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Lord Crickhowell: I am moved to intervene in the debate by the two speeches from the Cross-Benches. The noble Lord, Lord Birkett, suggested that there would be a great increase and huge flood of new productions from British companies, if the formula were done away with. We have just heard the suggestion that it will somehow be much more valuable and better managed in the hands of Channel 4 than in the hands of the ITV companies.

The noble Lord, Lord Elis-Thomas, pleaded very strongly and correctly earlier in the day for regionality. So far as Wales is concerned, if the money were taken away from HTV, it would to a certain extent come out of programmes made in Wales and the programme-making capacity that we have. It simply is not true that there would be a great upsurge in programme making. The truth of the matter is that there would be more programme making by one channel and less programme making by another. People can take sides as to which could produce the best programmes and whether there is virtue in the one or the other. But the idea that there will be an enormous increase in UK production as a result of such change is, I believe, simply nonsense.

I understood that my noble friend Lord Stockton made a most eloquent speech. It was a most persuasive argument for standing where we are. He told us very clearly that he did not propose a change until the end of 1997 and that everyone should stick to that point. We have a formula which provides for a review in 1997 but at that point it allows the Government to take account of whatever the situation may be at that stage. We all know about the difficulty of making forecasts.

I am not one who argues that necessarily the existing proportions should continue to be paid right through for 10 years. My noble friend Lord Stockton made quite a case for change after 1997 and no doubt my noble friend the Minister will consider that very carefully at the appropriate time. But we had a timetable for review and people made their plans accordingly. As we argued in an earlier debate, there was a parallel provision made in the 1990 Act but with a gap of a year which would enable a review of the licences for the new companies. As the noble Lord, Lord Thomson of Monifieth, observed, that again is a very strong case for bringing together those two things. We need to look again, at the appropriate time as provided by the legislation, at whether change is needed. But at the same time, the companies which made their bids under the previous arrangements need the ability to have a chance to have those licences reviewed, and the two things should happen together.

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I shall make only one other observation. It has been made in much more detail and very eloquently by my noble friend Lord Astor. We have heard a tear-jerking plea on behalf of the fourth channel, but we heard very little of whether there was any merit, in the light of everything that has happened and the unexpected success of the company, in considering whether some modest contribution might be made to the Revenue by that channel. I must say that I am at a loss to understand why, if we are to have a level playing field, one channel should provide a huge subsidy to the Treasury and the other should not. It seems to me that if we are to review matters, perhaps we should not review just one item of the package but have a more fundamental review. I suspect that my noble friend Lord Stockton and those who press him to argue the case in this Chamber would not be quite so happy to have a wider review of the total financing arrangements.

The Earl of Stockton: Before my noble friend sits down, I should tell him that I would be entirely happy to have a wider review. I should point out that Channel 4 pays corporation tax. There are two questions that I should like to ask my noble friend. He has declared an interest in Harlech Television, a company which bears the name of my revered and respected noble uncle. Is that position remunerated? If so, does he accept that, therefore, part of his remuneration comes indirectly from Channel 4?

Lord Crickhowell: The other day I inquired of the Clerks about the way in which one should treat declarations of interest. Of course, I have declared my interest. It must be a direct and meaningful financial interest to prevent me from arguing the case. But I doubt whether my accountants would be able to calculate even a minuscule consequence for me brought about by a change in the formula.

Baroness O'Cathain: I declare an interest. I was a director of Channel 4 but before the 1990 funding was put in place under the 1990 Act.

In 1993, the National Heritage Select Committee took evidence from Channel 4 on the subject of the funding formula and Channel 4 said that during the passage of the 1990 Act it had not objected to the funding formula and did not want to lobby against it now for the reasons that stood then. That was only 1993. Of course, it has been a great success and we must hand it to Channel 4 for that.

But from 1993 to 1996, Channel 4 has spent some £81 million over the amount that it had budgeted for its programmes. Therefore, in those circumstances it cannot plead poverty. But of that £81 million, it reduced its expenditure on programmes from the UK and other sources by 2.5 per cent. and increased its expenditure on US programmes by 66 per cent. in 1994 alone. Therefore, all the arguments that we have heard this evening have been most persuasively put but they really do not hold a lot of water.

I think that it is sad that we have two organisations here--ITV and Channel 4--which are both very successful in producing programmes, commissioning

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programmes and buying in programmes which the customer obviously likes. They should not be fighting with one another and bandying statistics and figures all over the place. I believe intrinsically that an agreement is an agreement. An agreement was made. It has fewer than two years to run. Why do we not leave it at that? I shall certainly not support the amendment.

Lord Desai: I merely rise to note that in this country, success causes more problems than failure. Had Channel 4 lost a great deal of money, we would all have sympathetically given it even more and we should not be having this debate.

The ITV companies took a gamble which was highly successful. They made three times more money than they thought they would do, even on their best expectations. It seems to me that it is very strange to claim that the small ITV companies would be devastated if they did not receive that money for ever and ever. If their planning is that bad, they do not deserve to be in business.

For my money, it does not matter whether the companies commission British productions or import American or Chinese productions. They are in a free market and can do what they like. If we do not believe that, we should not have an independent television sector. We should oblige them only to make British programmes and nothing else. That is not a valid argument.

The valid argument is that something unanticipated confronted us in 1990. We took a gamble. We now know that that fear was unjustified. Is there any reason to continue the arrangement which was extremely successful for those on one side of the bargain but not for those on the other side? One can reward people for one gamble, but one should not continue to do so forever. I believe that the noble Earl's point is perfectly valid.

At the end of 1997 I believe that we should abolish the formula. No other reconsideration would make any sense. Even if the Government were to reconsider the matter, I would be surprised if they came to any other conclusion except that put forward by the noble Earl. Therefore, why do we not make the decision now?

11 p.m.

Lord Donoughue: Members of the Committee can be very proud of themselves; we have indeed had a most lively debate. I believe that it is now seven hours since "kick off", and things are still going very well. It has been said that the funding formula was established as an insurance police to protect Channel 4 and we can recall why. It was in case the channel did not attract the advertisements or in case the audience was small. The latter has proved not to be so and that is wholly to its credit. It was also to protect the channel should the competition, the satellite or cable competition hit their adverts. That has not happened either, mainly because the introduction of Channel 5 has been delayed and satellite and cable are expanding primarily in subscription, not in advertisements.

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That is the history of the matter and we have had figures put forward from all sides of the Committee. Clearly, it is a very complex issue and the funding formula is obviously not working as intended. I believe that that is one of the few areas of total agreement by all Members of the Committee. Payments of £175 million between 1993 and 1995, and rising, were never envisaged and are clearly, and understandably, intolerable to Channel 4. Indeed, had those of us who were in this place at the time known about those figures by looking into the crystal ball, the 1995 formula would never have been introduced or been accepted. What was seen as a small insurance policy has become a massive levy on Channel 4's profits and success. The resentment in that respect has been clear from the majority of contributions made by Members of the Committee from all sides.

As the formula is not working, how and when do we change? I believe that the "when" is easier to answer, because the end of 1997 would be a natural break. In response to some speakers who have pointed out that Channel 4 has changed its position--which is often seen as a bad thing--I should say that I know that that was actually a concession on the part of the channel to try to make life easier for us. The "how" of the matter is more difficult. Anyone seeking a compromise, as some of us have, has not found it easy to bridge the interests of both sides. As the massive flow of briefing paper has demonstrated to us, bottom lines were speaking very loud. I feel that the hyping of the issue by both sides has not helped us in the bridging process; it has certainly not helped us politically.

To end the formula totally and soon, as proposed by the noble Earl, Lord Stockton, would lead to many disadvantages and threaten the budget cash flows of ITV, thus causing pain throughout the regions. I believe that the noble Viscount, Lord Astor, was very sensible in that respect. I do not believe for a moment that most of them budgeted for this bonanza. However, having said that, to continue the subsidy for a long period at the present rate would be an intolerable and unacceptable levy on the marvellous success of Channel 4. The fact that the better Channel 4 performs the more it suffers is something which upsets many of us.

There is an additional factor involved about which there has been some disagreement. If the money were kept in Channel 4, there is no doubt that it would mainly go into domestic programme production and films in the future. It is important to mention films because Channel 4 has a very good record in that respect. Channel 4 has generously promised, in advance, to do more of that in future. Therefore I would say to the noble Viscount, Lord Astor, and to the noble Baroness, Lady O'Cathain, that Channel 4's performance in the past is not relevant to what it will do in the future as it has made clear promises as regards better performance on domestic programme production and continuing expenditure on films whereas, as we know, some 50 per cent. of that money when passed to ITV goes straight to the shareholders and the directors, as the noble Lord, Lord Elis-Thomas, stated so powerfully. That is not pleasing to anyone who cares about the health of British TV where we want the maximum invested back in the production industry.

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The Government's compromise formula has not had much show in all the exchange of heavy artillery from the two sides. I thought it not a bad opening shot. But its flexibility--flexibility is a virtue which we do not often see--is in a way its disadvantage, leaving the Secretary of State apparently deciding the matter each year. That is the last thing I want. It is like the racing industry and the bookmakers arguing each year about the levy, as they used to do. It creates the danger of annual battles over the formula distribution. That would institutionalise the present battle, and that is not desirable.

I have some sympathy with the ITC approach of keeping a kind of sleeping formula in case one needs the insurance but making zero cash payments after 1997. Our position on this side is clear but not brutal. We believe the matter should be settled for the end of 1997 and not left in further doubt for future battles. It should be seen within the context of the overall taxation net for broadcasting where there are many inequalities from which, on the whole, the ITV Channel 3 companies suffer. They make overall an unfair over-payment to the Revenue while others make a lesser payment. I am pleased that the matter will be raised again on Thursday because it is an important context in which to consider what is a much smaller financial issue--the funding formula. We on this side expect the date--1997--to be important as we expect a Labour government to have been comfortably in office for some time when we take the decision. We expect to do so in relation to the several considerations I have outlined.


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