64.  The World Service's financial position moved from an operating surplus (before interest and taxation) of £11.4 million in 2007 to an operating deficit of £0.2 million in 2008,[94] which increased in 2009 to a deficit of £2.3 million.[95] The Service's Annual Review stated that the fall in Sterling had an impact on the cost base but that this was mitigated by the fall in inflation in the UK.[96] Richard Thomas explained that the World Service spend about £24 million-worth in foreign currencies, and accrue about £4 million-worth from commercial deals. In the last financial year, the fall in Sterling cost the World Service about £4 million, requiring it to draw upon its reserves to offset the difference.[97]

65.  The 2008-09 financial year was marked by two major programming developments, both made possible by a combination of savings and new funding. Arabic television, which had been launched in March 2008, completed its first full year of operations and moved from 12- to 24-hour broadcasting in January 2009, as mentioned earlier. This was followed by the launch of BBC Persian television, which was achieved within budget. Both developments were funded by additional baseline income, which was reflected in Grant-in-Aid increasing from £255 million in 2007-08 to £265 million in 2008-09.[98]

66.  In its Annual Review, the World Service reports that it invested £29.2 million in capital projects during 2008-09.[99] Notable projects included: completing the infrastructure for Arabic and Persian television; the final stages of the Satellite Media Distribution System, which delivers BBC World Service content to transmission sites and broadcast partners around the world; key aspects of the re-engineering project at the Ascension Island transmitter station, which broadcasts to Africa; and further work to enhance emergency production facilities, which enables the BBC World Service to maintain output in key languages in the event that its London facilities cannot be used. The World Service said that a new windfarm being constructed at the Ascension Island relay station will save up to £450,000 a year on oil as part of the bigger investment on Ascension that will ultimately deliver savings of £1.5 million to BBC World Service. It also means a reduction in CO² emissions of 4,000 tons a year.[100]

CSR07 settlement and the efficiency challenge

67.  In its Departmental Report and Resource Accounts 2008-09, the FCO said that the BBC World Service is committed to achieving £23 million of Value for Money (VfM) savings over the CSR07 period.[101] The World Service explained that this requires savings of 3% of baseline Grant-in-Aid to be delivered each year. In 2008-09 the BBC World Service delivered £7 million of savings from across its capital and revenue funding streams,[102] thereby meeting its targets. The savings have been an explicit cash-releasing component. The BBC World Service has achieved this through general efficiencies as well as reprioritisation in existing services. These have included:

• The closure of the Romanian service in August 2008. The scale and speed of changes in the Romanian media since European Union accession have been unprecedented and the declining need for a Romanian service was reflected in the steep drop in audience listening. In the year before closure (2007), listening in Romania fell to the equivalent of less than 3% of the adult population each week, or around half a million people. In 2004, the figure was 1.4 million people or about 7% of the population.
• Changes were made to the Russian service in response to tighter media restrictions, in particular the difficulties in securing FM distribution. The major change is a greater investment in bbcrussian.com as the key method of delivery for content and the strengthening of some existing areas such as news, video and interactivity on the site.
• The Spanish language news website bbcmundo.com is now the BBC World Service's core activity for audiences in Latin America. Some staff have been redeployed closer to the region.
• In its English language network, the BBC World Service has made reductions in non-news programming that is not core to its purpose and objectives.

68.  Further efficiency savings are planned in several areas, including savings in production costs, already agreed with the news department, covering news and current affairs, newsgathering and programmes. The transmission department will be asked to deliver further savings, in part resulting from capital investment in the Ascension Island transmitter site, and the rest from short-wave and FM investments which are proving poor VfM. General efficiency savings of 3% will be made across language services and departments.[103] It is also envisaged that the coming together with BBC News in a new BBC journalism headquarters, currently being built in Portland Place, should achieve some efficiencies.[104]

69.  These savings will take place in the context of a fall in the value of Sterling which has already had an impact on the cost base, the full-year effect of which will add "significant pressures in 2009-10",[105] although the Service expects reductions in the rate of inflation in the UK to help mitigate some cost increases. Some external contracts are related to the retail price index, so the current financial situation, where it effects RPI, will help at least in the short term.[106] The Service identifies that "careful management of costs and financial risk remains a priority in ensuring that BBC World Service meets its objectives and obligations. Pressure on Grant-in-Aid funding will become even more intense next year, given the challenging environment for public spending".[107] Richard Thomas identified some things that will "help out", including, for example, the fact that no bonuses were awarded last year, and the pay settlement was lower than previous years.[108]

70.  In the FCO board minutes of December 2009, it was noted that the department faced a shortfall of some 8 or 9% from the budget for 2009-10.[109] In an update received on 11 January 2010, the World Service indicated that while it was aware that the FCO was having to address a potential shortfall in its 2010-11 budget, to date the FCO has not approached BBC World Service for more 2010-11 savings over and above the 3% committed to in the last CSR agreement, and its £3.3 million share of the additional target announced by the Treasury in 2009.[110]

Priorities for 2009-10

71.  Peter Horrocks told us that the Service are considering priorities and potential cuts, "very closely at the moment",[111] in the context of what was described by the World Service in its memorandum as a period of 10 years of "aggressive cost cutting".[112] The organisation has launched a programme of engagement with all staff, called 'World Service Choice's', in order to identify the World Service's key priorities. In evaluating potential priorities, Peter Horrocks identified that maintaining the BBC's reach and reputation will be "important to us". He added, "our initial focus is not to want to reduce any of our language services".[113] Further investment in multi-media services as a priority, as well as key parts of the world, including, Africa, India, Pakistan were also identified as priorities. In its written submission, the World Service concluded that:

[W]e will need new funds to complete our transition to a multimedia broadcaster and to fund investment in new services. This could come from closing down some of our existing services, in parts of the world where we are less essential than we once were. It could come from repurposing money that we would have otherwise returned to the FCO as efficiency savings. Or it could come from additional funding for specific, targeted services. We will explore all these options and set out proposals to Government in 2010.[114]

In January 2010, the World Service informed us that no firm decisions have been made yet about strategic priorities for the future, but that the organisation does not expect to announce any major changes to the overall shape of its service, including its language portfolio, prior to the UK general election.[115]

72.  We conclude that 2009-10 will be a difficult year for the World Service and that further cuts in staff and services should be avoided. We support the crucial work of the World Service and will continue to monitor the situation closely. We conclude that the BBC World Service is of key importance in providing a source of high quality and politically independent broadcasting worldwide.

95   BBC World Service, Annual Review 2008-09, p 30 Back

96   Ibid., p 28 Back

97   Q 57 Back

98   The CSR07 settlement provided £15 million per annum for the launch of Persian television, and £2 million in 2008-09 and £6 million per annum from 2009-10 for the extension of Arabic television. Back

99   BBC World Service, Annual Review 2008-09, p 29 Back

100   Ev 17 Back

101   FCO, Departmental Report and Resource Accounts 2008-09, vol 2, p 7 Back

102   Ev 17 Back

103   FCO, Departmental Report and Resource Accounts 2008-09, vol 2, p 7 Back

104   Q 62 Back

105   Ev 17 Back

106   Q 61 Back

107   Ev 17 Back

108   Q 61 Back

109   www.fco.gov.uk Back

110   Ev 23 Back

111   Q 62 Back

112   Ev 18 Back

113   Q 62 Back

114   Ev 18 Back

115   Ev 23 Back