BBC efficiency review

In March 2015, the BBC Trust and BBC Executive commissioned PwC to carry out an independent review of the potential for future productive efficiency savings over the next Charter period.

PwC’s assessment review is based on a detailed analysis of the BBC’s main areas of operation taking into account wider market and technological developments to set out the potential for future productive efficiency savings. This work needs to be considered in the context of PwC’s review of the BBC’s overheads published in July which concluded that the BBC’s overhead ratio compares favourably with other regulated industries and public sector bodies [See Note 1].  

PwC have concluded that:

  • The BBC is on track to deliver £1.6 billion cumulative annual savings in the 10 year period ending March 2017. The National Audit Office has also recognised the progress the BBC has made, having concluded in a recent report that ‘Delivering Quality First, the BBC’s ongoing cost reduction programme, has so far delivered value for money [See Note 2].
  • The significant, sustained productivity savings achieved in recent years, reduces the scope of future savings.
  • Cumulative annual productive efficiency savings of between £190 million and £329 million could be possible by 2027.

The upper limit of this range is broadly equivalent to saving one percent year on year - a cumulative annual saving of around 10 percent of the addressable cost base by 2027.

In their Charter document, published on 7th September, BBC Management state that a further one percent, on top of savings identified by PwC, could be saved year on year without a significant impact on the audience by changing things like the mix of programmes in the schedule and by mitigating inflation through long-term contracts.

It is important to note that these efficiency savings would be on top of the £220 millon of planned Delivering Quality First savings and further savings in excess of £150 million a year required to address a decline in television penetration, both of which are still required before the end of the current Charter period. The scale of these savings is requiring the BBC to carry out a fundamental assessment of the resources needed to deliver the BBC’s objectives, rather than simply chipping away at the existing cost base.  Some of the savings will be achieved through further efficiencies like cutting headcount [See Note 3]  ongoing senior manager pay restraint and removing layers from the BBC’s management structures, some by growing commercial income and some by changes to BBC services.

PwC’s analysis assumes that there will be no further changes to the BBC’s scope, mix or quality of content and that the BBC’s purpose remains constant throughout the next Charter period.  These issues are, of course, being considered as part of the Charter review process and through our public consultation, the Trust is gathering audience views.

Nonetheless, the implication is that savings greater than two percent a year could not be met through efficiency alone and would require service reductions.  BBC Management have estimated that savings of 3.5 percent a year will be needed to close the existing gap due to falls in TV penetration, meet the terms of the recent funding agreement with the government and to fund the new proposals set out in the BBC’s Charter document.  As a result, changes to existing services will be required.

The full report is available here:

BBC Efficiency Review - Identifying efficiency savings for the next Charter period (PDF)

Notes

[1] Overhead costs are 7.6 per cent of total costs and are expected to fall to below seven per cent by the end of the current Charter, putting the BBC in the top quartile of regulated industries by the end of the Charter period

[2] http://www.nao.org.uk/wp-content/uploads/2015/03/Reducing-costs-through-delivering-quality-first.pdf 

[3] The Director-General has already announced an efficiency target of £50million by the end of the current Charter period which will impact 1,000 jobs.