This is the BBC's Press Release on the licence fee:

BBC launches case for new licence fee settlement

Date: 11.10.2005

The BBC today unveiled its case for a new licence fee settlement to ensure that it continues to deliver value to licence payers as we move towards a fully digital Britain.

Its vision, endorsed by the Government's Green Paper earlier this year, is for high quality original content and services that will be universally available to everyone, irrespective of age or income.

With digital switchover, all licence payers will be able to access all BBC output, wherever they live in the country, thanks to the commitment to build a universal digital infrastructure for TV and radio.

Excellent content and services will be received on normal television and radio sets, but also on mobile devices and via broadband, with all public service content available for free for up to seven days after first transmission.

The BBC will also be opening up its archive, built over many years from the public's licence fee payments, and will invest in High Definition TV to ensure it is available to all and not confined to subscription services.

New technology will also allow the BBC to deliver state-of-the-art local television services and radio stations, as well as investing in production and a presence around the UK, representing the country more effectively than in the past.

Today's announcement puts a cost on the vision over seven years and shows how the BBC will meet more than 70 per cent of those costs itself.

It is the first time the BBC has made its case for a new licence fee settlement so openly and it follows public consultation and scrutiny by the BBC Governors and their independent advisors, as well as public response to the Government's Green Paper proposals.

The BBC proposes a licence fee increase from April 2007 based on RPI plus 2.3 per cent a year. In today's prices, this means £150.50 a year per household by 2013, compared to the current £126.50*.

That amounts to an average annual £3.14 increase per household, excluding RPI, from the start of the next Charter, while the licence fee is still declining steadily as a proportion of disposable income.

It does not include the costs of targeted help for special groups when the analogue signal is switched off.

The funding decision will be taken by the Government next year as part of the process around the BBC's new Royal Charter starting in 2007.

This will ultimately determine how the BBC can fulfil its public purposes, meet audience expectations and lead the next phase of the digital revolution.

The additional spend required to meet the vision outlined in the Green Paper will total £5.5 billion over the seven-year period to 2013/14.

However, the BBC will meet more than 70 per cent of this itself, not from additional licence fee funds.

Self-help measures already underway at the BBC, including job losses, rationalising processes and commercial disposals and dividends, will contribute £3.9 billion, leaving a funding gap of £1.6 billion which could be closed by an RPI +1.8% settlement.

However, to meet additional industry costs related to Switchover, such as the marketing costs of DigitalUK (SwitchCo) and spectrum tax, the total increase needed is a further RPI +0.5%, taking the total to RPI +2.3%.

MORI research conducted in March this year assessed audiences' appetite for the plans. Over 80 per cent saidt was important for the BBC to build out digital.

Earlier research on the audience's willingness to pay showed that 81% believe the licence fee represents good value for money with over 40% being prepared to pay twice the current licence fee or more.

Launching the proposal, the BBC's Director-General Mark Thompson said: "Our audiences, rightly, have very high expectations of the BBC. They themselves are driving incredible change by the way they want to access our programmes and services.

"The BBC needs to transform itself to ensure we are providing the very best content, accessible to and valued by everyone across Britain, and the licence fee will help us achieve our vision to be the best creative digital broadcaster and content provider for audiences in the world."

BBC Chairman Michael Grade said: "Our document Building Public Value outlined the BBC's vision for serving the public in the digital age.

"The Government's subsequent Green Paper endorsed and refined that vision after consultation with the public. This bid has been thoroughly and independently scrutinised by the Governors. We commend it to Government as an efficient business plan designed to meet licence payers' expectations at the lowest cost."

*The predicted licence fee at the end of the current Charter is £128.50 in today's prices based on the current LF settlement.

The Equation:

Costs

Quality Content - £1.6 billion

(Learning; Drama, Comedy/Ents, Arts, Music, Journalism, Local services)

Digital Services - £1.2 billion

(On-demand; Navigation and Search; active engagement)

Digital Infrastructure - £0.7 billion

(DTT/DAB build out; Free Satellite; Internet distribution; HDTV)

Local Relevance - £0.6 billion

(Local TV; new radio stations, OpenCentres/ Buses, Out of London)

Base costs increase - £1.4 billion

(super-inflation in broadcast costs etc)

= £5.5 billion

Self Help

Efficiencies on overhead and production processes - £2.6 bn Modernising Licence Fee collection channels - £0.2 billion Capturing household growth - £0.7 billion

Commercial dividends - £0.4 billion

= £3.9 billion

Funding Gap = £1.6 billion

Closing the gap = RPI + 1.8%

Switchover costs

Digital UK costs - £200 million

Spectrum Tax £300 million

= £500 million cumulative

Total Funding = RPI + 2.3% per year from 2007/2008 to 2013/14

This will mean a licence fee per household of £150.50 a year by 2013, the equivalent of an average annual increase of £3.14 per household, each year from the start of the next Charter.

Annual licence fee increase (in 2005/2006 prices, excluding RPI):


Now      £126.50
2006/2007      £128.50
2007/2008      £131.00
2008/2009      £134.00
2009/2010      £137.50
2010/2011      £140.50
2011/2012      £143.50
2012/2013      £147.00
2013/2014      £150.50



Notes:

The last settlement:

The current licence fee settlement was made in 2000 and is based on RPI +1.5 per cent. The actual colour licence fee this year is £126.50 per household.

Before the last settlement, the Government set down new priorities for the BBC:

To help build digital Britain by providing new high-quality digital services on radio and TV (BBC THREE, FOUR, CBBC, 1Xtra, bbc.co.uk etc) and use these to drive digital take up by the whole population (Freeview/FreeSat);

To improve existing services (new investment in drama, specialist factual, news)

To expand educational provision (Digital Curriculum, GCSE Bitesize, children's channels);

To better reflect the UK in an era of devolution (more investment in nations and regions, more coverage of devolved institutions).

The licence fee – key facts:

A TV Licence is a legal permission for the named person or anyone living at the address of the licence to install and use television receiving equipment to watch television programme services at the premises listed on the licence.

Last year, TV Licensing collected £2,940 million in revenue for the BBC, which is an increase of £142 million on the previous year. Of this, £80 million was due to inflation, £43 million to the above inflation increases in the licence fee and £19 million from collection improvements.

Estimated levels of evasion are down to a record low of 5%. The cost of collecting the TV licence continues to fall. It now stands at 5.2% of licence fee income; when the BBC took over responsibility for managing the licence fee from the Home Office in 1991 this figure stood at 6.2% of income. In addition, the number of licences in force has grown by 26% (from 19.6 million to 24.7 million) over the same time.

Alone among the national Press, The Guardian was supportive of the BBC's case:

Licensed to serve

Leader
Wednesday October 12, 2005

It is a sign of a new self-confidence at the BBC that, after its traumas with the Blair government, the corporation is now boldly asking Labour for a prolonged 2.3% above-inflation rise in the licence fee to fund the transition to the digital age. The BBC feels confident partly because it is delivering efficiencies, including 7,000 job cuts; and partly because this is really a bill for services the government wants it to introduce anyway. The BBC has figures to show that 81% of people think the licence fee - currently £126.50 - is good value for money and that 41% would be happy to pay twice as much. With the fee now the equivalent of 35p a day - even by 2013, the planned £150.50 would only equate to a daily 41p - this represents very good value, especially considering the range of services the BBC offers and the deft way it has set a world standard in internet development and in promoting digital terrestrial television after the private sector failed.

About £1.6bn of what the BBC is asking for will be used to boost the quality of output by increasing the number of original dramas (costing £534,000 an hour) while cutting back on repeats (costing only £13,000 an hour). Another £1.2bn will go on digital services including the exciting prospect of an on-demand service for television (recent programmes and archives) delivered over the internet. The rest will go on sports and other rights, regional expansion and the adoption of digital media throughout the country including a free satellite project with ITV for those who cannot receive Freeview.

It is always possible to argue that the BBC is asking for too much. Few will be surprised if the government cuts the bid back a bit. It will also be interesting to see what stance the Tory leadership candidates take. But the bottom line is that the BBC needs and deserves to go fully digital as soon as possible. Britain leads the world in this technology. If the lead is maintained there will be spin-offs elsewhere. Though the digital age has led to an explosion of channels catering for all tastes, the stage is still dominated by private sector giants like the Rupert Murdoch empire (now stepping up its internet spending having, unlike the BBC, underestimated its importance) and by publicly-funded channels such as the BBC. At a time when many of our traditional industries have lost their international reputation, the BBC has managed to maintain a blue chip brand of global excellence by combining technological innovation with editorial independence. It has proved a winning combination that is well worth backing for the future.