§ 4.41 p.m.
§ LORD HARRIS OF GREENWICH
My Lords, I beg to move that the Bill be now read a second time. The purpose of this Bill is to change the system under which independent television contractors are required to make additional payments to the Independent Broadcasting Authority. An almost identical Bill was introduced by the Conservative Government in the last Parliament. Their Bill received an unopposed Second Reading in another place but lapsed because of the General Election. The most significant change we have made in it is to change the references to the Minister of Posts 1280 and Telecommunications to references to the Secretary of State. This change has been made because of the dissolution of the Ministry. As a result of this, the responsibilities of the Ministry for broadcasting have been transferred to my right honourable friend the Home Secretary.
The history of these additional payments can be stated quite briefly. When the legislation governing independent television was revised in 1963, the then Conservative Government introduced a requirement that television contractors should make additional payments. This payment, which became known as the levy, was based on each contractor's advertising revenue. The levy was to be paid by the contractor to the Authority but the Authority were required to pay it, when received, into the Consolidated Fund. It was not a tax, but a contractual payment, designed to recognise the value to the contractor of the right which the community had given him, to make money out of his contract awarded to him as a local monopoly by a public authority. Television contractors have, of course, to pay tax as well. The idea of basing the levy on advertising, revenue was that this revenue was easy to calculate and offered no way of avoidance. The legislation provided a sliding scale of levy payments with a "free slice" which allowed the smallest companies to escape paying the levy altogether, and which reduced the effect on the other regional companies. There was a power for the Minister to make an order with Treasury approval varying the rates of the levy.
Three of these orders were made. The first, in 1969, had the effect of increasing the yield by about an eighth. Shortly after this there was a slump in advertising revenue, and early in 1970 another order had to be made reducing the levy to well below the original level. The Prices and Incomes Board was commissioned to report on the costs and revenues of the companies. After the Board had reported, with the slump in advertising revenue continuing, a further order was made early in 1971 halving the levy, and the Minister then responsible announced that the basis on which the levy was charged would be reviewed. Shortly after this there was a marked pick-up in advertising revenue. The outcome of the Conservative Government's review was that they decided that the system should be changed to one in 1281 which the levy should be charged, not on advertising revenue but on profits. Details of the proposed new system were announced in the Bill published last December. When we took office we reviewed the provisions of the Bill our predecessors had introduced and decided that they were right. The present Bill was then re-introduced in another place.
There will probably be general agreement that in principle I.T.V. companies ought to contribute to the community if, as on the whole has proved to be the case, their contracts give them the chance of making a great deal of money. No doubt the Party opposite believed that there were advantages in the system they introduced in 1963, and which, I may say—and I make no point of this—was continued by the successor Labour Government. Unfortunately, it turned out to be incapable of coping with the sharp variations in advertising revenue. The costs of the I.T.V. companies could go up sharply while advertising revenue did not go up at all. Changes in the rates had to be based on forecasts, and successive Governments of different political persuasions got their forecasts substantially wrong; a problem, I am bound to say, one has encountered in other fields as well.
I believe that the change to a profits-based levy overcomes the difficulties we have encountered in the past and, with the experience the Independent Broadcasting Authority has now had since 1956 of overseeing the behaviour of the I.T.V. companies, we are now confident that the danger of avoidance is much diminished. The other main danger of extravagance is guarded against in the Bill by a reserve power which enables the Secretary of State to make an order specifying a target for a named contractor. This provision is aimed at the difficulty pointed out by the Prices and Incomes Board, that a profits-based levy could encourage extravagance. I know that some of the I.T.V. companies have said that they are worried that this reserve power might be used by the Authority or by the Secretary of State in an arbitrary and over-meticulous way to interfere in detail in programme operations. I can give a clear assurance on the Government's behalf that this power will not be used in that way. I very much hope it will never be used at all. But a 1282 reserve power is needed and I think that what is proposed is just about right.
On the experience of the last complete year for which figures are available, the new system, if it had been operating, would have yielded to the Government about £33 million, compared with £22 million yielded by the existing system. The profits left with the companies before tax would have been a little above the level indicated by the Prices and Incomes Board's report, which was based on a return on capital of 22 per cent. before interest and tax. The rate was arrived at after full discussions between the television companies and the previous Government. Largely as a result of the three-day week, profits fell sharply at the beginning of this year. They have started to pick up again but it is too soon to say what the effect of the three-day working week will be. The companies would of course have preferred a lower rate than the one proposed in the Bill but have accepted the rate which was, in reality, proposed by the previous Government and accepted by the present one. I am satisfied that the proposed rate is just about right. The special difficulties of the smaller companies are catered for by the free slice, which also appears in this Bill.
I now propose to run briefly through the main provisions of the Bill. The Bill, as I have indicated, is in substance unchanged from that given a Second Reading by the last Parliament on January 31. A few minor changes have been made to correct printing mistakes which crept into the previous measure and to account for the change in status of the former Exchequer of Northern Ireland. Clause 1 replaces the present Section 26 of the 1973 Act with a new version of it, although subsection (1)(a), which deals with rental payments to cover the I.B.A.'s own operating costs, remains unchanged. The rest of the section deals with the additional payments which are in future to be calculated according to profits, and a table showing the rate and the way the free slice is to be calculated is included. Clause 1 is supplemented by Schedule 1 which defines advertising receipts, profits and accounting periods and gives the Authority power to determine what constitutes profits.
Section 27 of the 1973 Act, which closes potential loopholes for avoidance, 1283 and which requires the Authority to account for the additional payments it has received to the Comptroller and Auditor General, survives virtually unchanged. Clause 2 introduces a new Section 27A, to follow Section 27, which requires the Authority to obtain monthly payments on account, based on estimates of the contractor's profits for the year. The estimates are to be made before the beginning of each accounting period and may be revised at any time during the period. Clause 3 provides the reserve power—the one to which I alluded a moment or two ago—whereby the Secretary of State can call (and this I repeat to be done in the most exceptional circumstances) for further additional payments from any contractor whose expenditure is likely to prove excessive. Schedule 2 contains transitional provisions, which have the effect of amending contracts in force immediately before enactment of the Bill, so as to bring them into line with the new legal requirements.
Your Lordships will know that we intend to introduce shortly a Bill to extend the life of the Authority to 1979 in order to allow time for Lord Annan's Committee of Inquiry to do its work. The extending Bill will give noble Lords a wider opportunity to debate all the wider aspects of independent broadcasting. But, my Lords, if there are any particular points about the present Bill on which answers are required during the course of the debate, I will do my best to deal with them.
§ Moved, That the Bill be now read 2a—[Lord Harris of Greenwich.]
§ 4.51 p.m.
§ LORD DENHAM
My Lords, had events in February taken a different turn, it is possible that I would have been standing at the Dispatch Box opposite and moving a Bill in similar terms to those used by the noble Lord, Lord Harris of Greenwich, although I should not have been able to do it with nearly as much dexterity. Your Lordships will not therefore expect any opposition from me to the main proposals of the Bill, although I shall be questioning one or two of its details and in particular the way in which it is to be administered when it reaches the Statute Book. In this we are particularly fortunate in this 1284 House in that I understand it will be the departmental responsibility of the noble Lord, Lord Harris of Greenwich, himself. The Independent Television Authority welcome the Bill and want to see it passed as quickly as possible, and I must congratulate Her Majesty's Government on the speed with which they have brought it to the present stage.
In passing, I should like to say a word about the part played in Independent Television by the noble Lord, Lord Aylestone. He has been chairman of the Independent Television Authority, more recently the Independent Broadcasting Authority, since 1967. During these seven years he has achieved a tremendous reputation for fairness, wisdom and drive, not least among the television companies themselves. It is appropriate to mention him here because this is a Bill which is the result of painstaking negotiations in which he and his Board played such a leading part. The noble Lord will be very much missed when he gives up his office.
My Lords, I understand that the rate of the levy was fixed at 66.7 per cent. after a great deal of discussion between the companies, the I.B.A., and Her Majesty's Government. Until the new system has been in operation for some time it will not be possible to be certain whether the level decided was the right one. The noble Lord, Lord Harris of Greenwich, will be the first to appreciate that the wellbeing of the companies depend to perhaps a greater extent than any other industry on the strength of the economy. The first cuts which any business will make in hard times will be in advertising. Last year was the best year ever for independent Television. The last six months have been the worst ever. I hope that the noble Lord will be able to assure the House that he will keep a constant watch on the working of the 66.7 per cent. rate and if in practice it is shown to be too high that he and his right honourable friend will use the powers they have in the Bill to vary it by order. This is particularly important owing to the decision not to allow losses to be carried forward, a decision, incidentally, with which I do not disagree.
My Lords, I know that there is a great deal of worry, as the noble Lord, Lord Harris of Greenwich, has mentioned, 1285 among the television companies as to exactly what interpretation we put on the excessive expenditure provision in Clause 3. I am glad that the noble Lord has been able to say a little more about how this will work in practice, so as to allay some of the fears that are unnecessary. As the levy has now to be based on profits rather than on revenue, it is of course right that there should be some control to stop profits being artificially reduced, but it will be disastrous if this provision should ever he used to curtail imaginative investment in the sort of prestige programmes which might well become top sellers throughout the world.
I am rather sorry that the Amendment moved by my right honourable and honourable friends to eliminate the T.V. Times from the Treasury's participation and profits was not carried in another place. It certainly had some support from Government Benches there. As this is a certified Bill, it will not of course be possible to move a similar Amendment here, and in any case we should not wish to delay what is otherwise an admirable Bill. However, I hope that the noble Lord will hear in mind the effect of this when at some later stage he comes to consider whether the rate for the levy has worked out fairly.
The last point that I want to raise, my Lords, is the date for the new method of assessing the levy coming into operation. Clause 4(4) states that the Actshall come into operation at the end of the period of one month beginning with the day on which it is passed".It seems likely that the Bill will receive the Royal Assent on Thursday, May 23. If that be the case, if the month be a calendar month, the Act comes into effect on Sunday, June 23; or, if a month be taken as four weeks, on Thursday, June 20. I am not quite sure how a month is defined, and perhaps the noble Lord can put me right on that. There is a widespread impression among the companies that the Treasury do not see the new system coming into operation until July 1. Can the noble Lord, Lord Harris of Greenwich, tell the House whether in the week beginning Monday, June 24, the levy will be assessed under the old system or the new? A week seems a short time to quibble over, but I am told it could make a difference to the television companies 1286 of as much as £250,000, which in difficult times is no mean consideration. Incidentally, as things are running at the moment, this £250,000 would not mean an increase in profits but a decrease in losses.
Independent Television has a tremendous potential for this country's prosperity in the future. Many millions of pounds are being earned through export of British talent in television programmes. There is scope for much more. Television casettes are already a reality. Casettes capable of playing back video-tapes are mostly made abroad at the moment, but I hope British manufacturers will soon be ready to compete for their share of the market. There will soon be a worldwide demand for the tapes themselves. It will be a seller's market, and for this the independent companies are already gearing up so as to get in at the beginning. In order to take the best advantage of these opportunities, Independent Television must be assured of a stable financial future. This Bill will go a long way towards achieving it, particularly if it is sympathetically administered. It is for this reason that I am asking Her Majesty's Government for these assurances to-day.
§ 4.57 p.m.
§ LORD HARRIS OF GREENWICH
My Lords, in replying to the noble Lord, Lord Denham, I will first deal with his question of the date. I think I can meet him completely on this point. On the assumption that the Bill takes the course we hope it will; namely, that it will be proceeded with and concluded before the Recess, our expectation is that the date of operation will be June 23. I can assure him that we will certainly keep our eye on the 66.7 per cent. rate which has admittedly been a matter of dispute between the companies, the Authority and the Government, with this Administration as with the last. We are much aware of the problems facing the industry at the moment. It would be foolish of me to hold out any hope of any immediate chance of review but the noble Lord asked us to keep our eye on that point, and that we will certainly do. He raised also the question of Clause 3, what we might describe as the "extravagance clause". As I indicated in my speech, this is, in our view, a reserve power. We very much hope that it will not be used. It is my personal belief that it will not be used and certainly, if it were, it would be 1287 only as a last resort, and we hope that such an unhappy situation will not arise.
The noble Lord referred also to the T. V. Times dispute which happened in another place. I went into the matter in some detail myself, but with regret we came to the conclusion that we could not make this change in the Bill. The problem is quite straightforward. The contractors obtained this revenue from the T.V. Times only as a result of their possession of a contract. We saw no way in which we could exclude it from the Bill, and that is the decision we had to take. Lastly, I warmly agree with everything that the noble Lord, Lord Denham, said about Lord Aylestone—I am not sure whether I should refer to him as my noble friend in Parliamentary terms in this House, but certainly before my contact with him as chairman of the Authority I had day-to-day contact with him when he was Opposition Chief Whip in another place and I was an official of the Parliamentary Labour Party. When speaking to the noble Lord I always believe that I am in the presence of my headmaster.
In conclusion, although this has been a brief debate, I am delighted that we have been able to move with some speed in this matter. We are well aware of the fact that the industry is facing substantial difficulties and I hope that once the Bill is on the Statute Book it will do something at least to repair the industry's present problems.
§ BARONESS PHILLIPS
My Lords, before the noble Lord puts the Question, may I ask the Minister a question on a point that may have been answered before? I am a little confused as to why Posts and Telecommunications have been passed to the Home Office. Perhaps the noble Lord could explain this, as it does not seem to fit very neatly in the Home Office. I have probably missed the explanation of why that has been done.
§ LORD HARRIS OF GREENWICH
My Lords, this was in fact announced by the Prime Minister at the formation of the present Government. Part of the old Ministry went to one Department with telecommunications. As I have already said, the Home Office has responsibility for broadcasting.
1288 This matter was raised in the House by, I believe, an Order which came before the House. All I would say is that this was a decision taken by the Government. Many people in the industry at first had some doubts about it, but many other people in the industry welcomed it. As in all matters of changes in the administration and machinery of Government there were some differences of opinion, but broadly speaking in the fullness of time I think this will be regarded as a rather desirable change.
§ On Question, Bill read 2a: Committee negatived.