The Treasury manages public spending within two ‘control totals’ of about equal size:

  • departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
  • annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.

Spending by the BBC is included within AME. This page groups together BBC spending with the main source of income that finances it: licence fee receipts. Licence fee receipts are classified as a tax by the ONS (because the licence fee is a compulsory payment which is not paid solely for access to BBC services). As classified in the National Accounts – and therefore as it appears in our forecasts – this will be the only source of public income for the BBC from 2020-21, by which point grants from central government (which currently compensate the BBC for the provision of free TV licences to over-75 households) will have been phased out. Most BBC spending is day-to-day current spending, reflecting staff and procurement costs (e.g. the provision of TV, online and radio content), with relatively little capital spending.

In our latest forecast, we expect total BBC spending in 2018-19 to amount to £4.0 billion (with £3.8 billion of current spending and £0.2 billion of capital spending). That would represent 0.5 per cent of total public spending, and is equivalent to £140 per household and 0.2 per cent of national income. We also forecast licence fee receipts income of £3.3 billion, which equates to 0.4 per cent of all receipts, £120 per household and 0.2 per cent of national income. The difference between these figures is largely explained by the grant that is currently paid by the Department for Work and Pensions to the BBC, to cover the cost of over-75 TV licences. 69.1 per cent of the estimated cost is covered in 2018-19, which amounts to £0.5 billion.

  • Latest forecast

    Our latest fiscal forecast was published in March 2018. BBC current expenditure was £3.7 billion in 2016-17. It is forecast to rise slightly in 2017-18 and then decline to £3.7 billion in 2021-22, before picking up again in 2022-23. Inflation-related upward pressures are, in part, offset by efficiency savings. BBC capital expenditure is set in the BBC capital plan and is forecast to be around £0.1 billion to £0.2 billion a year. It is included in ‘Other PSGI items in AME’ in the Total Managed Expenditure (TME) table in our Economic and fiscal outlook. As a share of GDP, BBC spending remains on a downward trend over the forecast period.

    Note: The difference between the two series in the chart above is largely explained by additional funding that the BBC received from DWP for the provision of free TV licences for over-75 households

    More detail on our latest forecast and how it was revised relative to our previous forecast in November 2017 was provided in paragraph 4.141 of our March 2018 EFO.

    Expand to read the extract from our March 2018 EFO

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  • Latest monthly data

    BBC licence fee receipts: ONS (ID: DH7A)

    Licence fee receipts income is relatively stable across the year, with monthly payments peaking in the autumn and dipping around Christmas. But the monthly pattern is not uniform across years, so care should be taken when interpreting year-on-year changes in monthly licence fee receipts. The focus of our forecast is on the full-year position, with in-year data used to inform the starting point for the forecast.

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  • Forecast methodology

    Forecast process

    The BBC forecast is split into receipts and (current and capital) expenditure forecasts. The BBC receives most of its income from licence fee receipts. The other main source of income is a central government grant received from DWP, which currently compensates the BBC for providing free TV licences for over-75 households. The Government is phasing out this compensation gradually from 2018-19 and completely by 2020-21. The expenditure forecast covers the full cost of providing domestic broadcasting services to the public. This includes funding for the Welsh broadcaster S4C (the funding for which has been ring-fenced until 2022) but excludes broadband services.

    The OBR commissions forecasts for both receipts and (current and capital) expenditure from the BBC for the full forecast period. The BBC produces the forecast in line with the latest assessment of its financial position and the latest information on viewer behaviour. The BBC then applies the relevant variables from our latest economic forecast (for CPI inflation and the number of UK households). Spending plans, including any requirements for efficiency savings, are then determined by forecast income. We scrutinise the forecast return, holding meetings with the BBC as necessary.

    Forecasting model

    In the UK, any household (and some ‘non-households’) watching or recording television programmes as they are broadcast, or watching or downloading BBC content on iPlayer, must be covered by a valid TV licence. Concessions are made for over-75s, the visually impaired and for those owning black and white TV sets, among others. The Government has announced a licence fee of £150.50 for 2018-19, and, for the purposes of our forecast, it is expected to increase with CPI inflation in all future years. Any changes in licence fee receipts are assumed to feed through to equivalent changes in spending, neutrally for borrowing in our forecast.

    Licence fee receipts model

    The BBC forecast for licence fee receipts is driven by the number of licence holders multiplied by the licence fee.

    We forecast the number of licence fee payers as a share of the total number of households in the UK. This share is trending downwards slowly over time, mainly reflecting an ageing population (as over-75s receive a free TV licence) as well as decreasing TV penetration (reflecting a decreasing proportion of properties requiring a licence). We forecast this share to fall in line with previous trends. This decline is partly mitigated by the fact that a licence is now required for anyone consuming non-live content through BBC iPlayer, whereas a licence was formerly required only by those consuming live content.

    Spending forecast

    Our current spending forecast is driven by licence fee income and historical experience that the BBC is able to manage its spending in order to live within its borrowing limit. Upward cost pressures from, for example, growth in wages and salaries or the cost of goods and services are assumed to be offset by expected efficiency savings. In reality, if total spending exceeds total income, this is financed by borrowing or drawdown of reserves.

    Included in the current spending forecast is the Government’s decision to phase out grants that compensate the BBC for the licence fee revenue foregone by requiring it to provide free TV licences for those aged 75 and over. The licence fee is a tax in the National Accounts. Provision of free TV licences is therefore in effect a tax relief, so it does not affect overall public spending. DWP currently compensates the BBC fully for that forgone revenue, so that BBC income is unaffected. As the current arrangement is an intra-public sector transfer, spending and borrowing are also unaffected. However, in 2018-19 the Government began the phased withdrawal of this funding, which will result in the BBC bearing the full cost of the change by 2020-21. This has the effect of reducing current AME spending by the BBC, relative to a situation where it was still fully compensated.

    The small amount of BBC capital spending is aligned to the BBC’s capital spending plan, which is relatively flat over the forecast period (at between £0.1 and £0.2 billion a year).

    Main forecast determinants

    The main determinants driving our receipts and spending forecast are:

    • CPI inflation: the licence fee was frozen for the previous charter period (up to 2016-17). It was then set at £147.00 in 2017-18, rising to £150.50 in 2018-19. Thereafter, it is assumed to rise in line with our CPI inflation forecast. This additional income is assumed to finance current expenditure (since capital expenditure is forecast in line with the BBC’s capital spending plan).
    • Households: the projected number of UK households, which reflects the latest ONS 2016-based principal population projections.

    Main forecast judgements

    The forecast for both spending and receipts is commissioned from the BBC directly given the BBC’s expertise in this area. The key forecast assumption that we focus on is the proportion of households expected to pay the licence fee, which drives the receipts forecast and, by assumption, the current spending forecast. This proportion has been on a downward trend, which we assume will persist over the forecast period despite requiring households consuming non-live content via iPlayer to purchase a licence.

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  • Previous forecasts

    BBC spending is linked to licence fee income, so spending forecast revisions are largely driven by revised licence fee forecasts. The main sources of forecast-to-forecast revision in the licence fee income forecast are changes in our forecasts for CPI inflation and of the number of UK households, and the assumed proportion of households paying the licence fee.

    Policy changes can also have a significant effect. The big revision to BBC spending between June 2010 and November 2010 reflected the announcement of the licence fee freeze and cuts to the BBC budget in the 2010 Spending Review. At the same time funding for the BBC World Service was transferred from the Foreign and Commonwealth Office to the BBC, alongside a number of other changes in funding arrangements.

    The spending forecast is also affected by BBC efficiency saving plans. In 2007 the BBC announced plans to make 20 per cent efficiency savings by the end of December 2016, known as ‘Delivering Quality First’. Further spending cuts were announced in line with the 2010 Spending Review. The volatility of previous forecasts reflects changes in assumptions about the pace at which these savings would be delivered. As the programme was being rolled out, assumptions on current costs were refined, some savings were delivered earlier or later than planned and the spending plans were adjusted accordingly. In a similar manner, initial forecasts for BBC expenditure from 2017-18 assumed that all reserves would be depleted by the end of the previous charter and that all future licence fee income would finance spending. These forecasts were revised as the renewal of the charter approached and the new financial arrangements became clearer. Other timing uncertainties include income and spending items that are related to investment cycles, pension deficit repayments and major sports and other similar events.

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  • Policy measures

    The biggest policy changes affecting our forecast for BBC licence fee receipts and spending were announced in the 2010 Spending Review. Since then governments have announced one further policy measure that affected our forecast for BBC current expenditure. This measure transferred the responsibility for funding the provision of free TV licence for over-75 households from DWP to the BBC, phased in from 2018-19. The original costing for this measure is contained in our policy measures database and is described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

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  • Ready reckoners

    ‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2018 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings.

    The table below shows estimates for the impact of changes in CPI inflation on our BBC licence fee receipts forecast. In the absence of stated policy on the licence fee, we assume that it increases in line with CPI inflation (before being rounded to the nearest 50p), so a higher CPI inflation forecast would increase licence fee receipts. Changes in licence fee receipts income are assumed to be reflected in equivalent offsetting movements in current spending (with capital expenditure forecast in line with the BBC’s capital spending plan), meaning that any changes are neutral for borrowing. Specifically, the table shows that:

    • a 1 percentage point increase in 2019-20 only would increase licence fee receipts income (and current spending) by around £30 million a year (with no effect on borrowing); and
    • a 0.1 percentage point increase in each forecast year from 2019-20 would increase licence fee receipts income (and current spending) by around £10 million in 2021-22 and by around £20 million in 2022-23 (again, with no effect on borrowing).

    The respective estimates are affected by the rounding of the licence fee to the nearest 50p. Hence why the effect of a 0.1 percentage point increase in a specific year is not necessarily a tenth of the size of the effect of 1.0 percentage point increase in the same year.

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