The BBC is funded by a combination of the licence fee, its commercial income and various government grants, particularly from the Foreign Office. Its total income in 2009-10 was just under £4.8 billion. That is a lot of money to play with and the vast majority of it comes not from customers, but from licence fee payers and taxpayers with no choice in the matter.
Cuts in that big budget would be extremely valuable in addressing the wider fiscal crisis. They would help in two ways:
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- The amount spent on grants to the BBC from Government Departments could be cut.
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- The licence fee could be cut, easing the pressure on household disposable income and thereby making the rest of the fiscal adjustment easier for families to cope with.
For that reason, some of the announcements today are a bit troubling.
First, the decision to maintain the station BBC6Music. With Absolute Radio offering to buy the station, this is a service that could have been maintained by the private sector without funding from licence fee payers and taxpayers who don't listen to the station. That would be fairer and make a small but concrete contribution to cutting costs at the BBC. If a small, albeit vocal, minority of listeners can prevent targeted cuts to any particular service then that may require too much of the cutting to be across the board, cheese slicer cuts in things like pay.
Second, the continued refusal to provide details of pay for "stars". The justification given by BBC chief Mark Thompson is that other broadcasters don't reveal that information. Of course, the difference is that the other broadcasters don't expect those salaries to be paid by licence fee and taxpayers. The refusal to release this information suggests that the Corporation is not going to retreat from competing like-for-like with the commercial stations.
It is hard to see what the public interest is in having particular stars on the BBC rather than commercial channels. Viewers would still be able to see them on other stations. One way the BBC could have cut costs would have been to cut back on its attempts to compete with ITV and Sky at their own game, and focus on the areas where it offers a more distinctive offering to viewers and listeners. Again, sticking to their guns and refusing to release "star" pay suggests that the BBC aren't going to do that enough and will need to be more stringent, for a given level of savings, on cheese slicer cuts.
There is a debate to be had about how the BBC should cuts its costs. But that should start from the position that the BBC needs to do its part in delivering cuts. One way for the Government to force them to do so is suggested in our book How to Cut Public Spending. Give the BBC responsibility for funding free television licenses for the elderly. That would save £564 million in 2010-11 and require the Corporation to find savings to fund that new obligation.
Beyond that, we should ask whether the way the BBC is funded is really appropriate with an increasingly varied and decentralised media. Should it be moved towards funding by adverts and/or subscriptions? The licence fee is an extremely unwelcome, regressive imposition on ordinary families and it would be fairer if those who used the service most paid for it.