HL Deb 05 December 1996 vol 576 cc788-90

3.52 p.m

Lord Inglewood rose to move, That the draft order laid before the House on 15th October he approved [1st Report from the Joint Committee].

The noble Lord said: My Lords, the Broadcasting (Application of Excess Revenues) Order 1996, which we are debating today, honours the commitment I gave at Report stage of the Broadcasting Bill on 7th March to end Channel 4's compulsory payments into its statutory reserve at the earliest parliamentary opportunity.

The draft order is made under Section 27(7) of the Broadcasting Act 1990 as amended by Section 83(4) of the Broadcasting Act 1996. It will reduce from 50 per cent. to nil the percentage of excess revenues Channel 4 must pay into the reserve under the provisions of the Channel 4 funding formula set out in the 1990 Act.

Although many Members of the House are familiar with the intricacies of the Channel 4 funding formula contained in the Broadcasting Act 1990 from our debates on this issue during the passage of this year's Act, I shall set out for the benefit of others a brief précis of the history to the order.

Under the terms of the 1990 Act, Channel 4 is guaranteed funding from the Channel 3 companies should its income from advertising fall below 14 per cent. of total national television advertising revenues. To date that has not happened, and Channel 4's income is currently 21 per cent. of advertising revenues.

The 1990 Act, however, also provides that if Channel 4's income from advertising rises above the 14 per cent. threshold, the excess revenue above that threshold must be distributed according to arrangements also specified in the 1990 Act. Half of that excess goes to the Independent Television Commission for onward distribution to the Channel 3 companies, 25 per cent. goes to a statutory reserve fund held by Channel 4 and 25 per cent. can be added to Channel 4's current expenditure plans. Should Channel 4's income fall below the 14 per cent. threshold, however, the funds which have accrued in the statutory reserve are its first recourse to make good the shortfall in funding. If and when the funds in the reserve are exhausted, it is for the Channel 3 companies to make up the shortfall between Channel 4's income and the 14 per cent. threshold. The liability of the Channel 3 companies is, however, limited to 2 per cent. of total national advertising revenue in any one year.

The funding formula was introduced by the 1990 Act as part of new arrangements whereby Channel 4 was to sell its own advertising rather than rely on financing from the Channel 3 companies. Prior to the 1990 Act, Channel 4 had been financed by a subscription from the ITV companies which sold Channel 4's advertising airtime. The funding formula was a safety net, because it was feared that the new arrangements might not provide Channel 4 with sufficient income properly to fulfil its remit.

During the passage of the Broadcasting Bill earlier this year, there were calls to abolish the Channel 4 funding formula. Many, including Channel 4 itself, believed that, in the light of the success that Channel 4 has enjoyed since it began selling its own advertising, the financial safety net was no longer required and the payments being made by Channel 4 to the ITV companies should be ploughed back into the channel's programme production.

The Government were not wholly persuaded by these arguments. It was accordingly decided to retain the basic framework of the funding formula but to take steps to increase the level of income Channel 4 can retain. The Broadcasting Act 1996 therefore introduced the power to adjust by order the distribution of Channel 4's excess revenues above the statutory threshold of 14 per cent. of television advertising revenues.

The level of funds in the statutory reserve, which stood at £84.8 million on 31st December 1995, is sufficient to cover any conceivable shortfall in income in the immediate future. To that end we have tabled the order before the House today which removes the requirement for Channel 4 to make any payment into its reserve and thereby doubles at a stroke the proportion of advertising revenue above the threshold level which Channel 4 is able to retain.

The Government have also long made it clear that we intend to amend the proportion of any such "surplus" which goes to the Channel 3 companies. However, as we stated during the passage of the Broadcasting Bill, the provisions of the Broadcasting Act 1990 did not permit any change in the financial equilibrium between Channels 3 and 4 under the funding formula before the end of 1997. As it was on that basis that the Channel 3 companies bid for their franchises, we are not willing to make any change to the operation of that relationship before 1998.

I also announced during the passage of the Bill the general lines on which we propose to use the new power in respect of payments to Channel 3 companies. We would reduce the level of payments from Channel 4 to the Channel 3 companies from their current level of 50 per cent. of Channel 4's excess income above the 14 per cent. threshold. These changes were to be in two stages, taking effect from 1998 and 1999 respectively. The Government, as I said, intended to make decisions on the exact changes to the percentages in the formula nearer 1998. That remains the position.

The order before us today will enable Channel 4 to spend tens of millions of pounds per annum on programming. It fulfils a specific undertaking to Parliament which was widely welcomed on all sides and in both Houses. I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 15th October be approved [1st Report from the Joint Committee].—(Lord Inglewood.)

On Question, Motion agreed to.