Digital Economy Bill - Committee (4th Day)

Part of the debate – in the House of Lords at 5:00 pm on 8th February 2017.

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Photo of Lord Best Lord Best Chair, Communications Committee 5:00 pm, 8th February 2017

I shall also speak to Amendments 221 and 222 in the names of the noble Lord, Lord Inglewood, the noble Baroness, Lady Bonham-Carter of Yarnbury, and myself. I declare my interest as chairing your Lordships’ Select Committee on Communications, and this amendment encapsulates one of the principal recommendations from that committee’s report on the renewal of the BBC’s charter, Reith not Revolution.

Most of the recommendations in our report, which did not cover matters of governance and management, have been taken forward by the Government in the BBC’s new charter, which the Select Committee appreciated. In particular, the Government accepted our recommendation for an 11-year period for the new charter: this provides stability and security for the BBC, enabling proper forward planning. We were also very pleased with the line taken by the Government, following our subsequent representations, that the mid-term review of the charter would not reopen the debate on the purposes, scale and scope of the BBC, but would concentrate exclusively on reviewing the new governance arrangements for a unitary board and an extended role for Ofcom.

However, one crucial ingredient has remained unresolved, since it was not a matter that had to be settled within the charter itself. This was the issue of how the BBC’s licence fee should be set—ie, what process should be followed when establishing the charge made to all the users of the BBC’s services, now including those delivered online through the internet. Of course, the licence fee represents the vast bulk of the BBC’s income and therefore determines its scale and scope. How that fee is set is obviously of the utmost importance to the future of the BBC. This is a much narrower point than the question of statutory underpinning for the BBC, but it relates to the independence of the BBC. Although the charter will cover a full 11-year period, the next setting of the licence fee, upon which so much depends, is only five years away.

Our Select Committee discovered universal condemnation of the way in which the licence fee had been determined on the last two occasions. The 2010 fix, achieved after what were described as frantic negotiations in little over three days, led to a freeze on the licence fee for seven years at £145.50 per annum, cutting spending in real terms by perhaps 25%. There was also the raid on BBC funding to switch resources for the World Service from the Foreign Office to the licence fee payer. In addition, the BBC was obliged to pay for a chunk of the costs of rolling out broadband around the country. The Culture, Media and Sport Committee in the other place, then chaired by John Whittingdale MP, concluded in its report Future of the BBC that:

“The 2010 settlement demonstrated that the BBC’s independence can be compromised by negotiations with the government of the day that lack transparency and public consultation … No future licence fee negotiations must be conducted in the way of the 2010 settlement”.

In 2015, with John Whittingdale as Secretary of State for Culture, Media and Sport, an announcement was made on the new licence fee, again following behind-the-scenes discussions hidden from public view, this time with the fee set to rise in line with the consumer prices index over the forthcoming charter period but with the BBC having to absorb the cost of the licence fee for those over 75 years old. Rona Fairhead, chairman of the BBC Trust, responded:

“We accept this decision is a legitimate one for the Government to take, although we cannot endorse the process by which it has been reached”.

Our committee received overwhelming evidence that this process for setting the level of the licence fee was entirely unsatisfactory. A number of options were put to us for improved arrangements. We noted that in considering the way forward the BBC Trust supported measures for:

“A more regularised and formal process for setting the level of BBC funding … Giving the public more say in future licence fee settlements”,

and:

“Should the BBC be governed by an independent regulator in future, for that regulator to have a specific role in assessing the BBC’s funding requirements and in advising the Government on the level of BBC funding and the level of the licence fee”.

In place of the discredited arrangements of the past, your Lordships’ Communications Committee recommended a format for achieving a transparent evidence-based process for future licence fee reviews. We fully recognise that the final decision on the licence fee should be taken by the Secretary of State, and Amendment 222 clearly states:

The Secretary of State shall determine the final settlement for BBC funding for the period from 1 April 2022”.

The difference from previous settlements would be that a clear, independent, evidence-based recommendation on this would go to the Secretary of State prior to his or her decision, and if the Secretary of State rejected the recommendation then he or she would be required to publish the reasons for that rejection. We also wanted the decision by the Secretary of State to be taken after proper consultation with the wider public, as happens with the charter itself, and after debate here in both Houses of Parliament. Getting this matter out in the open, with proper independent advice and consultation, would surely make the process more credible and acceptable to all those who pay the licence fee.

My committee took the line adopted by the BBC Trust for a regulator to be the body that should provide the independent guidance and make the specific recommendation to the Secretary of State. That would mean asking Ofcom to take on this role. The committee has developed considerable respect for Ofcom over many years, and we believe it is capable of assembling the facts, drawing on surveys from the public and handling the financial costings and value-for-money arguments, and of course Ofcom is able to draw on its unique access to and knowledge of the BBC’s performance and spend. However, I note that Amendment 222A, in the name of the noble Lord, Lord Lester of Herne Hill, and Amendments 222B, 222C and 222D, in the name of the noble Lord, Lord Stevenson of Balmacara, would give the role of making a recommendation not to Ofcom but to a new body with this task as its sole responsibility. This alternative has the advantage of sparing the hard-pressed Ofcom of an extra job in addition to its other duties in respect of BBC governance and would allow a separate agency to concentrate exclusively on this one responsibility. I can certainly see the merits of this approach.

The adoption by my committee of the Ofcom route—rather than going for a new body—was pragmatic. We thought that the use of an existing regulatory agency, and one with an excellent track record, would be most acceptable. But if the Government were attracted by the proposal in the alternative arrangements, I am sure that the Communications Committee would be delighted. We would of course want the Secretary of State influenced not only by the external independent recommendation but by the outcome of public consultation and parliamentary debate. The process that we wish to replace is of the Secretary of State simply imposing a funding settlement on the BBC without any checks or balances. Having this sword of Damocles hanging over the BBC’s board and management, and the knowledge that in the relatively near future the Secretary of State could exercise unfettered life-or-death authority over the BBC’s funding, would have a chilling effect on the freedom of the BBC to act independently of government. This amendment to bring to bear independent judgment, transparency and a proper consultative process would end a serious deficiency. I beg to move.

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