, is of the utmost importance, and your use of the term 'creatively' implies something that falls far short of meaningful 'independence' […]

On 7 December 2010, John Walter Jones wrote to the Secretary of State observing that "the situation pertaining at S4C cannot be allowed to continue" and confirming his intention to retire as Chair of the Authority with immediate effect.

61.  A clause in the settlement appears to rule out an alternative solution whereby a part of the licence fee is used to fund non-BBC public service content, with no strategic BBC involvement:

In the event that a new partnership model does not prove viable for any reason, the Government will not take licence fee money itself for this purpose

The implication is that, if the new BBC/S4C partnership does not work, then the Government will resume funding S4C, presumably at a lower level. In this event, presumably to deter the BBC from pulling out (despite the fact that this option might be attractive to licence fee payers) the licence fee would be reduced by an amount "equivalent to the contribution that the BBC would otherwise have made to S4C".[88]

62.  We remain unclear as to how S4C can retain its independence if the BBC Trust is involved at a strategic level. While there may be benefits to both parties from the partnership, there can be no doubt that substantial public funding otherwise available for other BBC content and services will be diverted to S4C. The shotgun marriage of S4C and the BBC is an awkward match, and we shall monitor developments closely to see whether this aspect of the settlement really does represent best value to the licence fee payer.

63.  Should it become apparent that the partnership agreement is not the best way forward, or that S4C is unable to maintain sufficient editorial or operating independence under the agreement, then an alternative funding mechanism will be needed. In this event, we recommend that consideration be given to sharing the licence fee in support of increasing public service content choice in Wales without involving the BBC in S4C governance arrangements, as well as to a reduction in the level of the licence fee and alternative funding for S4C.

BBC Monitoring

64.  After the BBC World Service and S4C, BBC Monitoring is the third largest new financial commitment taken on by the BBC as part of the settlement. BBC Monitoring is part of the BBC Global News Division, which also includes the BBC World Service. It is currently funded by the BBC World Service and Government, but has complete editorial independence. It is an open source news and information publisher, which compiles political news, comment and reaction from the world's press, radio, TV and the internet. Reports are translated into English from more than 100 languages. It is available on subscription, and is used by Governments, NGOs, analysts, academics, multi-nationals, journalists and individuals worldwide. Although part of the BBC's global news division, its priorities are also influenced by its Government stakeholders — the Cabinet Office and agencies, the Ministry of Defence and the FCO. The Cabinet Office is the lead stakeholder, and currently provides the Government funding. As with the BBC World Service, under the SCR agreement Government funding will reduce in the years before the BBC takes charge of the budget — in this case from £23 million in 2010/11, to £21.7 million in 2011/2012 and £20.2 million in 2012/2013. Under the terms of the licence fee settlement, BBC Monitoring will become part of the licence fee funded BBC from 2013/2014.

65.  BBC Monitoring is a strategic asset, with the Government being the main customer. There is arguably little direct benefit to licence fee payers, who are less likely to be aware of, or to avail themselves of, the service. Once the BBC assumes budgetary responsibilities, it will need to agree a new framework for the adequate supply of monitoring services to the Government. Although the changing nature of the partnership has understandably received far less scrutiny than the more high-profile BBC Worldwide, there is again scope for tension under the new funding arrangements if the Government stakeholders wanted to maintain or expand monitoring services that the BBC judged to be unaffordable. We recommend that the Government and the BBC identify how the licence fee payer benefits from BBC Monitoring and clarify how the decision-making process regarding prioritisation and funding allocation for BBC Monitoring will work once the BBC assumes budgetary responsibilities.


66.  Under the terms of the settlement, the licence fee money currently ring-fenced for digital switchover will be increased from £133 million per annum to £150 million from 2013/2014 to 2016/2017, but reallocated to ensuring access to broadband across the UK. Mark Thompson justified this additional financial responsibility as consistent with BBC public purposes. However, one issue we have not had clarified to date is the extent to which the BBC retains control of the share of the licence fee earmarked for broadband. We recommend that the Government clarifies the BBC's involvement in the broadband rollout programme and the extent to which it will be involved in the allocation of licence fee money earmarked for broadband.

Local TV

67.  The final, and least costly, additional responsibility for the BBC is supporting the Secretary of State's initiative to establish local TV in the UK. In our most recent evidence session with the Secretary of State, we were left in no doubt as to the importance he attached to this initiative. When we asked him what he would like his time at DCMS to be remembered for, a "a thriving local TV sector" was the first thing he cited.[89] This is perhaps, surprising, given widespread scepticism that this is a viable option.

68.  The settlement commits the BBC to playing an active role in supporting new local television services through a partnership fund providing capital costs of up to a total of £25 million in 2013/2014 for up to twenty local TV services, and by committing ongoing funding of up to £5 million per annum from 2014/2015 to acquire content for use on its own services from these new services. The BBC justified this partnership as consistent with BBC public purposes. Sir Michael Lyons also stressed that the BBC was making "a very modest contribution to the capital start-up costs […] of a much lower value than the BBC has offered in the past", with viewers benefiting from any purchase of local TV content.[90]

69.  We put it to the BBC that the Government was effectively calling on the BBC to subsidise an initiative that was not commercially viable. Mark Thompson responded by saying that:

The debate about whether it's necessary and sustainable, and whether there's a long-term commercial model, is all to come.[91]

Plans for local TV are only in their formative stages and we look forward to the Government's decision, hopefully before the summer, on how it intends to proceed. We applaud the Secretary of State's commitment and enthusiasm, but the project will certainly merit close scrutiny as to its viability. It remains, therefore, to be demonstrated that the admittedly modest funds the BBC has undertaken to commit to this project represents good value for the licence fee payer. We urge the Government and the BBC to clarify the extent to which the BBC will retain control of the licence fee resources allocated to local TV, and the pre-conditions for such an outlay.

70   Q58  Back

71   Q169 Back

72   Q166 Back

73   BBC Annual Report and Accounts 2009/10, p1-13 Back

74   Foreign Affairs Committee, Sixth Report of Session 2010-12, The Implications of Cuts to the BBC World Service, HC 849, p.14 Back

75   Q164-165 Back

76   Q166 Back

77   Ev 64 Back

78   Q164 Back

79   Q166 Back

80   Foreign Affairs Committee, Sixth Report of Session 2010-12, The Implications of Cuts to the BBC World Service, HC 849, paras 81 and 83 Back

81   Minutes of the BBC Trust meeting, 19 October 2010 Back

82   Welsh Affairs Committee, S4C, transcript of oral evidence, 14 December 2010, HC 614-iii Q265-273 Back

83   Q127 Back

84   Q127 Back

85   Q162 Back

86   Q163 Back

87   Letter from BBC Trust Chairman to S4C Chairman, 10 November 2010 Back

88   Letter from the Secretary of State for Culture, Olympics, Media and Sport to BBC Chairman, 21 October 2010  Back

89   Q103 Back

90   Q136 Back

91   Q136 Back

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© Parliamentary copyright 2011
Prepared 19 May 2011