Oral evidence: BBC Annual Report 2018-19, TV Licences for over-75s and Reality TV, HC 2432

Oral evidence, 17 July 2019.

Chair

Good afternoon. I would like to call the Committee to order for this special session of the Digital, Culture, Media and Sport Select Committee to consider the BBC Annual Report. The session this afternoon will be in two parts. The first panel will cover the annual report. Then we will have a second panel—which Lord Hall will also be on—where we will be asking some questions relating to the Committee’s inquiry on reality television. For regular watchers of the Committee, we have two new faces around the table this afternoon. Lee Rowley is with us from the Public Accounts Committee, using the House’s new guesting rules, which allow members of other Committees to guest at another Committee if it is doing similar relevant work. We are grateful to have Lee here. Also, Philip Davies has been elected to the Committee in place of Rebecca Pow. Philip, I know you are no stranger to this Select Committee, but as you are now formally back on it, could I ask you to confirm any interests you have for the record?

Philip Davies

Yes. It is not particularly relevant for today’s session, but I refer people to my entry in the Register of Members’ Interests. There is nothing outside of that that is relevant.

Chair

Two members of the Committee are also in receipt of BBC pensions. Despite that, they still carry on working for a living, which is very good of them. Could I ask Julian Knight and Brendan O’Hara to confirm their interests for the record?

Brendan O’Hara

I am not in receipt of a pension but I will be, I hope, at some point.

Julian Knight

Yes, ditto. I am a BBC deferred pension holder.

Chair

Thank you. If we can start the questions this afternoon, we want to start—probably not surprisingly—by discussing the BBC’s consultation on over-75s licence fees and the decision that the BBC has taken so far. I will start, for the benefit of the Committee, by going back to the agreement reached between the BBC and the Government in the first place in July 2015. I see from the BBC’s records that the BBC was briefed by the Department for Culture, Media and Sport on 29 June 2015 that the Government intended to ask the BBC to take on full responsibility for the over-75s licence fees. The agreement was announced on 6 July. I see that the BBC Trust Board met on five occasions, in a combination of meetings and conference calls during that period of time. When did the BBC Executive Board meet during that period, Lord Hall?

Lord Hall

I cannot recall, but at the beginning of the week in question I had a call from the then Secretary of State, John Whittingdale, saying—and this was the first I knew about it—basically, “I lost the argument over the weekend and they are going to impose the over-75s concession on you”. At that point, I said, “That is nuclear”, and then laid out the consequences of that decision. Then I just remember a series of meetings—I cannot give you the details of them, but I am happy to supply that if that would be helpful. It is really interesting that two days ago Ed Vaizey, who was there at the time and to whom we talked a lot, said very clearly in the Westminster Hall debate, “This policy was forced on the BBC, by the Government, by the Treasury. There was no negotiation—the BBC was going to take the free TV licence, whether it liked it or not, as far as the Treasury was concerned. The only room for negotiation was what the BBC might be able to claw back in order to mitigate the financial impact”. If you remember, we clawed it back. This is why I feel very strongly that this must not happen again. It happened in 2010 in exactly the same way over a period of a few days behind closed doors. Nobody knew anything about it. It was just a few people negotiating something as fundamental as this. It happened again in 2015. That is why, when we come to 2021-22, the next time the licence fee is negotiated, that needs to be in plain sight with parliamentary involvement, with the licence fee payers involved and in a way that allows a proper debate about the BBC’s funding to take place. It could not take place in this time.

Chair

As you know, the Committee agrees with you on that. I am interested to know what the debate was within the BBC at the time and how the decision was made to accept the Government’s offer. The trust board met either in person or by conference call on five occasions. There is no record that the executive board met at all. In the published list of minutes for the executive board, there was a meeting in early June and then there was a meeting on 7 July, the day after the decision had been taken. Interestingly, in the minutes of 7 July, it says that the executive board approved the minutes of a meeting that had taken place on 29 June, but there is no published record of that meeting. Could the BBC check whether there was in fact an executive board meeting on that date?

Lord Hall

It was a small subcommittee of the executive board meeting with me, doing the negotiation. The final lap of the negotiation was done with the Chairman of the BBC Trust. In the end, any agreement had to be done by the BBC Trust, not by us. That happened, if I recall, on the Saturday evening of the week in question and then the announcement was made, again if I recall, on the Tuesday. The key thing in this period was, as Ed Vaizey made very clear in his statement a couple of days ago—

Chair

We will come back to Ed Vaizey in a minute—

Lord Hall

No, it is important.

Chair

I am interested in what you think about this, not in what Ed Vaizey thinks, with great respect to my esteemed colleagues.

Lord Hall

I was going to say what we got back by concessions.

Chair

We can do this through questions and answers. There was a crucial period. On 29 June the BBC was briefed and there was some concern that this could be introduced immediately and with no further concessions. The Government then made concessions, which were discussed at a conference call on Saturday, 4 July, where it was confirmed that the Government would allow the licence fee to go up in line with inflation. That was something the BBC had asked for—it would also end the top-slicing of the licence fee to fund broadband investment, and it would close what is called the “iPlayer loophole”.

Lord Hall

That is right.

Chair

Those issues were discussed in the conference call on 4 July. The minutes of that conference call say that the Director General agreed that he would recommend the deal to his executive board, but advised the Chancellor that the trust’s position was that it would not oppose the agreement but would not endorse the process. I do not see, though, you referring that back to the executive board for a decision before you agreed to it.

Lord Hall

We had a small team of the executive board that was negotiating with the Chancellor and keeping the trust informed of what was going on. The key decisionmakers in the end had to be the trust and they met on that Saturday. Indeed, the Chairman of the trust was with me when we went to see the Chancellor, again as I recall, on that Saturday morning.

Chair

But the official position of the trust was neutral. The minutes say quite clearly that the trust will not oppose it but neither will it endorse the decision.

Lord Hall

The trust did endorse the decision because, in the end, it was the body responsible for the entire BBC. Rona Fairhead was involved in that final meeting—or a meeting anyway—with the Chancellor and the trust, again as I recall, on the Saturday evening did endorse the settlement as it was put to them.

Chair

The trust minutes say that it would not oppose the agreement but would not endorse the process. That is the trust’s position. The trust has not endorsed it. The executive board has not endorsed it either, because it has not met. To me, it looks like the only two people who agreed with this were you and Rona Fairhead.

Lord Hall

Rona Fairhead was the Chair of the trust. It was perfectly proper for her to agree to it, but that is not my recollection of what happened. My recollection absolutely is me talking to Rona and Rona having a series of calls with the trust and the trust agreeing to it late on Saturday night.

Chair

Yes, but I am going off the published minutes that the BBC has published. This is a really big decision. It is discussed with the trust board but the trust board will not make a decision. It says it is neutral on it. The executive board is not called to meet. You may have had private meetings with the individuals on the board but you never sought the formal consent of your board before agreeing to it.

Lord Hall

Of course everybody agreed to it because that was then announced two days later by the Government. I will make one other point to you—I am sorry to quote Ed Vaizey but he was there, as I was. This was a process that was going to happen anyway. The notion that somehow we had any possibility of not accepting the over-75s licence fee change is risible. They were coming at us with that. It was going to happen. The key thing, which has been made clear by me and others who were involved in this, was how we could negotiate the best possible deal for the BBC, which is what we did. That was tough—it was really hard going and we negotiated things that we felt could counterbalance the over-75s.

Chair

Yes, but this was a fairly major decision for the BBC and there does not seem to be in the minutes either of the executive board or of the trust any indication of a formal agreement to it. The trust’s position was neutral and the executive board did not meet. It does seem strange that the executive board met to discuss it the day after it had been agreed and published. All the minutes do is note the fact that the decision had been made.

Lord Hall

This is the trust’s decision. The trust was set up to be the governing body of the BBC. I communicated directly with Rona Fairhead as Chair of the trust. I was reporting into her. I made it very clear to the Chancellor of the Exchequer. This was a trust decision. I had done my bit there with what I felt was the right thing to do. It was a trust decision in the end to say yay or nay.

Chair

But based on the minutes, the trust is acting on the fact that you are saying as Director General—this is a commercial decision that affects the BBC’s budgets and spending in a significant way—that you agreed you would recommend the deal to the executive board. You are saying that, but the trust is never told that it has gone to the executive board. The executive board has agreed they can make this work and therefore are asking you to rubberstamp it. That was never part of this process.

Lord Hall

That is one of the reasons why this process must not happen in this way again. There is not enough time or proper thinking time to do these things properly. You have pointed that out very clearly. But in the end the final decision had to be by the trust. I did not have the authority to take that on my own. It had to be by the trust and that is exactly what happened.

Chair

You complain, rightly, that this thing was done behind closed doors and without proper scrutiny and proper process. Indeed, one of the criticisms of the trust was that there is no opportunity to ask licence fee payers what they think about this decision. However, you did not even ask your own board.

Lord Hall

I was negotiating with key people on the board. We talked. But actually, the formality of this is with the trust. I do not see why that is so difficult to understand. The trust are the people in the end who have to say yay or nay, and they did.

Chair

You are complaining that it was done behind closed doors and yet even your own executive board was not fully consulted before the decision was made.

Lord Hall

Can I go back to the problem as opposed to looking at all sorts of minutes and that sort of stuff? Can I explain?

Chair

No, with respect, Lord Hall, this is important because you have started off criticising the process. We understand the Government’s process and we have been critical of that as a Committee. We are trying to understand what the BBC’s process was for agreeing what was a fairly important decision.

Lord Hall

The process was me negotiating with a small team of executives, then Rona Fairhead, as Chair of the trust, coming along to a meeting with the Chancellor of the Exchequer and one or two others, and then me saying to her as Chair of the trust, “This is what I am recommending. We have won these concessions. But you need to say it is okay or not”.

Chair

In the final meeting of the trust on 6 July, the day the announcement was made, the minutes say, “The Director General and the executive would work to develop a strategic plan so the BBC was ready to live within the new financial parameters and deliver the further savings and changes to its services which will be required in the next charter period”. That would suggest the BBC Trust had been reassured by you that you could make this work.

Lord Hall

We were absolutely clear with the upsides and the downsides of this. The upsides were inflation for the first time in a decade, getting rid of the broadband levy, plugging the iPlayer loophole, which the Government did not fully do, and keeping us in play for the charter negotiations, which we were in the middle of. There is one bit of context I want you to understand and I am sure you do. This was a matter of weeks or a couple of months into a new majority Conservative Government at the height of austerity and we were making judgments about what seemed appropriate at the time at the height of that austerity. That is why we were able to say, “Yes, we recommend this”. But the policy for the over-75s is coming to us. The Government have given us that. As John Whittingdale has made absolutely clear in his statements—he also was there at the time—they knew and we knew that that meant reform as long as we could consult and go through the proper processes.

Chair

But if I was a member of the BBC Trust Board and had been in that meeting, I imagine I would have been reassured to know that you thought that with the concessions that had been negotiated with the Government, this plan would work. Indeed, whether the trust knew this—it had not even gone to the full executive board—I don’t know, but certainly the impression in the meeting was that you thought you could make this work. Then, indeed, that day you said in an interview—and this quote is from the BBC’s online reports—about the deal, “Far from being a cut, the way this financial settlement is shaped gives us effectively flat licence fee income across the first five years of the next charter”. Then, when you appeared in front of the Select Committee that autumn, you said that this was actually a better financial settlement than the licence fee settlement had been five years before.

Lord Hall

Yes, it was. Let me explain why. The 2010 settlement, which was done in exactly the same way—and in the wrong way but I will leave that aside—took 24% out of the BBC’s budget. That 24% is what the BBC’s budget would have been had it gone up in line with inflation. The budget at the end of that period was 24% less because we took on the cost of the World Service. We took on the cost of BBC monitoring. We took on a large proportion of the cost of S4C. We also took on the Government’s then idea of regional television. All of that meant that rather than rising in line with inflation, the BBC’s budget at the end of that period was 24% down. That was the stark reality of the 2010 settlement. I will explain the things that we got wrong in that assessment, but we were saying that it would be a broad, flat cash settlement over the period to five years. We did not take into consideration—because life moves on—that it was CPI on a proportion of the BBC’s budget, because of course it was not CPI on the whole budget and part of that is money coming from the Government to pay for the licence fee concession. Secondly, inflation—and this in some ways is a good thing but not for us—in the media has been much higher than CPI because of the tax credits, and Netflix and others coming to this country. That has led to our costs going up more than they should. The Government did not plug the iPlayer loophole in the way they said they would, which meant we got only half the money coming in. It was always assumed we would look at the over-75s—John Whittingdale make that clear in what he has been saying—and we would look at that as well. We would take on the policy, really unwillingly, but it was coming and we could not do anything about it. We would then consult and decide what was best from the BBC’s point of view for both licence fee payers who are over 75 and those below. That was the intention.

Chair

At the time, regardless of how the process was run—and we have been critical of that—it looks like there has been a negotiation between the BBC and you have won some concessions from the Government. The Government have got you to agree that to take on responsibility for the over-75s. You have broadly welcomed the settlement as a good settlement, better than the previous settlement, and you have briefed the BBC Trust Board that the executive is going to come up with a strategy to make this work. I do not see any indication here that this was not an obligation you were going to honour or intended to honour. It looks like you were quite satisfied with the obligations that the BBC has taken on. There is nothing in the minutes to say otherwise.

Lord Hall

That is absolutely not true. We were taking on the policy of the over-75s. I want to be quite clear about this. At the time, I was clear with the then Chancellor. I remember exactly his words to me, which were, “You and I are going to have to go out there and socialise this policy because it is going to be very difficult for you”. John Whittingdale has made it absolutely clear in what he said in the Commons. I made it very clear when I came before this Committee and mentioned it in the autumn of that year. John Nicolson said to me, “What sort of reforms will you be looking at?” I said, “I cannot say at the moment. We will have to work that out over the next few years”. John Nicolson, late of this Committee, then said to me, “What about means testing?” I said, “I am not saying there could be. I am not saying there cannot be. That is what we have to work out”. That is completely consistent with the reforms that we would need to make were we to live within the budget parameters. The consultation could have gone another way and we could have ended up not being allowed to make those changes, but the policy came to us and we have carried that out to the letter. From the Digital Economy Act 2017 onwards, we have carried out the consultation thoroughly and we have come to a very difficult balanced discussion. If you want to ask who should take on responsibility, from the beginning, it is the Government who were withdrawing the concession and we had no choice whatsoever other than to take that on. That is clear to me.

Chair

When you look at the minutes of the BBC meetings at this time, on the original proposal, the BBC is saying very much what it is saying now, which is, “If we take on the over-75s, there will be closures of services and there will be massive cuts”.

Lord Hall

Yes, that is right.

Chair

Then you get the concessions that you asked for and the position then seems to be, “Okay, we will try to make this work. The concessions make a big difference”, and you say that it ends up being a better financial settlement than before. There is nothing at the time to indicate that this is an impossible task you have taken on that you must inevitably withdraw from.

Lord Hall

I am sorry but I said at the time that we would have to reform the over-75s to make this work. The policy that we have gone through with the consultation might have stopped us doing that, but that was absolutely central to me saying to people, “This is a settlement that we can live with”. However, let me also be clear, I said then that taking the over-75s policy and dumping it on the BBC was not a way to run a railroad.

Chair

That is not reflected in the minutes of the meetings you attended at the time. If you felt that strongly about it, it is odd that you accepted this without even consulting formally the BBC Executive Board.

Lord Hall

I was consulting all the time with the BBC Executive Board. That week is seared in my mind. I remember constantly talking with the executive board. But formally, it was the BBC Trust that had to say yes or no.

Chair

I want to come on to the value of the concessions. These have been tossed away as being insignificant and, in many ways, the language the BBC uses in the consultation documents published in June goes back to the way the BBC talked about this before the concessions were made, as if this is a flat £700 million and we are going to have to massively cut services. You may have more up-to-date figures, but around the time the iPlayer loophole was closed it was believed that it would be worth around £150 million a year. It was believed that the cost of the top-slicing to pay for broadband was about £130 million a year. If you look at the value of the increases in licence fees that would come, it would be about £200 million a year, and you would be better off by the time the over-75s came in. Then, when you add to that the factors you have in your own annual reports—in the last year you have made £153 million worth of efficiencies and your direct revenue dividend from BBC Studios increased by £59 million—you may query those numbers but that ends up being about £700 million that has been found. The value that you got back from closing the iPlayer loophole, from ending top-slicing and from the increase in the licence fee would seem to be greater than the £250 million obligation you are prepared to take on for the over-75s. If anything, it would seem that you are net gainers from this process, given your current policy of not honouring the original agreement but means testing the over-75s.

Lord Hall

The idea that we are not honouring the original agreement is wrong and I really refute that and I resent it. We are absolutely honouring the agreement we came to with George Osborne and John Whittingdale to the T. Honestly, if you want to come out and say things like, “You are not honouring the agreement”, you are wrong. It is absolutely crucial that I establish this because we are carrying out what the Government said we should do to the T. To answer your point about the concessions back, given the amount of inflation in media is higher than CPI and given that it was not carried out over the entirety of our budget is an issue—

Chair

In cash terms, what has that meant?

Lord Hall

There is an issue, which is that it is not keeping up with our costs. The iPlayer loophole, which was estimated at somewhere around £140 million to £150 million, the Government did not close quite as we wanted. They did it only from the point of view of the BBC usage of the iPlayer. This meant that it was short to the tune of £45 million, not £140 million or £150 million that you were estimating it to be. In all sorts of ways, we have brought in less from these reforms than we thought. That is life. At the time, it looked like we would do fine out of it but it has not turned out that way.

Chair

Perhaps you would get back to the Committee with a figure for what in actual terms you think the benefit of those concessions that you won were.

Lord Hall

We put a figure of £250 million on what we think we should be doing to support the over-75s concession in the way we have interpreted it as a board.

Chair

There were three concessions that were won by the BBC in the negotiation that we have just discussed: the iPlayer loophole, the ending of top-slicing and the increasing by inflation consumer prices the licence fee. What in reality has that been worth to the BBC or will it be worth by the time we get to 2020.

Lord Hall

We can happily come back with those figures.

Chair

I am working off the figures that had been quoted at the time but these were at the time the decisions were being made.

Lord Hall

Yes. There were assumptions at the time but those assumptions have not worked out as we thought, which is an inevitability.

Chair

That is a perfectly reasonable position and it reflects that at the time in 2015 you might have been slightly more bullish about the ability to get this through without having to go through very significant means testing—you were looking to get rid of two thirds of the obligation—because these figures may have presented themselves in a more favourable light. In that case, the money would have been there to offset the obligations you would have taken on, certainly to within a reasonable level. But it has not worked out that way. While it is understandable that you are critical of the Government for putting you in a position where you felt you had no choice, you also entered into it thinking that you could deliver it. That has turned out not to be the case.

Lord Hall

We entered into it thinking that, if we could reform—and that was a big question because we had to go through a consultation and it might have gone the other way—and if other things to do with CPI or with inflation in the media industry and other things worked out okay, we could probably get through. That is what we thought. But, as you have been suggesting, life does not work out like that.

Chair

It would be interesting to know the background of this very significant decision that has been taken. You are right to say that it was always the case that there would be an agreement that the BBC would be free to consult and change the over-75s policy. The agreement runs to 2020 and after. You have freedom to act. My contention is that at the moment the decision was made and in your immediate pronouncements on it, it was not clear that such a significant change would be made. There was nothing to suggest that you would need to find two thirds of that cost elsewhere and that you would fund only about £250 million of it. It is important to understand, against the £250 million you are asking pensioners to pay for the licence fee, how much was the value you got from the extra concessions that you had.

Lord Hall

Yes, I get that. My retort to you is that at the time we thought we would not need as much as we do now—which is what you are saying—because a number of things have gone against us.

Julian Knight

I have just been struck by the use of the words such as “going nuclear”. You started tapping the table when you came in. You are obviously very emotional and very angry, almost pent up with rage about this deal. But then the words at the time spoken by you were that it was “the right deal ... in difficult economic circumstances. Far from being a cut, the way this financial settlement is shaped gives us, effectively, flat licence fee income across the first five years of the next charter”. What is it? Did you misunderstand the implications of what you were agreeing to or did you mislead in that statement? Which is the case?

Lord Hall

No. I did not misunderstand and I certainly did not mislead, Mr Knight. The Chair has been probing in exactly the same direction as I will answer you now. At the time, if you go back to what it was like in 2015, people were getting flat-cash-minus settlements. At the time, having a cash-flat settlement felt like a proper settlement for the BBC, no matter the fact that it should not have been done that way. Since then, some things have not turned out as we expected and I suppose that is life, isn’t it?

Julian Knight

You got your numbers wrong, basically?

Lord Hall

No, we did not get our numbers wrong. We could not have understood that the Government would not do the proper deal they should have done over the iPlayer loophole. We did underrate the amount of inflation that was going to come into the media sector. We did not reckon at that time with quite the inflation that would come from Netflix and others.

Julian Knight

Businesses across the country deal with inflation all the time. Effectively, what you are is—

Lord Hall

No, this inflation in our costs, which was much more than CPI—

Julian Knight

A wholesaler has to deal with above-CPI inflation costs. A lot of businesses, public sector and private sector, have to deal with this. This is not just new, so to speak. The reality is that you were presented with a deal at that particular time. You chose to accept that deal and then you said in public that you agreed that it was okay. That is what you said in public. Here you are a couple of years later and you are now saying, “No, I am sorry, but this is not something we can live with at all”.

Lord Hall

No, you are wrong. It is four and a half years on. Also, since then we have done the reforms that we said were on the table for the over-75s concessions. We made it clear and we made clear the financial parameters for that. The other important thing at the time was that we also needed to keep in play the negotiations going on about the charter—we went straight from that into a very heated debate, which I am sure you will recall, about the scope and scale of the BBC. We were under huge pressure to have a charter that would last three or four years and where the licence fee would not be guaranteed for that amount of time, so we were in constant dialogue here. By the end of that summer or slightly later, we had a charter for 11 years—everyone was saying it would be three or four years—and we had the licence fee at the centre of the way the BBC would be funded for all that time. Those were also considerable wins in this period of our negotiations.

Julian Knight

Effectively, it was a negotiation. There was a quid pro quo. This is how it seemed to work at the time. The Treasury got its pound of flesh by putting this on to you in terms of the over-75s licence fee. But you got, against quite strong opposition within certain parts of Parliament, a very long charter agreement and a very good deal on that side of things. You got a good deal there and yet here you are now, as you say, a time afterwards, turning around and saying, “I am sorry but there was part of the negotiation that we were not happy about. They held our feet to the fire”. They could just say, “Tough”, frankly. They could say, “If that is the case, you lost out in that negotiation in terms of the money”, and you are no different now than a chief executive who has their numbers wrong and is now issuing a profit warning.

Lord Hall

Thank you for saying that we seemed to get a lot back from the negotiation. I agree, Mr Knight, on that. I am just trying to establish that, as part of that settlement in 2015 with the then Chancellor of the Exchequer and agreed with the trust, it was absolutely clear that reform of the over-75s, provided we could go through the proper consultation and provided the consultation backed us up, was on the table. Everybody knew that reform was likely, not inevitable but likely.

Julian Knight

Why are you saying now that this was a terrible deal? You are effectively whinging and trying to say that this was absolutely appalling and awful and that the Government had managed to force you into this position. You got a really good thing back as well. You got the extended charter.

Lord Hall

We got the extended charter, which for the BBC’s future and independence was almost the most important thing. I am not a whinger and I promise you I am not whinging, I am trying to point out the facts. The facts were that the Government withdrew the funding we were getting for that concession. The Government at that time knew that reform was in the air and quite likely. It might not have happened because the consultation might have gone the other way, but they knew it was there.

Julian Knight

Why should any Government in future trust anything the BBC says when it shakes hands on a deal and four years later says, “You have forced us through your negotiations and have put us into a position that is untenable”. It gets BBC reporters or presenters and outside organisations to lobby, and then brings huge pressure to bear on the Government of the day when it struck a deal with the Government and should hold itself to that deal.

Lord Hall

I repeat what is the truth. You can trust the BBC. We entered into a deal, I agree, unwillingly. I would rather we did not have the over-75s but, nonetheless, we took it because we knew that was coming. Others who were involved have said that we could not have stopped it and it was going to happen. But we took it knowing that reform was on the table. That was absolutely clear from the Chancellor and from the then Secretary of State. The Secretary of State has made that clear in what he has said. We have done nothing other than abide by what the Government then did. The Government brought in the Digital Economy Act which said, “From June of next year, you take over the policy, but you must have a full consultation process before then”. We have carried that out and we have come to a hard but nonetheless difficult decision. I can see nothing in that which is not utterly trustworthy and utterly what we were committed to and said the Government were committed to way back in 2015.

Julian Knight

The issue is that you made those statements when the deal was done that this was a good thing and so on, and now a few years later you are saying, “Actually, it was not a good deal. Poor us. Our feet were held to the fire like you wouldn’t believe. This is an appalling thing”, and yet you shook hands on that deal. Is this what happens next time around if we do have another charter renegotiation?

Lord Hall

Mr Knight, this is presumptuous of me to say so, but you as a Committee and I are agreeing on one thing, which is that this is not a way to conduct a negotiation—that is what I feel strongly about—if these negotiations are done at such speed, behind closed doors, without any scrutiny at all from Parliament or debate in Parliament or debate among licence fee payers. I look at the consultation we have just done. It has been thorough. It has involved 190,000 people. It has involved lots of other people. My hope is that together we can find a way when it comes to 2021-22 to do this in public and to have an argument about the scope and the scale of the BBC. I believe that this country needs the BBC more now than it has ever done in the past given fake news globally, and soft power in terms of new talent in this country and of regions talking to themselves. The need is there. That should be a proper debate about the quantum to fund that, which did not happen in 2010 and had not happened in 2015.

Ian C. Lucas

In the general election of 2017, there was a Conservative Party election manifesto commitment to maintain benefits for pensioners. Did you consider reopening this issue after a Conservative Government were re‑elected?

Lord Hall

We asked the Government why the manifesto did not reflect the powers they had given to us. I do not have a satisfactory answer. They knew and we knew that as of June of next year the powers came to us. Nothing from the Government said that is not the case.

Ian C. Lucas

After the general election, you contacted the Government to clarify the position?

Lord Hall

Yes.

Ian C. Lucas

In writing?

Lord Hall

Yes, we wrote to them and we wrote to them at the time to say, “What does this mean?”

Ian C. Lucas

That was because of the manifesto commitment?

Lord Hall

Yes, and because it seemed at best odd to us that they would have a manifesto commitment that was completely at odds with what the law had just determined was the case and what Parliament had decided, namely that the concession would come to us from June of next year and we would consult and so on.

Ian C. Lucas

Could we have that correspondence, please?

Lord Hall

I am sure whatever correspondence we have we can give to you.

Ian C. Lucas

I think it is odd, too. Manifesto commitments should be respected. I have a constituent, Ted Edwards, who is 93 years of age and is a Normandy veteran. He has spoken to me about this issue of veterans, Normandy veterans in particular, having a benefit removed. Ted is a wonderful community activist. He contributes hugely to his community. My father was also a Normandy veteran who landed on Gold Beach. I have come to know you, Lord Hall. It does not sit right with me that we are withdrawing benefits from such people. Will you reconsider the position?

Lord Hall

The board has taken a position. First, I understand the position that Mr Edwards finds himself in. I respect completely what he has done with his life. He has been through things that I hope I never have to go through. I have the deepest respect for that. But the board—and the Chairman may want to say something about this—including me, by the way, has come to a decision to balance two things: the fairness to people over 75 like Mr Edwards and how we hold a concession that is fair to them, and also the fairness to the majority of licence fee payers who do not want and would have to fund the £750 million if the concession was to carry on. Those have been the two things we are trying to balance. It seemed to the board—but the Chairman will want to say more about that—that the right way forward was to attach, therefore, the concession to the Pension Credit, not our determination of poverty among pensioners. It is not for us to determine what the poverty level is but for the Government.

Ian C. Lucas

This is your decision. It has become your decision. We agree that that should not be the case but it is a fact. I would plead with the board of the BBC Trust to look again at the position as far as veterans are concerned. We have chosen a means-tested approach. We have all seen the context of the commemorations we have been experiencing, which are a big part of you helping to sustain our national identity. It seems completely wrong to be taking away something that is hugely important to that generation in the way that you are.

Lord Hall

I understand.

Ian C. Lucas

Can you please reconsider that? I will ask the Chairman.

Sir David Clementi

Let me comment on this because I also have great sympathy with your constituent. We know the importance that the BBC plays as a companion for those who are socially isolated and so on. That has weighed with us very heavily. As Lord Hall said, we sought to reach a decision that was fair to those over 75, who are the most financially disadvantaged, and fair to all our audiences. There would be a price to be paid if we were to extend it to everybody. To your constituent, I would say a number of things. First of all, if he is financially disadvantaged, he needs to look carefully at his position. One of the reasons AgeUK was concerned about means testing through the Pension Credit is that the level of Pension Credit take-up is well below those eligible. About 60% of those eligible take it up. We have undertaken with AgeUK, Independent Age and a number of similar groups—probably some of the veterans groups—to help them understand how the Pension Credit system works. If they are below that level, they will get a free television licence. The second point to say is that a number of people say to me, “The Pension Credit is not sufficient”. Everybody recognises that the issue about the level at which pension poverty, which is still an issue, should be alleviated is finally a matter for the Government. Their chosen instrument is Pension Credit and, therefore, the level of Pension Credit is a matter—correctly—for the Government and not for us. You asked whether the BBC is going to think again. We have been through the most massive consultation, almost without precedent, setting out the precise criteria by which we would reach a decision and setting out what the options are. We have had 180,000 responses. That is the quantitative part. We have also had a mass, which we have shared with you, of qualitative responses. Among the qualitative responses are those who think the concession should remain and those who think there is a problem. Those who represent the creative industries and those involved in employment—the TUC, the CBI, our own union, the NUJ—have expressed considerable concern about extending the concession to all parties over 75. On the other side, those who thought the concession should continue, particularly AgeUK, who were concerned about it, are very clear that the body that should reconsider is the Government. You referred to the manifesto commitment, that is a matter for you and a matter for the Government. Nevertheless, if you look at the AgeUK petition, which has now been signed by 600,000 people, which may include your constituent, their questions are addressed not to us but to the Government.

Ian C. Lucas

But this is now your decision. This is the decision of the trust board and you have made it.

Sir David Clementi

It is not the trust board, as you have pointed out. It is not, as we all know, a perfect Government structure—I recommended it should be got rid of, and we have provided further evidence in connection with that. We have followed the Digital Economy Act, passed by this Parliament, to the letter. The suggestion from Mr Knight that we are not good for our word is very unfair. We have followed the Digital Economy Act, agreed by this Parliament, agreed in the 2015 settlement. We have followed it to the letter.

Ian C. Lucas

Okay, but this package that you are now presenting is the BBC’s package and you have the power to change it. There are two Normandy veterans in Wrexham and they will not be eligible to retain a TV licence.

Sir David Clementi

Because they are above Pension Credit level.

Ian C. Lucas

Yes. You should give a concession to Normandy veterans at least. We are talking about a small amount of money. There would not be anyone who speaks out against that. I would ask you today—

Sir David Clementi

There are a vast number of people who want us to consider, but the issue rests now with the Government and whether they want to meet what they determine—

Ian C. Lucas

No, it does not. It rests with you.

Clare Sumner

Sorry, just to follow up on an important point here, there will be some people who will qualify for Pension Credit. Some people will be claiming already, but part of the greatest problem with Pension Credit take-up, as AgeUK and others have said, is around the visibility of Pension Credit. Over the last few weeks, I would suggest, the visibility of Pension Credit has definitely gone up. We have been working with others, for example, Independent Age, who are running their own campaign about Pension Credit take-up. That could potentially affect over 600,000 people, who could then potentially get £2,500 each, which is a significant amount of money, plus the top-up benefits they would then get. The other thing that perhaps may assist your constituents, although I recognise not entirely and I also would pay tribute to their service, is that we asked ourselves whether it was reasonable to ask this group of people to pay a full TV licence in one go. Therefore, we have introduced a small instalment scheme of around £3 a week for all the television that we know is so valuable to them. This is a group that consumes over 30 hours of BBC TV or radio content. It does not fully address your question, but the issue is that in terms of all the options we consulted on and all the variants we looked at, in the end, the Pension Credit was the fairest. AgeUK said in January, “Pension Credit is the single most important poverty alleviation mechanism for older people that we have in this country”. We have to recognise that. That includes for veterans. Of course, if the Government want to do more for veterans as well, they could of course do so.

Ian C. Lucas

Yes. There are a lot of pensioners who have applied for Pension Credit but do not qualify and who do not consider themselves at all well off. There are a lot of people who are concerned about this proposal. The reason why the Government passed it to you, bluntly, is because it is a hand grenade politically and you have been given it. I am appealing to you again in this particular case. It is not about one person, it is about a group of people. Particularly in view of your public service role, which I respect, please think again and reflect following today. I am not going to put you on the spot again. I understand the position concerning the Pension Credit. We should be using this as a way of extending take-up of the Pension Credit. That is not your responsibility. One of the problems with this policy is that it is mixing the Government and the BBC in a way that is not appropriate. But on this particular specific point, I would be grateful if you would think again.

Sir David Clementi

I will take it away. I would like to make a point. There are a number of groups—and you have mentioned one that we all recognise and indeed the BBC was there to recognise that day in the south—for whom this is quite a difficult issue. But I am concerned about the BBC being drawn too much into social policy and this is, rightly, a matter for the Government. The question of the level of the Pension Credit—and you have told me your constituent is above that level but nevertheless does not think he is well off—is a matter for the Government and not for us. We will take it away but I can give no certainty as to what my board will think.

Ian C. Lucas

You can also speak to the Government about that. I heard the Secretary of State speaking on this issue last Thursday at questions. There may be an opening if we work together on the Government.

Philip Davies

Quickly, as the new boy, I am getting my head around the figures. I was reading the BBC News website—so I am sure it must be true—which said that the new scheme you are proposing on the Pension Credit will cost the BBC about £250 million a year by 2021-22. Is that right?

Sir David Clementi

Yes.

Philip Davies

Presumably it is less than that to start with but it will be up to that figure by then?

Sir David Clementi

Yes, but in the first year there are some very considerable administrative costs we are looking at.

Philip Davies

But what it said on the BBC website is right?

Clare Sumner

It depends on the take-up of the Pension Credit.

Sir David Clementi

Yes, that is right. That is what we said.

Philip Davies

The Secretary of State said in DCMS questions last week—and perhaps you would confirm whether this is right—that in this financial year of giving the free TV licences to over-75s, the cost to the BBC has been £453 million. Is that right?

Glyn Isherwood

No. The DWP has been stepping down the amount that it has given us in regard to over-75 licences. That started in 2018-19 and it continues into 2019-20 and then drops down completely. From a £650 million starting point, it reduced to £450 million last year and reduces again this year. We are working through and managing some of that shortfall. This year we have had to deliver savings to deliver on that. We have also had a year of deficits. We have spent ahead of the income we have coming in because of the £180 million shortfall in income we have had from the DWP this year.

Philip Davies

If we can stick to the questions, it would be helpful. The Secretary of State said last week in the Chamber—and I would be astonished if he was misleading the House—that this financial year the cost to the BBC of this policy for free TV licences to over-75s is £453 million. It is a simple question. Is that right? We do not need any waffle around it. Is that right or is that wrong?

Glyn Isherwood

That is not a number that I recognise as the cost of the licence policy.

Philip Davies

What is the cost going to be for the BBC this financial year?

Glyn Isherwood

In 2018-19, we had a reduction of £180 million.

Philip Davies

No. What is the cost? It is a simple question. I want just a simple answer. What is the cost to the BBC in this financial year of free TV licences for over-75s? It cannot be a difficult question to answer.

Glyn Isherwood

We have had a reduction in what was funded by the DWP—

Philip Davies

Yes, we know all that. What is the cost?

Glyn Isherwood

The DWP funded the free TV licence fees. That income was £650 million. We had a reduction in 2018-19 of £180 million, so I guess your equivalent cost is £180 million.

Philip Davies

You are saying that the cost to the BBC this year of this policy is £180 million?

Glyn Isherwood

That is the reduction in income that we have had from the DWP, yes.

Philip Davies

No, I am not asking what the reduction is this year. I am asking for the total cost. It is not a difficult question. What is the total? Let me try to help you out. I find it extraordinary. I suspect that either you do not know the answer or you do not want to tell me the answer. I thought this was going to be a simple question, Chair. I do apologise. The Secretary of State said that last year the BBC paid £209 million towards this cost and in this financial year the BBC will pay £453 million. I have the Hansard, this is what the Secretary of State said in DCMS questions last week. Are you saying that the Secretary of State was misleading the House when he said that?

Glyn Isherwood

I am explaining to you what is happening in terms of the cost. The DWP provides the cost of licence fees at the moment for over-75s. That steps down over a period. The BBC inherits that policy from 2020 but there is a stepdown. There is a reduction in income over time.

Philip Davies

I accept that there is a stepdown and he is saying that this year the total cost to the BBC is £453 million—

Sir David Clementi

There is a very complicated transitional arrangement over a number of years that was baked into the original deal. We should write to you to set out the transitional arrangement. But the issue for the board is not actually on that. The issue for the board is moving forward. From 2020 we take on—

Chair

Sorry. Philip is perfectly within his rights to try to get clarity on the figures. If I may, the issue here might be that, Mr Isherwood, you were referring to the figure in the accounts, which is £180 million. The Secretary of State was referring to probably the 2019-20 figure rather than the 2018-19 figure.

Sir David Clementi

Yes, that is a rundown figure, which is where we are—

Philip Davies

Yes, the cost in total this financial year. The clue was in the question. It is all right for you, Sir David, saying what the issue is. We will decide what the issues are for you to answer. You can decide what the issues are for the BBC.

Sir David Clementi

I have to worry a lot about the transitional period.

Philip Davies

The issue is that this year you are paying £453 million for this—and presumably you believe that the BBC’s output is wonderful, as you usually do—but next year and in future years you are saying that you can afford to pay only £250 million. Basically, you are using this policy to transfer the blame to the Government because it is going from costing you £453 million this year to costing you £250 million a year in future years. You are pocketing £200 million and hoping that over-75 pensioners will not notice and blaming the Government for it. That is the basic fact of the matter, isn’t it?

Sir David Clementi

We are not pocketing any money. The amount of money that the Government are giving us is scaling down from whatever it was down to zero. It is a complicated transitional arrangement.

Lord Hall

Yes. We are running at a deficit. We have saved money early on to pay for a deficit as it comes down to zero later on. That is the issue that we are doing. It is a balance.

Glyn Isherwood

We have drawn down our cash reserves to fund that.

Philip Davies

You are going to be £200 million a year better off from this concession next year than this year?

Glyn Isherwood

We are currently using some of the cash reserves built up at the start of the charter period. We are drawing down those. In each year, we are running at a deficit. We did that in 2018-19. We will do that in 2019-20. We need to reverse that and get income to sustain our services and build up our cash reserves.

Philip Davies

Would you accept that the cost for you, the BBC, in future years for this policy will be £200 million lower than in this financial year?

Lord Hall

No, the cost to us at the end of the five-year period is £750 million. What we have been doing is very straightforward. Money that has come from the Government is being withdrawn. We have put in cash we have saved upfront from the beginning of the period. We are now running that down. Maybe that is where the confusion lies. We are running ahead of our means because we have saved for the moment when we knew that cash would be coming out from the Government’s point of view. It is quite a simple equation.

Chair

Perhaps we could take up the Chairman’s offer and the BBC could write to us and confirm what the transitional payments are, maybe in this same letter as well. The figure of £750 million is quoted but, to be fair, from that £750 million should be deducted the value of the benefits that were accrued in the negotiation on the consumer price index inflationary increase in the licence fee, the iPlayer loophole and the top-slicing. They were part of the agreement. It would be fair to consider that the net figure, which is the value of that removed from the £750 million.

Simon Hart

By way of a short pause, can we go back to the consultation outcomes? I was interested to hear Ian Lucas’s comments about his constituent, but it struck me that there must be groups of very deserving people who have provided long and often risky service to the country for many years, all of whom might be able to make a similarly compelling case about their own circumstances. I was wondering what the consultation findings revealed in that respect. If they are published somewhere and I have not read them, I apologise, but it may be useful for this particular hearing to know what they say and what proportion of the respondents took a particular view. Perhaps you could touch on whether veterans charities made some submissions, and whether MPs made submissions on behalf of their constituents. If so, can they be summarised without compromising any anonymity elements? How did that come across and how did it influence your decision-making?

Clare Sumner

We ran a very large consultation, which involved four components. All the reports have been published at the same time as our decision. Specifically, we had a very large public consultation with over 85,000 people. We had a BBC stakeholder consultation and contacted over 1,000 organisations and every Member of this House to participate. We have published the list and have included their responses to it.

Simon Hart

Did that include veterans charities, out of interest?

Clare Sumner

In terms of the overall responses, very few people mentioned veterans and I am not sure that any veterans charities did respond to us directly. However, I have written to a number of organisations about how to work together to do two things. One is best practice to support this group of elderly people, and the other is to raise the visibility of the Pension Credit. I am going to reach out to appropriate veterans organisations to discuss some of these issues further with them. We published at the time of the consultation last November and also with our decision an equality impact assessment. A number of people commented on that, which leads you to look at, for example, issues of gender. For example, there are more women over 75 than men because of life expectancy. There are more disabled people in this group and people with long-term illnesses and also potentially those who are on the poverty line and could be most affected. Having looked at all that, and at the way the Pension Credit and disability benefits work, and in effect at the fairest decision to take, we took all of that into account before the board made its final decision. As the Chair was referring to earlier, particularly in the stakeholder responses, there was a lot of concern to ensure the fairest thing was done for this group of people. Many older groups felt that it was going to be fairest to continue the concession, but many raised the fact that they thought the Government should pay for it. Others from the media and creative industries felt very strongly that they had a concern about the potential investment cut in the creative economy and creative sector, which I know this Committee has looked at before and how PSBs support the whole industry. We also saw people from Dementia UK, and I spoke to them about how we can make sure that as we implement this policy and make it as accessible and appropriate as possible. With this cohort—it is not necessarily just this cohort—we have to make sure that carers and family representatives are aware of these policies and how they are changing so that they can be supportive. We have also written to over 4 million households that will be affected by this change to explain that there is nothing anybody needs to do now, but that we will be reaching out to them to explain what we are doing, including outreach events. We must also make sure that we are linked in to all of the relevant organisations, which—coming back to the top of your question—would include veterans organisations.

Simon Hart

From public reaction—and it is a crude measurement, I know—were you able to detect the very simple distinction between support for and opposition to this proposal?

Clare Sumner

Yes, absolutely. In our main public consultation of about 85,000 people, it was, as this debate has shown, finely balanced. But 48% ended up saying that their preferred option was to copy the concession—

Simon Hart

Not another 48:52 split—

Clare Sumner

And 52%, I am sorry to say, supported some form of change. The least support across all of the age groups was for abolishing the concession. We thought that it was right not to abolish the concession because it would not have been the fairest thing to do. The other two key things that came out time and again from this consultation was the importance of pensioner poverty and making sure that in its decision the BBC should address that. I think Mr Lucas referred to the importance of companionship that this group gets from the BBC and television in general. We respected both of those things and that is what led us to do a very targeted approach with the financial impact on the BBC of saying that we should help the poorest older pensioners. The best way to do that is through the Pension Credit, although, as we have discussed, there needs to be some improvement there.

Simon Hart

I know that the figure of 75 years of age has been imposed on you as opposed to a conclusion that you have reached yourselves. On the basis that pension income is a fixed-income model, what discussion did you have on the arbitrary nature, if you could describe it like that, of 75? Why not 77 or 73?

Clare Sumner

As you all know, under the Digital Economy Act, the BBC was given the power to look at age-related concessions from 65 and above. Part of our discussion and consultation, very openly, was about the right age threshold. That could have ranged from 65 upwards. We did consult on a specific age issue, which was whether we should raise the age threshold to 80, but much of the feedback was that, for 75 year-olds, it is at that point potentially very hard to change their financial circumstances. The work that Frontier Economics and various organisations have done showed that in terms of wealth, the 65 to 74 year-olds are in some ways better off than the 75 cohort. Again, it was a difficult decision, but we thought that the boundary was probably in the right place. As you know, once you become 80, you can qualify for additional benefits such as a state pension and more winter fuel discount. In the end, we felt the fairest decision was to help those who were the poorest at 75.

Chair

Glyn Isherwood, you said earlier that the cost last financial year to the BBC of the over-75s licence fee was £180 million. You also said that the BBC had to borrow money because of those additional costs. From other figures in the report, the report says that the BBC made £153 million in efficiency savings last year and that the cash revenue increase—not the total but the increase—in the year from BBC Studios was £59 million. Taking those two components together gives £212 million, it is possible, if the resources had been allocated differently, that £180 million could have been met from increased commercial revenue and efficiency savings rather than borrowing.

Glyn Isherwood

In 2018-19, we had a step down in the income, which I have already explained. We had an efficiency programme, as you highlight. We are in the second tier of that programme now. We are at £153 million out of an £800 million target, which is cumulatively £397 million to date. So we are making progress on that, but it gets harder as we carry on. Most operations—

Chair

I understand that but that was not the question I asked. It might be very simple. I am not an accountant. The impression you gave us was that the BBC had no option but to borrow more and go into deficit this year because of this £180 million it has taken on. However, if resources had been allocated differently that £180 million could have been found in the savings and the increase and the growth in commercial revenue.

Glyn Isherwood

Given that we delivered £153 million in savings, which we have put towards that concession already in year, finding savings over and above that would have been very difficult. A commercial performance over and above that which was delivered would also have been incredible. We have had a very good performance in the year, but in that year it is not sustainable because we have had to draw down on some of our cash reserves—we are not going to borrow and we have not borrowed yet—to fund our operations, even with £153 million of savings in the year and even with a very strong commercial performance. The position is not sustainable because we are carrying the cost of transition in the over-75s. That deficit gets bigger in 2019-20 and by 2020-21 it will stabilise because we will have income from collecting money from the over-75s.

Chair

The point I was trying to make was that the cash drawdown in the accounts for this year cannot be about just the £180 million, because there would appear to be enough additional revenue and efficiency built in already. You may be drawing down cash for other reasons and you might like the £180 million to spend on other things—I appreciate that—but the books would suggest that there was enough cash in the system just to meet that obligation on its own if that was the only extra outlay you had to think about.

Glyn Isherwood

There are many factors that impact on our income and costs in year. In year we would have had other revenue coming in from the commercial operations. We had income that comes in from licence fees and that can depend on household growth and TV penetration. At the same time we have varying rights of content costs. Last year we had the Commonwealth Games, which needed funding and needed delivering to audience expectations. We did a good job all around that.

Brendan O’Hara

How much would it cost to set up a new system to collect the licence fee from those over-75s?

Clare Sumner

In our decision document we set out two forms of cost. The first transition year will cost around £38 million.

Brendan O’Hara

Is that to set up the systems?

Clare Sumner

That is to set up the systems. That is partly because there is a lot of communication that we need to do. There is also setting up a new payment plan, as I referred to earlier, and there are the data systems and everything we need to put in place properly. Then the running cost of that will be around £13 million. These are estimates, just in those broad ballpark terms. Those figures—not the £38 million, which will come out of the BBC budget, but the £13 million—are part of what Mr Davies was referring to earlier in terms of that ongoing £250 million cost. That broadly explains where that money will go.

Brendan O’Hara

It is £38 million in a one-off payment to set up the system and then £13 million per annum?

Clare Sumner

Yes, for running costs. Potentially, that £13 million could go down but we need to make sure that we allow some scope for implementation, which is why we said that the £250 million is subject to the implementation costs and the take-up of the Pension Credit.

Brendan O’Hara

The £250 million will be based on everybody paying. Have you worked an evasion or non-payment rate into that?

Clare Sumner

We have added an evasion rate into that.

Brendan O'Hara

Of what percentage?

Clare Sumner

That comes from the Frontier work we established earlier, which was around 8%. That is higher than the average evasion rate, which is about 6.5%. Part of that is because we are expecting a transition here. One of the reasons we took our decision a year before June 2020 is to enable us to make those preparations and also to work with organisations and people to help make that transition as simple as possible.

Brendan O’Hara

You have worked on the basis of an 8% non-payment rate. Part of your armoury in getting people to pay is that you quite vigorously pursue non-payers of the licence fees. Is it your intention to have the same people using the same methods to pursue over-75s as they do under-75s?

Clare Sumner

We think it is really important to do this as sympathetically as possible. We are doing several things that are best practice. We recognise that this group will perhaps need more telephone support and face-to-face support. We are recruiting a specific group of people to pay support visits to this group with the intention of helping them understand what the system is and how to apply. That will be a different cohort of people to the inquiry officers, who enforce the licence fee. We have decided, which is why there are costs involved in this, to employ a specific group of people and also add more people to our telephone hotlines, who will be dealing with this cohort of people. We think that is really important.

Brendan O’Hara

The cost of that cohort of people is included in the £13 million, yes?

Clare Sumner

The £38 million is for us to hire to additional contact centre staff. The ongoing costs of having those groups are in the £13 million.

Brendan O’Hara

You will be using the same tactics but with different faces coming to your door?

Clare Sumner

No, it is not the same tactics. We are trying to work with this group so that we will do more to support this group through online contact, hotlines and also face-to-face visits. We will also work with those organisations which we know these groups are in contact with already like AgeUK, Independent Age and Dementia. We are also introducing a new smaller payment scheme for this group. We are doing a range of things that are different and take into account—

Brendan O’Hara

You can see the problem, though. If you are 75, 77 or 80 years-old and a licence fee person comes to your door and you are a poor pensioner who simply cannot afford to pay it, it is pretty traumatic.

Clare Sumner

They will not be coming to the door in quite the way you imply. TV Licensing start by writing to people. We have written to over 4 million households, setting out what they can expect. We will write again in February next year, which is when the TV licensing regulations will be approved by this House. In that way, many people can comply and can decide to set up a payment plan. However they want to pay at that point, they will be able to. Those who are on free TV licences can establish their eligibility by using proof of receipt of Pension Credit. Those people will qualify for a free licence.

Brendan O’Hara

You do accept, though, that the people in that group are far more likely to be in the “can’t pay” category rather than the “won’t pay” category, and they have to be treated extremely differently from the people in that latter group?

Clare Sumner

We have recognised that in the plans that we are developing and putting in place. We have taken into account that to pay the licence fee in one go may be difficult and so we are potentially setting up schemes where people can choose to pay as little as £3 a week. We are making sure that we reach out to carers and family members because we recognise that many in this group may not want to do the form themselves directly. We want to make it as easy as possible. We will also be doing outreach events, working with local GP surgeries and local community centres to make this as simple as we possibly can.

Brendan O’Hara

Thank you. Your estimate is, on the current take-up of the Pension Credit, that the new concession will bring in £250 million. We have heard already that four in 10 people who are eligible for the Pension Credit do not currently take it up. Have you worked out what happens to that £250 million figure when those who are eligible for the Pension Credit do take it up?

Clare Sumner

There are a range of scenarios here. The Chair may wish to say more about this. Of course we have. You will see that Independent Age suggested that the Government should reintroduce the targets that were there when the Pension Credit was first introduced of around 75% and building up, I imagine, over time. We have looked at different financial scenarios. If it were to rise as far as 100%, that would cost us more than £250 million.

Brendan O’Hara

Is there a percentage figure that you have when it becomes financially impossible for you to do?

Lord Hall

Not financially impossible, but the balance for the Treasury, where the cost to them is more than the £500 million cost if they were to plug the gap, is about 77% to 78% take-up.

Brendan O’Hara

A 78% take-up of the Pension Credit would make this uneconomic for the Treasury?

Lord Hall

But it would outweigh the benefits by putting the £750 million on us.

Clare Sumner

The estimate we have for 75%, bearing in mind we have some other additional costs that we have been discussing, is around £248 million. For the Government, depending on the numbers who claim, it is about £680 million. Those figures go up exponentially as Pension Credit take-up goes up. One of the things we do not know is how much it will go up, but we can certainly see that the visibility of it has increased and people—including us—are taking more queries about the Pension Credit and how you should apply.

Brendan O’Hara

What percentage of people pay the licence fee by direct debit?

Clare Sumner

I am afraid I do not have those figures with me. There are 25 million households.

Brendan O’Hara

Is it the case that you pay for your licence in the first six months if you pay by direct debit and all subsequent payments made that year go towards the cost of the following year’s licence, so the licence fee payer is always in credit by about £77 a year?

Clare Sumner

That is right. Of about 25 million households, 76.3% pay by direct debt. That is their chosen method. What you suggest is right. For the majority of those people, there is a prepayment that is made so that, in effect, they are always in credit with us.

Lord Hall

We would not do that for the over-75s. We would not ask you to pay in advance in that sort of way.

Brendan O’Hara

It is interesting because, following the announcement of the scrapping of the free licences for over-75s, a constituent of mine, Ruth Campion from Helensburgh, inquired about this. She was expecting when she reached her 75th birthday to have her £77 repaid. She was told by the folk at the BBC licensing that if she did not qualify for the Pension Credit and therefore did not qualify for a free television licence, the money that she was owed would be refunded to her estate on her death. Is that right?

Clare Sumner

I have not heard of that particular case. That does not sound quite right to me.

Lord Hall

That is just wrong.

Brendan O’Hara

Where would Ruth get her refund from, then? When she reached her 75th birthday, she assumed she was getting it refunded and was told, “You do not qualify for a free television licence, so it will just roll on”. She asked, “When will I get it?” She was told, “It will be refunded to your estate”.

Clare Sumner

I am very happy to take that up separately. We cannot comment on that individual case, but that doesn’t sound quite right to me.

Brendan O’Hara

If you could, that would be welcome.

Clare Sumner

Of course. Absolutely.

Brendan O’Hara

Thank you.

Clive Efford

Lord Hall, taking the questions exchanged with the Chair earlier on, do you agree that the licence fee concessions are a welfare benefit and should be administered by the Government?

Lord Hall

I agree that the concession and the determination of who should—yes, it is a welfare benefit administered by the Government. Yes.

Clive Efford

Did the Government seek any guarantee from you in the 2015 deal that you would secure the concessions for all over-75s going forwards?

Lord Hall

No.

Clive Efford

You made it clear to them that it was not sustainable and that it would require reform if the BBC was to take it on?

Lord Hall

Yes.

Clive Efford

Taking it from your exchange earlier on, in order to do what you consider to be a favourable deal for the BBC, you took on the dirty job of cutting concessions for over-75s?

Lord Hall

I think there was no option, as those who were there at the time have made absolutely clear. This was coming to us whether we wanted it or not. This was a new Conservative Government with a majority coming in fresh with the success of that election. This was coming our way, come what may.

Clive Efford

You made it clear that it would have to be cut at the time that you took it on, and the Government were happy for you to do that, and they did not seek any guarantee that you would protect it going forwards?

Lord Hall

That is right.

Clive Efford

You took on the responsibility for cutting it?

Lord Hall

We did.

Clive Efford

You did that knowingly, so the BBC sold the 75 year-olds down the river in order to get a deal.

Lord Hall

No. Let me be absolutely clear. I go back to it. Did we sell people down the river? Absolutely not. This was coming—

Clive Efford

You did, because you were very clear about what you were doing.

Lord Hall

I care deeply about what I do—

Clive Efford

“Clear”, I said, not “care”.

Lord Hall

This policy was coming to us, come what may. The question asked was, how many concessions could we win from that to offset it? The other question was what the nature of the policy would be and how we would carry out a consultation to reform. The difficulty was it is perfectly possible, but the consultation, being fair and open, could have said, “98%, stick with the concession”. The fact that it did not means we are in the position we are today.

Clive Efford

We all accept it was a consultation you should not have been holding in the first place because it should not have been your responsibility, but the fact is, and you have just repeated it, you did a deal. Part of the deal was that you took on the responsibility for cutting this concession for over-75s. You took on that responsibility knowing that you were going to have to cut it.

Lord Hall

We knew that reform was on the table. We did not know the scope of that reform or the scale of that reform back in 2015, but it was made absolutely clear by the Government that the policy was coming to us, and that is what the Digital Economy Act did.

Clive Efford

It is just quite clear it is part of the deal, isn’t it? It is part of a deal that you agreed with the Government. The Government did not want to make this cut themselves. They dumped it on you. In return for this, you get these other benefits, and you took on that responsibility of doing this.

Lord Hall

We took it on. That was part of the settlement, yes.

Clive Efford

So that we are clear, it was a quid pro quo as part of the deal that you would have to take this service away.

Lord Hall

It was a settlement that said we would take on that responsibility.

Clive Efford

It was known at the outset that you were going to do it. You knew it and the Government knew it.

Sir David Clementi

Mr Knight has argued that the expectation was that we would continue the concession. You seem to be arguing that the expectation was that we would definitely cut it. My view, having spoken to many people—but, Tony, you need to speak about this—is that there was no absolute expectation. Reform was certainly in the air—John Whittingdale said so at the time—but there was no absolute certainty as to what the outcome would be, nor could there have been since the thing was going to happen five years hence.

Clive Efford

I am a little bit more confused now because when I asked the original question to Lord Hall he was quite clear that it would have to be cut, that there would have to be reform.

Lord Hall

What we took on board was the concession that over-75s would come to us. We would then consult. Depending on the consultation and the results of that consultation, which had to be a fair and proper consultation, we could reform. As John Whittingdale made absolutely clear, they knew at the time that that was a possibility. The idea that somehow that was not a possibility or somehow we have reneged on some settlement is just plain wrong.

Clive Efford

We are going around in circles now, but the point is established.

Chair

I just wanted to for the record restate what it says in the BBC Trust minutes for that day, 6 July, when the decision was made. “The Director General and the Managing Director of Finance and Operations updated the trust on their discussions with the Government. The executive’s position was to accept the Government’s decision to transfer the cost of the over-75 licences to the BBC on the basis of the Government’s proposed mitigations and its support for the BBC’s long-term financial stability. The Director General and the executive would work to develop a strategic plan so the BBC was ready to live within the new financial parameters.” I was reading what is in the minutes for the board meeting of the BBC Trust on that day. Chairman, you can shake your head; that is what it says.

Lord Hall

The minute is inadequate because it is absolutely clear—

Chair

It has been adequate for four years.

Lord Hall

No, come on. The plan that is outlined in that is exactly the plan we have been outlining now. The policy was coming to us. It was clear. The then Secretary of State is quite clear about that. I do not understand why you are not.

Chair

All I am saying is that that is what it says in the BBC Trust minutes—a meeting you were at that was held on the day the decision was announced. I am not surprised you challenged the minutes, because when you read them it does not really bear with what you said. I do not understand why you have not challenged the record of those minutes.

Lord Hall

Can I just say, I was there, and none of you were. The issue of the over-75s and the reform of the over-75s and going through a consultation, was absolutely part of that decision-making. The trust knew that, as did we.

Chair

As I said, if I was the minute-taker for that meeting, I have obviously come out of that meeting with a slightly different view.

Lord Hall

Nobody left that meeting without understanding that.

Sir David Clementi

I have seen the exchange of letters between the BBC and the Secretary of State. They make quite clear that the responsibility and the cost implication of that policy decision rested with the BBC. We cannot speak for the minute-taker of—

Chair

The reason these minutes are important is because, as Lord Hall said earlier, ultimately it was down to the trust to agree to this. If you were at that meeting of the trust, you might have had a totally different impression of what had been agreed to that has now been set out by the BBC.

Sir David Clementi

I am sure that would have been raised when Parliament discussed the Digital Economy Act. We have followed the Digital Economy Act to the letter.

Clive Efford

I think we have established the facts of that. In terms of using pension credit as the gateway to the concession, you have answered earlier on with your reasons why you came to that, and you have said, Ms Sumner, that you intend to work with other organisations to promote awareness of pension credit. Can we expect the BBC to run a public awareness campaign on its channels to make sure people know how to claim pension credit, or is there a disincentive for the BBC to do that because the more people that claim pension credit, the more it will cost you?

Lord Hall

We will do everything that we can to make sure, first, this is carried out sensitively—I think Mr O’Hara was talking to Clare Sumner about that—and we will also use all our methods of informing the public what concessions could be and how you can apply for them and so on. There are ways to do that.

Clive Efford

Something in the form of public service broadcasts at various times of the day?

Lord Hall

Yes. We have started doing that. We have started doing that.

Clare Sumner

We do radio shows on Two, Three and Four, for example. What we have to do, of course, is explain both elements here. We have to explain what is in place here, the new payment scheme for people who have to pay, and on Pension Credit, if you are eligible, and also link them to organisations that can help them.

Clive Efford

It is open to the Government to step in and say, “We want to continue with the benefit”. Have you had any discussions with the Government about that? Have you made an approach? Is there any response?

Lord Hall

We had a meeting with the Government and they made their unhappiness with the decision very clear. They also have begun talking with us about how we can work together on ameliorating and making sure people understand with DWP, how we are going to approach people and so on. There has not been anything about, “Will you take back the concession in full?” That is a matter for the Government and for a new Government, I guess.

Clive Efford

That option is there for them, and they have not made any approach to you to say, “We want to continue with this benefit”?

Lord Hall

No.

Clive Efford

The deal that was struck in 2015 is still in place?

Lord Hall

Yes.

Clive Efford

When you came to the decision, when you were balancing your responsibility that you took on in 2015 to people over the age of 75 against the costs and the implications for the BBC, what sorts of things did you list as the cons for keeping the benefit in place? How did you balance your decision?

Lord Hall

Financially, we looked at the cost of continuing with the concession against how we would take out £750 million from our programme budget.

Clive Efford

What would have been lost in those programme budgets, then?

Lord Hall

In those programme budgets we would have lost things to the order of—let me just explain one thing to you. Between 2010 and about 2017 we did a huge amount of savings, which were good productivity savings, closing buildings, procuring in different ways, all sorts of big contracts in different ways, all sorts of things that were real efficiencies. That is why our headline rate now of overhead is 5% versus 95% on programmes and services. The position we are now in is that we will carry on driving efficiencies but at a lower level than we have done between 2010 and 2017-18. You get very quickly to services. You get very quickly to cuts in scope. We have outlined in our public declarations this policy and the balance we are looking at. It would mean things like BBC Four, BBC Two, cutting back on our investment in the nations and regions in local radio, none of which—and this came out strongly from the consultation because I think both Clare and the Chairman have been through the balance of arguments that came out of the consultation. There were very, very few places in the consultation where people said, “We do not want the full array of services you are currently giving us”. That meant that to take out that amount of services to the public was both going against the spirit of what we have in the consultation and of course would lead those people who are paying the full licence fee to say, “Hold on. I am now getting less value for money because I am losing services for which I have hitherto paid”.

Clive Efford

On the payment by instalments that you have offered to people over 75, is that the BBC setting up the first steps towards a subscription method of payment?

Lord Hall

No. That is a really interesting and good question. We are looking to make it as easy as possible for all licence fee payers to pay, and we want to make that as easy and as sensitive as possible. Is that the first step to saying, “Let’s take a subscription model for the BBC”? You could decide that the BBC is a subscription service. It would be very, very different to the sort of BBC you have now because you would be giving the subscribers what they want, not the breadth of the population, which is what the current system does. The licence fee is a secure way of paying for the BBC because it guarantees universality. It guarantees everybody access to news, to big sporting occasions, to dramas that bring people together, to local radio, to the national services we have. If you decide to say, “Is this the first step to subscription?” you might decide that is right for the BBC, but you have a very different BBC and you would not have a universal BBC.

Clive Efford

The BBC has not looked at this as a first step towards that? It is not examining what the benefits of a subscription process are?

Lord Hall

No. First, the licence fee is a method of funding the BBC concession that I won in the charter renewal process until 2027. Even if it were, I would argue that is the wrong model for supporting the BBC. I believe profoundly in things that are universal and that everybody benefits from. In days when people are disappearing into their own zones more and more, those things that bring us together are really important. Can we learn from subscription models of making it very easy to pay? We should absolutely do that. Would we like to have a weekly method of payment for the BBC? Personally, I would. Whether we could deliver that, I do not know yet. Learning how to make it as easy as possible to pay I think is what we can learn from the SVODs, the subscriber video-on-demand services.

Lee Rowley

I want to move on to another issue that the BBC has at the moment—personal service companies, which you have spoken about, Lord Hall, before at Public Accounts Committee. Let’s start with the qualification of your accounts. Do you think you should have got yourself into a place where your accounts were qualified almost at the same time as the NAO started looking at your accounts?

Lord Hall

It is not a qualification of the accounts. It is the issue of irregularity. Let me just go back to make sure we are on the same page with this.

Lee Rowley

I would just prefer if you answered the question, if that is possible.

Lord Hall

I have just answered your question, which is it is not a qualification of accounts. It is a question of irregularity. I know you like binary questions, I know that very well, but this is a question. Let me try to be binary about it. We think it is right to try to ameliorate the position that we have found ourselves in with PSCs where we have said in many cases, historically, people were told by the BBC to take on PSC status. We want to get a deal with HMRC to be able to bundle these cases up and deal with it, essentially. As you know, Mr Rowley, we are finding this really hard to get traction with HMRC. We have prudently set aside a sum of money that we think is prudent for those cases. Because of this issue of regularity, the NAO has said, “We think this is not regular; it is not your core purpose”. However, the issue of whether we should set this aside has been dealt with by the board which, as the legitimate authority running the BBC, thinks we were right to do that.

Lee Rowley

You have a qualification from the National Audit Office Comptroller and Auditor General.

Lord Hall

Do you want to answer the qualification point? It is not a—

Glyn Isherwood

To reiterate what Tony says, we had a clean—

Lee Rowley

No, I do not want to reiterate it.

Glyn Isherwood

We had a clean financial audit.

Lee Rowley

The question I am asking is whether you were happy with the qualification from the National Audit Office, the second year that the NAO started looking at your accounts. Let’s stick to the question.

Glyn Isherwood

It is a qualification in relation to regularity.

Lee Rowley

It is a qualification, quote unquote. “I have qualified my audit opinion.” That is Sir Amyas Morse’s statement. I am not going to argue with that. That is what he said. We know what the qualification is. Are you happy with it? Yes or no? A binary question, as Lord Hall says. I love binary answers. Yes or no?

Lord Hall

I am not happy with that because—and here I look to the board—the board feels we are doing the right thing. We want to solve the issue of PSCs and our presenters who find themselves, because of the change in the HMRC rules and the CEST test and all of that, in a difficult position. We set aside money for that. We think as a board we are right and we are disappointed that the NAO should take this issue, if that answers the binary question.

Lee Rowley

It does, thank you. I just want to understand how you have got to where you have got to. I am looking at your statement from March 2018 where you set out in public that you need a “compelling justification”, those are your words, for assuming the tax liabilities of others. What is that compelling justification?

Glyn Isherwood

There clearly is a dispute around what tax is owed due to the status classification of presenters over a period of time, looking back in history. That dispute exists between presenters, ourselves and HMRC. We accept that we have a role to play in resolving those issues. We are trying to do that in a way that is pragmatic and fair to presenters but also fair to licence fee payers in a way that presents value for money. While we have a qualification in the accounting related to regularity, we are doing it in the most pragmatic way, which ultimately delivers value for money for licence fee payers.

Lee Rowley

There is a difference between pragmatism and compulsion. What is the compelling justification for this action?

Lord Hall

We want to do right by the presenters who are suffering from the changes in HMRC rules, some or many of whom say they were compelled by the BBC historically, back in the 2000s, to set themselves up as PSCs.

Lee Rowley

You accept you did wrong with them?

Lord Hall

Yes. I cannot remember which Committee I have said it in before, but I think we have accepted responsibility for that, yes.

Glyn Isherwood

Where you have sole traders, who have previously been classified as freelance, where they are classified as employed, employees’ National Insurance needs to be paid. Where that is determined, we have to pay that and we have a legal responsibility for that. Where we have engaged people through PSCs, the logic would follow that we have to make some payments to resolve the issues in a similar fashion.

Lee Rowley

I am just curious why that conclusion has been arrived at now, rather than at the time or close to the time, because this has been going on for a number of years.

Glyn Isherwood

At the time, we did not have sufficient engagement with our presenters around some of these issues. We have learnt a lot over the last year and we are now in a position where we want to resolve those. We have not had any of those tribunals triggered. We could take an alternative course of action, which is to allow all our presenters to go through tribunal at significant cost, then come back and try to claim money off the BBC at significant cost and professional fees, and then we could settle and trigger a payment that would be regular under the definition of the NAO’s report. However, we think the best course, which we agreed with the board, was this process.

Lee Rowley

You have estimated this will cost £12 million in your accounts. That is an estimate, correct?

Glyn Isherwood

Yes.

Lee Rowley

How accurate is that estimate?

Glyn Isherwood

What is difficult, because these are complex issues, is that the categorisations are changing because as presenters go through tribunals we get different verdicts. We have had to make the best assumptions we can based on what we understand now and based on our conversations so far and discussions with HMRC. We have made three submissions already and we can only work at the pace of the slowest there. We move very quickly on these. The HMRC has much deeper levels of governance and discussions—

Lee Rowley

What is your confidence level?

Glyn Isherwood

Our confidence in relation to this will depend on how our discussions continue. We have a good level of confidence that that was the right provision to put in place at that time. If cases go through tribunals that give different outcomes, we will have to adjust that provision accordingly.

Lee Rowley

If I get run over tomorrow when I walk down the road, I will be dead, so there are a series of known unknowns and unknown unknowns. I am asking you to tell me how confident you are in the modelling.

Glyn Isherwood

As we made the provision in our accounts we had a high degree of confidence that we made the right provision.

Lee Rowley

A high degree. Fine. It could be more than £12 million?

Glyn Isherwood

It could be, depending on the outcomes of the tribunals.

Lee Rowley

What is your range?

Glyn Isherwood

It will entirely depend on factors. When we discussed with the National Audit Office what an acceptable material range around the edges would be, we thought plus or minus 20%, but that is a range and that could change depending on other factors.

Lee Rowley

The extreme is £12 million plus 20%, so just short of £15 million, so it will not go above £15 million?

Glyn Isherwood

Based on what we know today, we do not expect it to go above that limit.

Lee Rowley

Above £12 million or above £15 million?

Glyn Isherwood

It will entirely depend.

Lee Rowley

It will not entirely depend, because you have an evidence base that you have gathered over a number of years, which will enable you, as the people who are paid a lot of money to work this out, to give me a number, which I am asking you to give me.

Glyn Isherwood

We gathered evidence and made a decision at the time to put £12 million in. We understand that there is flex beyond that and we do not think that will be more than 20%.

Lee Rowley

What is the average settlement per individual that you are expecting to pay?

Glyn Isherwood

We have more than 300 PSCs running through these issues at the moment. If you divided the £12 million by 300 I think you get about £40,000, but that is over a period of four years for taxes and six years for NIC.

Lee Rowley

Have you settled any to date, or have you come as close to a settlement with any to date as you can?

Glyn Isherwood

As you know, we have communicated to our presenters to say what the underpinning principles are in a settlement. We have only settled those that have absolutely gone through tribunal and lost, and we have made a payment in one or two cases, but not many. We have not gone beyond that.

Lee Rowley

What is the average settlement of the ones you have settled?

Glyn Isherwood

I do not have that information.

Lee Rowley

Is it far away from £40,000?