BBC TV licence fee collection

TV licence fee collection

Report by the Comptroller and Auditor General

presented to the BBC Trust Value for Money Committee,

23 January 2017

TV licence fee collection

Report by the Comptroller and

Auditor General presented to the

BBC Trust Value for Money Committee,

23 January 2017

Presented to Parliament by the Secretary of

State for Culture, Media & Sport

by Command of Her Majesty

Januar y 2017

BRITISH BROADCASTING CORPORATION

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reproduced accurately and not in a misleading context.

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BBC Trust response to the

National Audit Office value-for-money

review: TV licence fee collection

BBC Trust response

As the governing body of the BBC, the Trust

has ultimate responsibility for stewardship

of the licence fee. Value-for-money reviews

like this one are an integral part of the

governance framework through which the

Trust fulfils this responsibility and we are

grateful to the NAO for their report.

The BBC has improved value

for money in core aspects of

licence fee collection

We welcome the National Audit Office’s

conclusion that the BBC has made progress

against most of its main performance

measures for collecting the licence fee.

The amount collected is increasing, collection

costs are reducing and the reputation of

TV Licensing among the general population

is improving. In these core aspects, the

NAO concludes that the BBC has improved

value for money.

This is a significant

achievement given the

increasingly challenging

collection environment

In recent years, factors such as pressure

on household income and the use of social

media to encourage evasion have made the

collection environment challenging. In this

context, the improvements set out above

are particularly noteworthy.

The evasion rate has

increased mainly because of

changes in the methodology

used to calculate the number

of households that have a TV

The NAO notes that the estimated licence

fee evasion rate is between 6.2 and 7.2%.

This is higher than previously thought due

mainly to a change in the way BARB (an

independent organisation which measures

television audiences) calculates the number

of television households. This change

has meant that the estimated number of

households watching television has increased

which increases the gap between licences

issued and television households - the

basis for estimating evasion.

Although there is no direct or absolute

comparator, the Trust is pleased to note

evasion in the UK is much lower than in other

countries with a similar approach to collecting

licence fees such as Ireland and Denmark

where evasion rates were 14% and 10%

respectively in 2014-15.

Evasion rates are higher than the levels

which the BBC aspired to but it is clear that

these aims need to be revisited to ensure

they reflect today’s collection environment

and BARB’s methodological changes. The

NAO’s recommendation to look again at the

minimum level of evasion possible is helpful in

this context and we are pleased that the BBC

Executive intend to implement it without delay.

The BBC’s arrangements

with its commercial suppliers

show a number of elements

of good practice

The BBC has a contract with Capita to

provide licence fee collection services

and with Proximity to provide marketing

and printing. The NAO found that the

BBC’s commercial arrangements with

these suppliers show a number of

elements of good practice. However,

a change in circumstances has meant

that the Capita contract has had to be

renegotiated. The contract included

performance incentives based on BARB’s

previous way of counting TV households

and needed to be altered to reflect the

recent change in BARB’s methodology.

The contract, which has been extended by

two years to 2022, puts the relationship

with Capita on a more sustainable footing,

provides greater certainty about costs

and is expected to result in net revenue

which is at least equal to that under the

previous arrangements.

The NAO has suggested

ways that value for money

can be improved further

Under the Charter, the Trust has a

responsibility to ensure that arrangements

for collecting the licence fee are efficient,

appropriate and proportionate - maximising

revenue without an excessive approach to

enforcement. To this end, we are pleased

that the BBC has driven down collection

costs and increased overall licence fee

revenue year on year without an adverse

impact on reputation.

Nevertheless we accept the NAO’s conclusion

that there is scope for the BBC to improve

value for money further and welcome their

recommendations to do this.

In April, the Trust will make way for a new

governance system and responsibility for the

licence fee will pass to the new BBC Board.

Effective collection is essential to both the

BBC’s financial viability and the organisation’s

relationship with its audiences. To this end,

we encourage the new Board to continue

to focus on the Executive’s performance

in this area and ensure that the NAO’s

recommendations are implemented in full.

BBC Executive response

The new BBC Charter maintains the principle

of funding the BBC through the licence fee,

as essential to ensure its independence and

ability to fulfil its public purposes.

In this context, the recognition by the

NAO that the BBC has improved value for

money through its progress in collecting

the licence fee, increasing revenue every

year since 2010-11, reducing collection

costs, and improving the reputation of TV

Licensing among the general population

is very welcome.

Indeed, TV licence fee revenue has increased

every year since 2010-11, in spite of the cost

of the TV licence being frozen after 2010.

During the same period, the cost of collecting

the TV licence fee fell by 25% in real-terms.

This performance was achieved whilst

improving the overall reputation of TV

Licensing in the general population, with a

number of complaints has halved, since 2011.

The NAO also notes that the BBC’s

commercial arrangements with Capita and

Proximity show a number of elements of

good practice. This is a testimony to the

work the BBC has done in order to ensure

the management of its strategic contracts

complies with best practice.

We do recognise, as noted by the NAO, we

have not achieved the reduction in evasion

that we would like and we will now focus on

ensuring more licensed households do pay in

due course, in the most economic manner.

However, as recognised by the NAO, pressure

on household incomes can make it harder to

collect the licence fee.

We agree with the NAO recommendations,

which broadly correspond to actions we

have been planning following the changes in

legislation around when a licence is needed

but also in consumer behaviour:



We will update our analysis of the

minimum level of licence fee evasion

that is possible (the ‘evasion floor’)

to identify a current, realistic and

achievable ambition that reflects both

the latest legal changes around what

is licensable content and the new

ways of consuming this content.



We will review, in conjunction with

Capita, our strategy to improve the

effectiveness of its field activity in

generating licence fee sales and

catching evaders.



We are considering how we should

upgrade our old ICT systems, and plan

to complete this review by June 2017.



We will be reviewing the skills required

for our Licence Fee Unit in the future,

whilst noting the team has been very

successful so far.

BBC Executive response to the

National Audit Office’s value-for-money

review of TV licence fee collection



The Capita contract is the only one

where the BBC relies on third-party data

for payment or performance reporting.

We will however systematically check

this is not the case in new contracts,

and if appropriate, determine ways

of monitoring the quality of their

measures (as indeed was the case

with BARB data).

Overall, the NAO recognises the good

work done by the Licence Fee Unit and

its contractors.

Report by the Comptroller and Auditor General

This report has been prepared under Clause 79 of

theBroadcasting Agreement, as amended, between

theSecretary of State for Culture, Media & Sport

andtheBBC dated July 2006

Sir Amyas Morse KCB

Comptroller and Auditor General

National Audit Ofﬁce

14 December 2016

British Broadcasting Corporation

TV licence fee collection

This report examines whether the BBC is achieving value

for money in its management of TV licence fee collection.

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11404 01/17 NAO

The National Audit Ofﬁce study team

consisted of:

Kathryn Barrett, Kevin Coughlan,

AlexQuick, Nigel Terrington and

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Contents

Key facts 4

Summary 5

Part One

The approach to collecting the

TVlicencefee 12

Par t Two

The performance of TV Licensing 20

Part Three

Operations, enforcement

andmarketing 28

Part Four

Managing the strategic contracts for

licence feecollection 34

Appendix One

Our audit approach 44

Appendix Two

Our evidence base 46

Appendix Three

NAO commercial

assessmentframework 49

4 Key facts TV licence fee collection

Key facts

£3.74bn

TV licence fee revenue

collected in 2015-16

£99.6m

overall TV licence fee

collection costs in 2015-16

£251m–

£291m

the estimated cost of TV

licence fee evasion in 2015-16

25%

real-terms reduction in the overall cost of collecting the licence fee,

between 2010-11 and 2015-16

50%

reduction in complaints made to TV Licensing between 2010-11

and2015-16

105

the TV licence reputation index score for the general population in

2015-16, against a 2010 baseline of 100

the TV licence reputation index score for those delaying or evading

paying the licence fee, in 2015-16, against a 2010 baseline of 100

6.2% to 7.2%

estimated TV licence fee evasion rate in 2015-16

18%

reduction in TV licence fee evaders caught between 2010-11

and2015-16

£27.8 million

the contractual value of planned service and system

improvementsnot delivered – and not paid for by the BBC –

aspartof the Capita contract

TV licence fee collection Summary 5

Summary

1 Everyone in the UK who watches or records television programmes as they are

broadcast must be covered by a valid TV licence. This includes, for example, people in

residential households, businesses, hotels, and student accommodation. In June 2016,

there were just over 26 million licensed premises. A licence is required to watch or record

live TV on any device, including computers and smartphones. A new law in force from

September 2016 also requires those watching or downloading BBC content on iPlayer

tobe covered by a valid TV licence.

2 The TV licence fee is the main component of the BBC’s funding. It represented

£3.74 billion (78%) of the BBC’s overall £4.83 billion income in 2015-16. The Secretary

of State for Culture, Media and Sport sets the level of the TV licence fee, including

any concessions, and the types of payment plan through which the licence fee can

be paid.In 2010, the government froze the annual cost of a colour TV licence at

£145.50. In2016, the government’s white paper, A BBC for the future: a broadcaster

of distinction,

announced that increases in the licence fee will be linked to inﬂation

from2017-18 to 2021-22.

3 The BBC is responsible for issuing TV licences and collecting the licence fee.

Itholds contracts with various providers for activities related to collection. The two

largest contracts are with Capita and Proximity. In 2015-16, the BBC paid Capita

£58.6million. Proximity’s contract costs formed the majority of the £15.8 million that

the BBC spent on TV licence communications and letter campaigns in 2015-16.

Capitaprovides customer services, processes payments, collects arrears, and

enforces licence fee collection. Its current contract began in July 2012 and, following

a recent renegotiation, ends in 2022, with an optional extension of up to a further

ﬁve years. Proximity provides marketing and printing services, under a contract that

began in 2010and that has been extended to 2018. Both contractors are supported

by subcontractors which provide, for example, information and communication

technology(ICT), and printing and research services. Along with the BBC, all

companiesoperate under the TV Licensing trademark.

4 The BBC’s overall aim in collecting the licence fee is to increase long-term net

revenue in a way that sustains public support for the TV licence. Maximising net

revenue depends on increasing revenue, while reducing evasion and collection costs.

To sustain public support, the BBC focuses on improving reputation and ensuring

service continuity. The BBC has related aims to improve the operational and contractual

performance of the contractors that support collecting the licence fee.

1 Department for Culture, Media & Sport, A BBC for the future: a broadcaster of distinction, May 2016.

6 Summary TV licence fee collection

Our report

5 This report examines whether the BBC is achieving value for money in its

management of licence fee collection. It builds on previous NAO reports on The BBC:

Collecting the television licence fee (2002) and The BBC’s management of strategic

contracts with the private sector (2009),

as well as annual reviews we carry out as part

of the BBC’s Television Licence Fee Trust Statement. The report has four parts:

•

Part One outlines the background and main organisations involved in collecting

thelicence fee, and changes to the operating environment.

•

Part Two assesses performance against TV Licensing’s four main objectives.

•

Part Three reviews the operational and marketing approaches taken to improve

TVLicensing’s performance.

•

Part Four evaluates how well the BBC has managed its two main TV

Licensingcontracts.

TV household data

6 In evaluating TV Licensing’s performance, we have recognised the impact of recent

changes in external data the BBC uses to estimate the number of households requiring

a TV licence. In 2015-16, the Broadcasters’ Audience Research Board (BARB), which

measures television audiences, revised its calculation of how many households use

televisions. In recent years, BARB data had shown the number of households with a

TV on a sharp downward trend, particularly from 2014. The BBC queried these data,

and a resulting BARB review concluded that it had underestimated the number of TV

households. This means that some recent BBC revenue collection targets, contractor

payments and evasion rate estimates were calculated using inaccurate data. For

instance, BARB’s revised measure increased the estimated licence fee evasion rate by

1.3% in 2015-16. The BBC is now using BARB’s revised data to underpin future revenue

forecasts and evasion rate estimates.

2 Comptroller and Auditor General, The BBC: Collecting the television licence fee, Session 2001-02, HC 821,

NationalAudit Ofﬁce, May 2002; Comptroller and Auditor General, The BBC’s management of strategic contracts

withthe private sector, National Audit Ofﬁce, March 2009.

TV licence fee collection Summary 7

Key ﬁndings

The BBC’s performance in collecting the licence fee

7 The BBC’s overall aim for collecting the licence fee is to increase long-term net

revenue in a way that sustains public support for the TV licence. It has performed

well in increasing revenue, reducing collection costs and maintaining its reputation

overall, but it has performed less well in reducing evasion:

•

TV licence fee revenue has increased every year since 2010-11, from

£3.51billion to £3.74 billion in 2015-16. This increase was in spite of the cost of

the TV licence being frozen after 2010. Under the current Capita contract, which

began part-way through 2012-13, revenue increased for three out of four years

at a higher rate than the BBC’s estimate for household growth adjusted for the

number of households that use a TV. However, in three of the four years covered by

Capita’s contract, the amount collected was below the levels targeted (payments to

Capita were also lower than forecast as a result) (paragraphs 1.1, 2.3 and 4.8).

•

The cost of collecting the TV licence fee fell by 25% in real-terms between

2010-11 and 2015-16. The amount of revenue collected per pound spent on

collection increased from £28 to £38 over the same period. Most collection costs

relate to call centres, ﬁeld ofﬁcers, detection, over-the-counter services, customer

communications and postage (paragraphs 2.14 and 2.15).

•

Performance measures relating to reputation have improved, and the volume

of complaints has halved, since 2010. TV Licensing tracks public attitudes

monthly, separating the views of the general population from those of people who

delay or evade paying their licence fee. The overall reputation of TV Licensing in the

general population had improved to 105 by March 2016, against a 2010 baseline of

100. For delayers and evaders, it stood at 99 against the same 2010 baseline, having

reached a high of 104 at the end of 2013-14. Complaints have reduced by 50% since

2010-11, with 11,947 complaints made in 2015-16 (paragraphs 2.16 to 2.19).

8 The BBC’s estimated evasion rate – the percentage of premises that should

have a TV licence but do not – is between 6.2% and 7.2%. It has not moved

towards the level targeted by the BBC and Capita. The evasion rate appeared

to be steady from 2010-11 to 2014-15, at between 5% and 6%. However, in 2015-16

it increased mainly because of changes in BARB’s calculation of the number of

households that use a TV. This means it is increasingly unlikely that Capita will achieve

its aim of 3.95% evasion by 2020 – an aspiration the BBC considered credible in 2011,

and which is very close to the lowest feasible rate of 3.4%, calculated by BBC research

in 2004. Every one percentage point reduction in the evasion rate equates to around

£40.5 million of extra revenue. Therefore reducing evasion to 3.95% would increase the

BBC’s annual revenue by at least £91 million (paragraphs 2.5 to 2.7, 2.10 and 2.11).

8 Summary TV licence fee collection

Operations, enforcement and marketing

9 The operational performance of TV Licensing has improved in most areas

through using more efﬁcient, cost-effective customer services. Since 2012,

TVLicensing has focused on reducing calls to contact centres and increasing visits

to, and transactions via, its website. TV Licensing customers’ increasing use of

direct debitpayments – 74% paid this way in 2015-16 – compares well to relevant

benchmarks.Capita has also focused on improving processes to make speciﬁc

activitiesmore efﬁcient. In December 2015, a large majority (80%) of inbound calls

tocallcentres were resolved correctly at the ﬁrst attempt (paragraphs 3.2 and 3.3).

10 While overall operational performance has largely improved, fewer evaders

have been caught on visits to premises between 2010-11 and 2015-16, despite

increased numbers of visits. Of three million enforcement visits in 2015-16, around

298,000 resulted in an evader being caught. This was 18% fewer evaders than were

caught in 2010-11, when only 2.7 million visits were made. The BBC and Capita explain

this performance as, in part, being caused by challenges recruiting and retaining ﬁeld

staff, and, in part, due to visits being focused on a more challenging group of delayers

and evaders than in the past. While there is an annual process to develop enforcement

and sales initiatives, this has not to date formed part of a clear, long-term strategic

approach. This would, for example: set out how intended outcomes will be measured

and reported; and outline resources and savings requirements. The BBC’s objective for

its visits is to improve compliance levels, and it prefers, where possible, for visits to result

in a licence fee payment rather than a prosecution (paragraphs 3.4 to 3.8).

11 TV Licensing’s marketing and campaigns, primarily contracted to Proximity,

are well developed. Proximity’s understanding of customer behaviour is based on

data and evidence. For example, it trials all marketing and customer communications to

test their effectiveness. Proximity’s tailored approach to contacting different customer

groups, and the complementary work of TV Licensing’s three business units, is clear

and rational. The BBC and its contractors will now need to adapt their approach to

both marketing and enforcement to take account of policy changes, including voluntary

payments from those aged 75 and over and the trialling of new, ﬂexible payment plans

(paragraphs 1.13 to 1.15 and 3.12 to 3.14).

TV licence fee collection Summary 9

Managing strategic contracts for licence fee collection

12 The BBC’s commercial arrangements with Capita and Proximity show a

number of elements of good practice. Both contracts resulted from procurement

processes in which there was sustained competition. The BBC uses key performance

indicators that offer incentives for strong operational performance, which has been

achieved with performance against these measures at or above 88% in every year of

both contracts. Management of both contracts has also beneﬁted from their inclusion

in the BBC’s strategic contracts portfolio. This provides regular reporting and an

annual review process that shares lessons learned and provides various contract

benchmarks. The BBC collects information on the market of providers that are currently

delivering customer or enforcement services similar to TV Licensing but in different

sectors. Thishelps the BBC to understand providers’ capabilities to bid for future

work. TheBBCalso delivers training and workshops to commercial staff. It does not,

however, assess systematically its current or future commercial staff and skills needs

(paragraphs4.2 to 4.4, 4.7 to 4.10, and 4.20 to 4.24).

13 The BBC’s contract with Capita transferred high levels of ﬁnancial risk

to the contractor but, due to altered circumstances, the two organisations

renegotiated the contract in 2016. The original contract’s payment mechanism offered

strong incentives for Capita to increase the amount of revenue it collected. Capita was

paid more for each pound collected if it managed to collect higher levels of revenue.

Following revisions to BARB data on the number of households with a TV, the levels of

revenue that Capita needed to achieve over the remainder of the term made the contract

less proﬁtable, creating a risk that Capita would reduce its spending to the detriment

of TV Licensing’s objectives. As a result, the BBC and Capita have agreed contractual

changes, including: revising the payment mechanism so that the BBC and Capita

have greater certainty about costs; and preventing Capita from reducing the amount it

spends on the contract, without BBC approval. The BBC forecasts that the net revenue

that will be collected under the new terms is at least equal to that under the previous

arrangements, but that the risk to sustainability of the contract is substantially reduced.

The BBC and Capita have also agreed to extend the contract by two years to 2022

(paragraphs 4.7, 4.8 and 4.15 to 4.19).

10 Summary TV licence fee collection

14 Alongside day-to-day services, Capita was supposed to modernise data

and technology systems through a transition programme. Despite certain

improvements, this part of the contract has faced major difﬁculties, with the

BBC paying Capita only £22.9 million out of a £50.7 million budget. Capita has

made improvements through the transition programme, including restructuring contact

centres, updating the TV Licensing website, and upgrading handheld units for ﬁeld staff.

But the programme failed to update legacy ICT systems by a target date of July 2016.

Problems emerged over time, with the BBC aware of the need to replan certain aspects

of the programme’s scope and milestones from 2012-13. The programme has now been

stopped. As a result, it is currently more resource-intensive than intended to support

TV Licensing’s understanding of customer behaviour and the realisation of efﬁciencies

has been delayed as the BBC reconsiders its approach. It has been a long-standing

ambition of the BBC to upgrade its legacy ICT systems. The BBC told us it will review

its intentions to modernise its systems after the new Royal Charter comes into effect

in2017 (paragraphs 4.11 to 4.14).

Conclusion on value for money

15 The BBC has made progress against most of its main performance measures

for collecting the licence fee, increasing revenue every year since 2010-11, albeit often

below target levels, reducing collection costs, and improving the reputation of TV

Licensing among the general population. In these core aspects of its activities, it has

improved value for money.

16 This progress is welcome but the BBC has had less success delivering its aim to

reduce licence fee evasion. The evasion rate is higher than was previously thought and it

is now unlikely that the aspiration to reduce it to 3.95% will be achieved. In this context,

catching fewer evaders than previously is worrying. Furthermore, due to the incomplete

transition programme, the BBC’s optimisation of efﬁciency and effectiveness has been

delayed. The BBC, therefore, has scope to improve further the value for money of

licence fee collection.

TV licence fee collection Summary 11

Recommendations

a The BBC should update its analysis of the minimum level of licence fee

evasion that is possible (the ‘evasion ﬂoor’) to identify a current, realistic

and achievable ambition. The BBC last refreshed its analysis of the evasion

ﬂoor in 2004, before signiﬁcant changes to licence fee policy and the collection

environment. It should update its analysis and use it to check and, if necessary,

change contractor revenue targets in future.

b The BBC, in conjunction with Capita, should develop a clear, long-term

strategy to improve the effectiveness of its ﬁeld activity in generating licence

fee sales and catching evaders. Figures for evaders caught have been below

levels targeted by Capita. For the remainder of the contract, a more coherent,

long-term approach needs to be taken, which sets out and justiﬁes, for example:

desired ﬁeld outcomes and how they will be measured; and resources and savings

requirements. The strategy should, along with performance data, be included

within the annual process for approving the overall licence fee collection strategy.

c Following the transition programme’s termination, the BBC should clarify

how, and over what time frame, it will upgrade old ICT systems. As it reviews

its plans in the light of the new Royal Charter, the BBC should clarify what

additional technology it needs, and how and when it intends to modernise its

systems, learning lessons from previous attempts to upgrade the structure of its

core database.

d The BBC, as part of its strategic contract reporting process, should assess its

commercial skills and future requirements. The BBC currently reports contract

management costs and staff numbers for its strategic contracts. However, additional

information on skills will be important given changes to the licence fee collection

environment, the BBC’s greater oversight of Capita’s cost base in future, and the

need to ﬁnd new ways to upgrade existing technology and ICT systems.

e The BBC should review all of its strategic contracts to identify where it

places reliance on third-party data for payment or performance reporting,

and consider whether this exposes it to any risks. The signiﬁcance of BARB’s

understatement of the number of TV households – on contractual payments,

collection costs and evasion – shows the importance of understanding risks from

third-party data. This is particularly important if minor data changes can have

sizeable effects on payments.

12 Part One TV licence fee collection

Part One

The approach to collecting the TV licence fee

1.1 Everyone in the UK who watches or records television programmes as they are

broadcast must be covered by a valid TV licence, this includes, for example, those in

residential households, businesses, hotels, and student accommodation. Since 2010,

the cost of a colour TV licence has been frozen at £145.50. In 2015-16, the TV licence

fee provided £3.74 billion (78%) of the BBC’s overall income of £4.83 billion.

1.2 People must be covered by a licence to watch or record live TV on any device,

including computers and smartphones. A new law in force from September 2016 also

requires those watching or downloading BBC content on iPlayer to be covered by a valid

TV licence.

Figure 1 sets out the factors that determine whether a licence is needed

for a residential household, which form the majority (95% in June 2016) of premises

estimated to require a licence.

Roles and responsibilities

1.3 The BBC is the public authority responsible for issuing TV licences and collecting

the licence fee. Its Licence Fee Unit manages eight contracts with various providers.

Allcompanies involved operate under the TV Licensing trademark. The two largest

contracts by value are with Capita and Proximity. In 2015-16, the BBC paid Capita

£58.6million. Proximity’s contract costs formed the majority of the £15.8 million that

the BBC spent on TV licence communications and letter campaigns in 2015-16.

Bothcontractors use subcontractors to provide, for example, ICT, printing and

researchservices.

1.4 The BBC’s contract with Capita is to manage, collect, administer and enforce

the TV licence fee. It began in July 2012 and, following a recent renegotiation, ends in

July2022, with an optional extension for up to ﬁve further years. The BBC’s contract

with Proximity is for marketing, advertising and printing services. It began in April 2010

and has been extended twice. It will end in April 2018. In advance of this contract

endingthe BBC has begun the process to re-tender it.

3 The Communications (Television Licensing) (Amendment) Regulations 2016.

TV licence fee collection Part One 13

Figure 1

Determining whether a residential household needs a licence

Is this your main home or

second/temporary home?

Are you a student who

lives with your parents

during the holidays?

Does your main home

have a TV licence?

You do not need a

licence for this property

You need a

licence for

thisproperty

Note

The TV Licensing website provides more detailed information about speciﬁ c licensing requirements. Available at: www.tvlicensing.co.uk

Source: National Audit Ofﬁ ce

Main home

Yes

YesYes

Yes

Second or temporary home

Are you watching

or recording live

TV, or watching or

downloading BBC

programmes on iPlayer

on anydevice?

Is your second home

a mobile home (boat/

caravan/static caravan/

movable chalet)?

Are you watching live TV

or recording live TV on

any device?

Are you watching

BBC TV content

on demand

through iPlayer?

Do your parents

have a TV licence?

Is your device plugged

into the mains while you

are watching or recording

live TV, or watching

or downloading BBC

contenton iPlayer?

14 Part One TV licence fee collection

1.5 The BBC’s Licence Fee Unit is also responsible for:

•

setting strategic aims for TV Licensing;

•

monitoring TV Licensing’s performance; and

•

managing risks to the BBC through assurance reviews and research.

1.6 The BBC Trust (the Trust) holds the BBC to account, including for collecting the

licence fee. Figure 2 sets out this and other roles and responsibilities. The draft Royal

Charter, the BBC’s constitutional basis, establishes new governance arrangements,

with a new unitary board taking on governance roles previously undertaken by the Trust.

Following a transition period, the unitary board will fulﬁl these roles from April 2017.

Paying the licence fee

1.7 People can pay the licence fee in various ways, including through direct debit, card

or cash payments. If a customer continues paying their licence fee they will receive only

limited communications from TV Licensing, for example when their licence is about to

expire. If an individual does not pay for a licence, however, they may receive targeted

communications encouraging them to do so. They may also potentially be visited

by enforcement ofﬁcers and, if a licence fee is needed but remains unpaid, may be

prosecuted and ﬁned (Figure 3 on page 16).

1.8 In 2015, an independent review of TV licence enforcement reported on the

sanctions for not having a TV licence when it is required.

The review concluded that

thecurrent system of criminal deterrence and prosecution should be maintained, as it

was appropriate and fair, and represented good value for money. The BBC’s approach

to enforcement continues to operate within this established legal framework.

Operations

1.9 TV Licensing is a large-scale, complex operation, managing a database of over

31million addresses, with 28 million premises estimated to require a licence and just

over 26 million licences in force. TV Licensing deals with customer queries, including

about payment options and whether a licence is needed, and complaints. In 2015-16,

TVLicensing:

•

responded to nearly 1 million letters and over 500,000 emails;

•

answered 5.6 million calls; and

•

made 8.3 million calls.

4 Department for Culture, Media & Sport, Draft BBC Charter and Draft Framework Agreement, September 2016.

5 Department for Culture, Media & Sport, TV Licence Fee Enforcement Review, July 2015, pp. 6-7.

TV licence fee collection Part One 15

Figure 2

TV Licensing roles and responsibilities

BBC

Licence Fee Unit

BBC contract with

Proximity was in place from

2010–2015 and has been

extended twice to 2018 with

the intention of providing

stability during the period of

Charter renewal

BBC contract

with Capita

in place until

2022, with

the option to

extend it up

to 2027

Formal cooperation

agreement in place

TV Licensing

BBC Trust

Communisis contracted

separately by the

BBC until the end of

March2017 to deliver

postal services

Note

Including Capita, Proximity and Communisis, there are eight main licence fee unit contracts. Others, for example, include a contract with PayPoint (until the end of March 2017)

for over the counter cash payments in the UK.

Source: National Audit Ofﬁ ce

Organisation Role and remit

BBC Managing public authority for collecting the licence

fee, which is managed through the BBC’s Licence

Fee Unit and their various contracts.

BBC Trust Holds the BBC to account for its activity, including

licence fee collection. The Royal Charter, currently

published in draft, will create a new unitary board

that, from April 2017 onwards, will assume the

governance role currently undertaken by the Trust.

Capita Provides the majority of administration of TV

Licensing, including customer services, collection

of payment and arrears, and enforcement.

Akinika Subcontracted by Capita, Akinika Debt Recovery

is a licensed debt collection agency authorised to

collect some outstanding licence fee payments.

CSC

Computer

Sciences

Limited

(CSC)

Subcontracted by Capita for the provision and

hosting of ICT infrastructure, and provided

services in relation to the delivery of the transition

programme (see Part Four). IBM started the

process of replacing CSC’s delivery of core

ICTservices in 2016.

Proximity Deliver marketing and printing services using a ‘test

and learn’ behavioural insights approach to tailor

campaigns by customer type.

Communisis Subcontracted by Proximity for marketing,

communication and transactional mailing services.

They are also contracted by the BBC todeliver

postal services.

Harris

Interactive

Subcontracted by Proximity to deliver TVLicensing

brand and communications tracking reports.

Capita

Subcontracted by Capita:

Akinika, CSC IBM

Proximity

Subcontracted by Proximity:

Harris Interactive,

Communisis

2016

16 Part One TV licence fee collection

Figure 3

Licence fee collection process

Notes

In the Channel Islands and the Isle of Man over-the-counter payments are made at their respective Post Ofﬁ ces.

Certain processes are different in Scotland, the Channel Islands and the Isle of Man.

Source: National Audit Ofﬁ ce

Full licence fee payment (annual

direct debit; credit/debit card

(online or by phone); cheque

or full fee cash/debit card

atPayPoint

Licence fee payers

Cash instalments as part of a

payment or savings scheme

(by cash or debit card at

PayPoint, or by credit/debit

card(online/phone))

Instalments as part of a direct

debit scheme

Proximity carries out tailored contact

strategies dependent on customers’

licence status and payment scheme.

The management, testing and

improvement of contact strategies is

organised into three business units:

Unlicensed

Retention

Instalment

Fine, which if paid goes to

HMTreasury, not the BBC

Potential imprisonment for

non-payment of court fine

Sale made as a result of enforcement visit may

leadtoa prosecution being dropped

In certain circumstances prosecution may still be sought

Payment

Non-payment of the TV licence fee

People aged 75 and over are entitled

to a free TV licence, which they must

apply for

Figure 5 explains that there have been

policy changes relating to free TV

licences for this group

Some customers declare themselves

as ‘No Licence Needed’. These are

not licence fee payers but neither are

they treated as unlicensed. They may,

however, receive enforcement visits and

they have a tailored contact strategy

(inthe Retention Business Unit)

Regarding any point in the process:

Customer queries go to

TVLicensing (Capita) through

multiple channels

Customer complaints go through

multiple channels to TV Licensing,

which are fielded by Capita but

may be escalated to the BBC and

BBC Trust

TV licence fee freedom of

information requests and

parliamentary questions are

responded to by the BBC

Some

individuals

will remain

unlicensed

even after they

have been

prosecuted

Prosecution (if it is

assessed as being in

the public interest)

Single Justice

Procedure or

Magistrate’s court

hearing when

defendant enters

not guilty plea or

requests a hearing

Following an early

assessment, case

dropped due to

insufficient evidence

Enforcement visits

from Capita field staff

An address will

only receive an

enforcement

visit in the

context of earlier

contacts made

If payment stops

Not

guilty

Guilty

TV licence fee collection Part One 17

1.10 Approximately 1,400 full-time equivalent (FTE) staff from Capita, Proximity and the

BBC work on collecting the licence fee. Capita carries out its TV Licensing operations

across six locations (Figure 4 overleaf). In June 2016, Capita employed 1,334 FTE staff,

most of whom worked in customer services, and ﬁeld visit and support teams. Proximity

had 47 FTE staff supporting its marketing and printing services contract with the BBC.

The BBC’s Licence Fee Unit comprised 27 FTE staff.

Strategic objectives

1.11 The BBC’s strategic aim in collecting the licence fee is to maximise long-term net

licence fee revenue in a way that sustains public support for the TV licence. The BBC’s

strategy and business plan for collecting the licence fee are jointly owned and agreed

each year by the BBC, Capita and Proximity. Up to the present, the BBC Trust approves

the annual strategy.

Changes to the operating environment

1.12 In recent years, changes to policy, audience behaviour and the number of TV

households have altered the circumstances in which the BBC and its contractors

manage the licence fee. The number of viewers watching programmes through non-TV

devices has increased rapidly, as has the number consuming BBC content on-demand,

for which a TV licence was not required until recently. Between 2010 and 2015, the

number of households that did not use a TV increased by 44% to around 1.3 million.

However, the majority continue to watch licensable content on their televisions.

1.13 Partly to respond to these changes, the government’s 2016 white paper on the

future of the BBC brought forward proposals to ensure the organisation had “a modern,

sustainable funding model” in future.

Figure 5 on page 19 provides further details.

1.14 Some changes create opportunities for the BBC to increase its revenue but

others will reduce it. The BBC will need to alter its approach to both marketing

and enforcement. It will also have to update its ICT systems and the TV Licensing

website. Finally, some changes bring reputational risks for the BBC to manage, for

example in communicating with those aged 75 and over about their option to make

voluntarypayments.

6 Broadcasters’ Audience Research Board (BARB), The UK Television Landscape Report: Q4 2015, July 2016.

7 Department for Culture, Media & Sport, A BBC for the future: a broadcaster of distinction, May 2016.

18 Part One TV licence fee collection

Figure 4

Capita’s TV Licensing operations by location

1 Preston

TV Licensing cash schemes

Akinika debt recovery

4 Darlington

Inbound mail

Shared service

5 Mansfield

Capita outbound mailings

Shared service

6 London

Contract support

Data analytics

Throughout the

UnitedKingdom

Home/field workforce

2 Darwen

Customer services

andadministration

Outbound mail

Centralised service

management

Field support

3 Bristol

Finance and payments

Technology

Business analysts

Project and programme

management

Mumbai, India

Back office (correspondence, email, web enquiries and automated telephone system related work)

Direct debit applications and over-75s

Source: Capita

TV licence fee collection Part One 19

1.15 The BBC Licence Fee Unit’s annual strategy, business plan and internal reporting

acknowledge the scale of the effort required. Planning for most changes is at an

early stage with some new measures still to come into effect. In response to the

new law requiring people to have a TV licence to watch on-demand content from

September2016, the BBC has already set up two projects:

•

Project BBC On-Demand has established a marketing and communications

strategy to ensure changes in regulations are communicated effectively to the

public and to make the associated operational and technological changes required.

•

Project Validate will consider whether it is appropriate, and if so how, to ensure

only those who have a valid TV licence can use the BBC’s iPlayer and other

platforms to watch on-demand BBC content. The BBC now displays notices on

iPlayer and other applications asking viewers to conﬁrm they have a licence. Project

Validate will consider what more is required in future. The draft BBC Framework

Agreement requires this work to be completed by 31 December 2020.

Figure 5

Policy changes relating to the TV licence fee

Linking future increases in the licence fee to inflation between 2017-18 and 2021-22. The government

estimated in May 2016 that the licence fee would reach £160.50 by 2021-22.

Ending separate government funding for free licences for those aged 75 and over. Following a three-year

transition, this will cost the BBC an estimated £725 million by 2020-21.

Enabling those aged 75 years and over to make voluntary payments, while protecting their free licences

during the current Parliament. The BBC has subsequently estimated between 0.5% and 6% of those

aged75and over will make voluntary payments, which may take the form of partial donations rather than

paying the licence in full.

Making the viewing of on-demand BBC content licensable. BBC analysis suggested this would lead to

around £40 million of extra revenue a year by 2021-22.

Trialling clearer, more flexible payment plans, especially for those facing payment difficulties. The exact

natureof these schemes is to be decided.

Sources: Department for Culture, Media & Sport,

A BBC for the future: a broadcaster of distinction, May 2016,

p. 91–103;

HM Treasury, Budget 2016, March 2016, p. 88; the BBC

20 Par t Two TV licence fee collection

Par t Two

The performance of TV Licensing

2.1 As noted in Part One, the BBC aims to increase long-term net revenue in a

way thatsustains public support for the TV licence. This part of the report evaluates

performance on revenue collection, evasion, collection costs and reputation in the

period from 2010-11 to 2015-16.

Changes to the measurement of TV households

2.2 In evaluating TV Licensing’s performance, we have recognised the impact of

important recent changes in external data the BBC uses to estimate the number of

households requiring a TV licence. In 2015-16, the Broadcasters’ Audience Research

Board (BARB), the industry’s standard television audience measurement service

jointly-owned by the BBC and other broadcasters,

revised its calculation of how many

households use TVs. In recent years, BARB data had shown the number of households

with a TV on a sharp downward trend, particularly from 2014. The BBC queried these

data, and a resulting BARB review concluded that it had underestimated the number

of TV households.

This means that some recent BBC revenue collection targets,

contractor payments, and evasion rate estimates have been calculated using inaccurate

data. For instance, BARB’s revised measure increased the estimated licence fee evasion

rate by 1.3% in 2015-16. The BBC is now using BARB’s revised data to underpin

revenue forecasts and evasion rate estimates.

Performance against TV Licensing’s strategic objectives

Licence fee revenue collection

2.3 The amount of TV licence fee revenue collected has increased every year since

2010-11, from £3.51 billion to £3.74 billion in 2015-16 (Figure 6). This increase is despite

the cost of the TV licence being frozen since 2010. Under the current Capita contract,

which began part way through 2012-13, revenue increased for three of the four years at

a higher rate than the BBC’s estimate for household growth, adjusted for the number of

households using a TV.

8 www.barb.co.uk/about-us/frequently-asked-questions/

9 BBC, Television Licence Fee Trust Statement for the Year Ending 31 March 2016, July 2016, pp. 6-7.

TV licence fee collection Par t Two 21

2.4 The overall amount collected includes £622 million of grant-in-aid from the

Department for Work & Pensions (DWP) to cover free licences for those aged 75 and

over. This has increased in line with the ageing population. The grant is calculated on the

basis of data provided by DWP and the BBC on the number of licences issued to those

aged 75 and over.

Figu

re 6

oss TV licence fee revenue collection, 2010-11 to 2015-16

£ million

The amount of TV licence fee r

evenue collected has increased every year since 2010-11,

to £3.74 billion in 2015-16

Over 75s licence fee grant

579 588 597 608 613 622

from DWP (£m)

Licence fee revenue, excluding 2,934 3,018 3,059 3,118 3,122 3,121

over 75s

(£m)

Sour

ce: BBC Full Financial Statements, 2010-11 to 2015-16

2010-11 2011-12 2012-132013-14 2014-15 2015-16

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

22 Part Two TV licence fee collection

Licence fee evasion

Evasion rate

2.5 The BBC’s Licence Fee Unit estimates the rate of licence fee evasion. To do so, it

makes an assessment of the proportion of premises (including households, hotels and

businesses) where licensable content is being watched without a licence.

2.6 Over the six years to 2014-15, the BBC consistently estimated that the evasion rate

for residential households – the largest category of premises – was between 5% and

6%. But following the identiﬁcation of BARB’s underestimate of how many households

use a TV (see paragraph 2.2) the BBC now knows its evasion rate estimates were too

low from 2012 onwards. At the end of 2015-16, the BBC used BARB’s revised data to

calculate a new evasion rate: at that point, the rate stood at between 6.2% and 7.2%.

2.7 Small changes in the evasion rate equate to millions of pounds of potential lost

revenue. Reducing the evasion rate by one percentage point would bring in an additional

£40.5 million. This means that the current estimated cost of evasion is between

£251million and £291 million.

How the evasion rate compares

2.8 According to available data, the rate of evasion varies considerably across the UK

(Figure 7). This data is less accurate than that used to calculate the national evasion

rate, but TV Licensing nonetheless believes it represents the true picture in broad

terms. In Scotland, some of the difference may be explained by a different regulatory

environment: the BBC does not have the same power as elsewhere to decide, without

reference to other authorities, whether to prosecute evaders it catches. Evasion also

varies signiﬁcantly within nations, for example it is estimated to be higher in urban areas

with younger populations.

2.9 In terms of UK TV licence fee collection as a whole, there is no direct or absolute

comparator, but we looked at information about licence fee collection in other countries

and at some UK public sector organisations. We found a mixed picture. The TV licence

evasion rate is lower than in other countries with a similar approach to collecting licence

fees. For example, in 2014-15, the evasion rates in Ireland and Denmark were 14% and

10%, respectively.

However, the rate is higher than for other UK public sector revenue

collection exercises. For vehicle excise duty the estimated evasion rate is 1.4%,

while for

council tax in England and Wales it is 3%. However, different legislation and enforcement

tools underpin collection activities in each instance.

10 More detail on the evasion model can be found in: BBC, Television Licence Fee Trust Statement for the Year Ending

31March 2016, July 2016.

11 See footnote 8, pp. 6-7.

12 The Irish evasion rate is calculated in the same way as the UK rate; the Danish rate includes more data estimates.

13 Vehicle excise duty evasion increased from 0.6% in 2014-15 to 1.4% in 2015-16. This followed the Driver & Vehicle

Licensing Agency abolishing the paper tax disc and amending the law so that the duty automatically ends when a

vehicle changes ownership, rather than transferring with the vehicle.

TV licence fee collection Par t Two 23

Reducing evasion

2.10 For over a decade, the BBC has been aiming to reduce licence fee evasion to

below 4%. In 2002, we reported that the BBC believed an evasion rate of 3.5% was

achievable by 2006.

In 2004, the BBC undertook further research, which found that

the lowest feasible rate of evasion was 3.4%. Similarly, in its 2011 business case for the

current Capita contract, the BBC stated that a commitment by Capita, as part of its bid,

to reduce evasion to 3.95% by 2020 was detailed and credible.

2.11 Reducing evasion to the level targeted under Capita’s original contract bid would

have generated between £91 million and £132 million of additional revenue for the BBC,

compared to 2015-16 levels. However, following restatement of the evasion ﬁgure in

2015-16, the BBC and Capita believe reducing evasion to 3.95% by 2020 is unlikely

tobe achieved.

14 Comptroller and Auditor General, The BBC: Collecting the television licence fee, Session 2001-02, HC 821,

NationalAudit Ofﬁce, May 2002.

Figu

re 7

Estima

ted TV licence fee evasion by nation, March 2016

Crude evasion rate (%)

The estimated TV licence fee evasion rate varies between 6% and 10% acr

oss the UK

Sub-national estimates are less robust as they do not account for the number of premises watching

licensable TV content. As a result, ﬁgures have been rounded to whole numbers.

Sour

ce: BBC

WalesEngland Northern IrelandScotland

24 Par t Two TV licence fee collection

2.12 Apart from problems with BARB data, the BBC cites various reasons why evasion

has not decreased as intended, including:

•

a more challenging operating environment because more evaders are familiar

with TV Licensing practices and powers through the growth of online campaigns

against paying the licence fee;

•

fewer enforcement and sales visits to premises during 2015-16, partly owing to high

levels of turnover in Capita’s ﬁeld ofﬁcer staff (see paragraph 3.7); and

•

the failure to upgrade ICT systems as part of Capita’s transition programme (see

paragraph 4.14). The main TV Licensing database is structured around addresses

rather than customers and the BBC has long thought that a customer-based

database would help it target operations, enforcement and marketing activity

betterby improving access to individuals’ past addresses and payment history.

2.13 Pressure on household incomes can also make it harder to collect the licence fee.

Research commissioned by TV Licensing showed that the percentage of delayers and

evaders who said they would ﬁnd it difﬁcult to pay for their licence increased from 65%

in December 2014 to 70% in December 2015. Further research found that the TV licence

fee was one of the bills more likely to be deprioritised by households when budgets

were tight. It was rated the ninth most important bill to pay on time out of 11 types of bill.

Citizens Advice data shows increasing numbers of people seeking advice on council tax

arrears, TV licence arrears and fuel bills between 2011-12 and 2015-16. Similarly, more

people have been having problems with water bill payments.

Collection costs

2.14 The cost of collecting the licence fee in 2015-16 was £99.6 million. Most of this

related to call centres, ﬁeld ofﬁcers, detection, over-the-counter services, customer

communications and postage.

Collection costs have fallen by 25% in real-terms

between 2010-11 and 2015-16. Accordingly, net revenue collection (revenue collected

minus collection costs) increased by 7.5% from 2010-11 to 2015-16.

2.15 Modern technological advances and consumers’ increased willingness to perform

transactions online and make payments by direct debit have helped many organisations

cut costs in recent years. Between 2010-11 and 2015-16, the amount of TV licence fee

revenue collected per pound spent increased from £28 to £38. This compares to an

increase in the same period from £31 to £43 of vehicle excise duty collected for every

pound spent by the Driver & Vehicle Licensing Agency’s (DVLA). Furthermore, in 2015-16,

the BBC’s collection costs were 2.7% of revenue collected compared to a ﬁgure of 2.4%

in the DVLA. However, different legislation and enforcement tools underpin collection

activities by the BBC and DVLA.

15 Citizens Advice, Advice trends 2015/16 and Advice trends four-year snapshot 2011–2015, available at: www.citizensadvice.

org.uk/about-us/difference-we-make/advice-trends/; Ofwat, Affordability and debt 2014-15, December2015, available at:

www.ofwat.gov.uk/publication/affordability-and-debt-2014-15

16 Other costs include administration, contract management, and the depreciation of ICT systems.

TV licence fee collection Par t Two 25

Reputation and complaints

Reputation

2.16 TV Licensing wants to maintain and, if possible, improve its reputation. It tracks its

reputation using an index that separates the views of the general population from those

of delayers and evaders (people who pay the licence fee late or do not intend to pay).

2.17 Proximity, through its subcontractor Harris Interactive, tracks the views of the

general population through online surveys distributed to approximately 11,000 households

annually. Determining the views of delayers and evaders is more difﬁcult. To do this, Harris

Interactive annually undertakes approximately 4,200 on-street interviews with people who

self-identify as delayers and evaders.

2.18 In March 2016, the reputation index for the general population was 105. It has been

consistently higher in each year since the baseline year of 2010-11 when it was set at 100.

For delayers and evaders, results has been more varied, with the index ranging between

97 (2011-12) and 104 (2013-14). At March 2016, it stood at 99 against the 2010-11 baseline

(Figure 8 overleaf).

Complaints

2.19 The BBC sees reducing customer complaints as crucial to improving TV

Licensing’s reputation. Overall the number of complaints has fallen by 50% since

2010-11, with 11,947 complaints received in 2015-16 (Figure 9 on page 27). It is known

that increasing self-service systems tends to generate fewer complaints. For instance,

according to the Consumer Council for Water, there was a 43% reduction in written

complaints to water companies between 2010-11 and 2015-16.

2.20 A complaints executive forum comprising representatives from the BBC, Capita

and Proximity reviews data to identify and respond to risks arising from complaints.

One review led to a project to improve contact with customers aged 75 and over after

it was identiﬁed that repeated communications and process delays were causing larger

numbers of complaints from this group.

2.21 Capita reports monthly complaints data, grouped by theme, across various BBC

and TV Licensing governance forums. The most common types of complaint have

remained consistent since 2010-11. These primarily relate to the criteria used to select

customers for marketing campaigns, customer service issues, and situations in which

a licence is no longer needed. Complaints are received through various channels but

mostly resolved by Capita. If a complaint is not resolved there is a clear escalation

process through the BBC and up to the BBC Trust.

17 Consumer Council for Water, Water Industry Complaints Reports (2010-11 and 2015-16), available at: www.ccwater.org.

uk/publications/waterindustrycomplaintsreport/

26 Par t Two TV licence fee collection

Figu

re 8

Reputation indices

for the general population, and delayers and evaders, June 2010

March 2016

Reputation index

General population 100 104 104 103 106 105

Delayers and evaders 100 97 103 104 103 99

The baseline for data was set at 100 in June 2010 with subsequent annual scores taken in March at the ﬁnancial year-end.

Sour

ce: BBC

In Mar

ch 2016, the reputation index for the general population stood at 105, and it was 99 for delayers and evaders,

against a June 2010 baseline of 100

2010-11 2011-122012-13 2013-14 2014-15

2015-16

100

105

110

TV licence fee collection Par t Two 27

Figu

re 9

Complaint

s to TV Licensing, 2010-11 to 2015-16

Annual complaints Complaints as a percentage of licences in for

The number of complaints has fallen by 50% since 2010-11

Sour

ce: BBC, Te levision Licence Fee Trust Statement for the year ending 31 March 2016, July 2016

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

0.00

0.02

0.04

0.06

0.08

0.10

0.12

5,000

10,000

15,000

20,000

25,000

Annual complaints

24,060 20,908 20,378 18,337 18,008 11,947

Complaints as a percentage 0.10 0.08 0.08 0.07 0.07 0.05

licences in force (%)

28 Part Three TV licence fee collection

Part Three

Operations, enforcement and marketing

3.1 Capita and Proximity carry out a range of operational, marketing and enforcement

activities as part of the process of collecting the licence fee. This part explores in greater

detail how well these activities support TV Licensing’s strategic objectives.

Operational performance

3.2 In most areas, Capita’s operational performance has improved over time. Capita

has focused on switching customers to more efﬁcient and cost-effective payment

channels (Figure 10), such as direct debits. The proportion of customers who pay using

direct debit increased from 70% to 74% between 2011-12 and 2015-16. This compares

favourably with the council tax direct debit payment rate, which was 58% in 2014-15.

3.3 Capita, through its call centres, and Proximity, through marketing campaigns, have

also focused on making interactions with customers more efﬁcient. For example:

•

the percentage of customers using self-service channels, such as automated

call-centre and online services, increased from 60% to 67% between 2011-12

and2015-16;

•

in 2015-16, 25% of customers chose to receive their licences by email, up from

12% in 2011-12;

and

•

Capita has improved call-centre processes. In December 2015, 80% of inbound

customer calls were resolved correctly at the ﬁrst attempt.

18 Chartered Institute of Public Finance and Accountancy (CIPFA) data from 129 of 348 local authorities in England and

Wales, based on 2014-15 CIPFA revenue collection statistics.

19 TV Licensing, The year in ﬁgures 2015-16, 2016.

TV licence fee collection Part Three 29

Figu

re 10

thods of TV licence payment, 2012-13 to 2015-16

Methods of payment (%)

Dir

ect debit is the main method of TV licence payment, with the number of people paying

this way incr

easing between 2012-13 and 2015-16

Direct debit (%) 71.1 71.8 72.6 73.5

Credit/debit cards (%) 9.9 10.1 10.4 10.5

Payment card (%) 8.0 7.9 7.9 7.6

ayPoint (%) 5.5 5.0 4.6 4.3

ia post (%) 3.3 3.1 2.6 2.4

avings card (%) 2.0 1.8 1.7 1.5

Home banking (%) 0.2 0.2 0.2 0.2

Post Ofﬁce (%) 0.1 0.1 0.1 0.1

Sour

ce: TV Licensing, TV Licensing Annual Reviews, 2012-13 to 2015-16, available at: www.tvlicensing.co.uk/about

our-performance-AB6

2012-13 2013-14 2014-15 2015-16

100

30 Part Three TV licence fee collection

Field and enforcement activity

3.4 Capita carries out visits for the purpose of sales and enforcement. As part of TV

Licensing’s aim to reduce evasion and increase revenue, Capita has tried to improve

enforcement activity, for example by using data to target more effectively which households

its ofﬁcers visit. The BBC and Capita’s objective is for visits to increase compliance, and

they prefer, where possible, for visits, even enforcement visits,to result in a payment rather

than prosecution.

3.5 According to a new contractual key performance indicator ﬁrst reported in March2016,

36.5% of visits in 2015-16 resulted in a successful outcome against a target of 35%.

Successful outcomes include a payment being made, an evader being caught, and other

outcomes, such as establishing that a property does not need a licence. Analysing the

outcomes of visits is complex. For instance, in 2015-16, of those evaders caught: 62%

made at least one payment towards a TV licence and 53% were convicted.

3.6 Overall, in recent years, Capita has carried out more enforcement visits (Figure11):

3million in 2015-16 compared to 2.7 million in 2010-11. Despite this, the number of evaders

it has caught has fallen by 18%, with some 67,000 fewer caught in 2015-16 than 2010-11.

Furthermore, in 2015-16:

•

the number of evaders caught during enforcement visits (around 298,000) was

15%lower than Capita’s internal target of 350,000;

•

the total enforcement and sales visits made (some 3.3 million) was 8% lower than

Capita’s internal target of 3.6 million; and

•

those visits led to around 604,000 sales (6% lower than targeted).

3.7 We examined the reasons for the apparent underperformance in what has been a

major area of focus for TV Licensing. Capita considered that the frequency and success

ofits ﬁeld visits had been affected by the following issues:

•

The number of people leaving ﬁeld teams outnumbered new staff joining in each

month from March 2015 to June 2016. In that month, there were just 327ﬁeldFTEs

against Capita’s target for 380. Capita told us that higher levels of staff turnover were

partly due to increased physical and verbal assaults, and instances of staff being

photographed and videoed by those they visited. There were 95physical assaults

reported in 2015. Capita told us these included some serious incidents resulting in

some ofﬁcers being hospitalised.

•

The number of full-time equivalent (FTE) ﬁeld staff reduced substantially when Capita

introduced a recruitment freeze between April and July 2015. This was introduced

while Capita restructured its pay scales and improved basic salaries forﬁeld staff in

anattempt to improve retention and working practices.

•

Some customers who might not have paid for their licence in the past have taken

advantage of more convenient and accessible payment schemes, meaning that

Capita’s visits are now focused on a more challenging group of delayers and evaders.

20 Sales and conviction ﬁgures from evaders caught do not add up to 100 per cent as some people make initial payments

thatdo not reach the threshold for their case to be dropped.

TV licence fee collection Part Three 31

3.8 While TV Licensing’s 2016-17 Revenue and Marketing Plan includes measures

intended to improve the allocation and outcomes of ﬁeld visits, and there is an annual

process of developing ﬁeld initiatives, this does not form part of a clear, long-term

strategic approach. Such a strategy might, for example:

•

articulate desired ﬁeld outcomes and how they will be measured and reported;

•

explain the appropriateness of Capita’s plans for the size, training and development

of its ﬁeld workforce; and

•

outline resources and savings requirements and challenges (and their potential

impact) over the duration of the strategy.

Figure 11

Capita ﬁeld activity and outcomes, 2010-11 to 2015-16

Visits, sales and evaders caught (million)

Capita has carried out mor

e enforcement visits, 3 million in 2015-16 compared to 2.7 million in 2010-11, but the number of

evaders it has caught has fallen

Source: Capita data

2010-11 2011-12 2012-132013-142014-15 2015-16

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Enforcement visits 2,712,950 2,712,583 2,706,973 2,981,995 3,505,429 2,980,279

Sales visits 1,478,640 1,292,808 1,152,744 823,120 480,657 352,274

Number of sales 681,268 710,307 728,560 732,777 712,951 604,333

Number of evaders caught 365,151 368,404 356,680 327,054 344,100 298,162

The current Capita contract

commenced in July 2012

32 Part Three TV licence fee collection

BBC’s use of benchmarking to support licence fee collection

3.9 The BBC benchmarks TV Licensing’s performance and processes against relevant

comparators. Its contracts with Capita and Proximity have clauses that allow it to carry

out benchmarking exercises.

3.10 The BBC last carried out a full benchmarking review of licence fee collection

in March 2010. This compared the performance of TV Licensing with organisations

collecting vehicle excise duty, council tax, the London congestion charge, and water

bills. It focused on processes for collection and recovery, customer service and contact

centres. In 2010, TV Licensing:

•

compared well on telephony performance and key performance indicator

scores. Italso had the highest level of direct-debit payments as a proportion of

allpayments.

•

compared less well on evasion rates and overall strategy, including how it deals

with different customer groups. It was also the second most expensive (of six

organisations) in terms of costs per staff member.

3.11 Since 2010, the BBC has not repeated a benchmarking review of similar scale.

However, it has carried out benchmarking exercises in discrete areas, for example

ondebt collection, and marketing and printing services, and has used benchmark data

on an ad-hoc basis in areas like complaints. The review of TV Licensing’s debt collection

organisation found it compared favourably with most comparators but with some

areas for improvement. The marketing review found Proximity’s rates were competitive

compared to similar organisations. The BBC has also shared good practice and

learninginformally with organisations such as the Driver & Vehicle Licensing Agency.

Marketing and campaign activity

3.12 Proximity communicates with customers through targeted marketing campaigns

to support revenue collection. The scale of its activity is considerable. In 2015-16, there

were 51.8 million direct mailings and 11.8 million emails to individuals. TV Licensing also

carries out wider marketing campaigns on television, radio and, increasingly, online.

As well as their primary purpose, these campaigns aim to maintain and improvethe

reputation of the TV licence and TV Licensing by contacting customers efﬁciently

andeffectively.

TV licence fee collection Part Three 33

3.13 Customising communications is an important part of the approach. Premises within

the TV Licensing database are assigned to one of three business units depending on

licence or payment status:

•

unlicensed – for premises without a TV licence;

•

instalment – for licensed premises paying through instalments; and

•

retention – for licensed premises not paying through instalments.

Within each unit there is further tailoring, for example based on past payment

methodsor areas with high levels of evasion.

3.14 Many elements of the overall approach to marketing and communications

demonstrate good practice. There is a robust understanding of customer behaviour,

based on data and evidence. This is well integrated with wider TV Licensing activities.

TV Licensing uses a ‘test and learn’ approach to evaluate the impact of changes

in itscommunication materials (Figure 12). TV Licensing also considers whether

marketingactivities are likely to increase demand elsewhere in its operations,

forinstance on callcentres.

Figure 12

An example of the ‘test and learn’ approach to marketing

Proximity used behavioural economics techniques to improve response rates and TV licence sales from

its hardest-to-reach group – the unlicensed population. This involved changing letters to these customers

to highlight incentives to act by: allowing a specified time to get a licence before further action was taken;

informing them when an investigation into non-payment had been launched; and making information about

paying and contacting TV Licensing as easy to understand as possible.

Proximity carried out a pilot test of the amended letters between September and December 2013. This

generated £347,000 of additional sales with the test group compared to a control group that did not receive

the new letters. Further analysis showed that customers in the test group were also more likely to make

contact with TV Licensing and less likely to make complaints.

Proximity subsequently rolled out the test approach more widely. It generated estimated extra revenue of

£3.3 million in 2015-16.

Source: National Audit Ofﬁ ce review of Proximity information

34 Part Four TV licence fee collection

Part Four

Managing the strategic contracts for

licencefeecollection

4.1 In 2015-16, the BBC had 11 strategic contracts on which it spent £464 million:

12%of licence fee income.

Both the main licence fee contracts, with Capita and

Proximity, are included in this group. This part of the report assesses how the BBC

manages these two strategic contracts.

Contractual and operational governance

4.2 In 2012-13, we reported that the BBC had governance structures capable of

monitoring all aspects of the performance of Capita and its other contractors.

TheLicence Fee Unit has authority to deal day to day with operational and contractual

issues, but there is a clear route for the BBC and its contractors to escalate issues

to the BBC Executive Board and the Trust if required (Figure 13). These governance

structures are supported by a group that shares information across all 11 contracts in

the BBC’s strategic contracts portfolio. A strategic contracts board receives quarterly

contract performance and savings reports, with an annual review process to share

lessons learned and provide contract benchmarks. The strategic contracts portfolio

infrastructure also delivers training and workshops to commercial staff.

Procurement processes

4.3 Before a procurement exercise, the BBC’s Licence Fee Unit collects information

on the wider market of providers delivering customer or enforcement services similar to

that of TV Licensing but in different sectors. The BBC does this to understand providers’

capability to bid for future BBC contracts. This supports the Licence Fee Unit’s oversight

and commercial management of its eight contracts.

21 Includes a human resources contract, which ended in March 2016 with services now delivered within the BBC.

22 BBC, Television Licence Fee Trust Statement for the Year Ending 31 March 2013, July 2013, p.36.

TV licence fee collection Part Four 35

Figure 13

TV Licensing contract and wider governance structures

Note

The BBC Trust is being replaced by a unitary board in 2017.

Source: National Audit Ofﬁ ce review of BBC information

Contract management Risk management Licence fee collection

BBC Trust

Director General

BBC Executive Board

Director of Finance

Finance and Operations

Commercial Forum

(BBC and Capita only)

Revenue and

Marketing

Forum

Various business units, forums

and groups

Operations

Forum

Individual contract commercial

reviews and meetings (usually

monthly and between BBC

and individual contractors)

BBC strategic

contracts

portfolio (STaR)

review

Risk management

Business assurance

Business Management

Review (considers risks

tothe whole of licence

feecollection)

Day to day and ad-hoc liaison between parts of the BBC (licence fee unit, finance, legal, etc.) and licence fee unit contractors,

primarily Capita and Proximity

Head of Revenue Management

Executive Management Forum (BBC, Capita, Proximity and PayPoint)

Risk reporting Information flow Partnership working with

tripartite decision-making

(BBC, Capita, Proximity)

BBC Licence Fee Unit

36 Part Four TV licence fee collection

4.4 Capita and Proximity have both been involved with collecting the licence fee, within

different consortia and commercial arrangements, since 2002. The current Capita and

Proximity contracts resulted from multiple-stage procurement processes. In both cases,

the BBC sustained market competition throughout the process, with three shortlisted

bidders submitting ﬁnal offers for each contract. All ﬁnal offers met quality and cost

requirements. For each contract, Capita’s and Proximity’s bids were the highest rated

for quality and the lowest in terms of cost. Both procurements also consolidated several

previous contracts into single contracts.

Commercial approach

The Capita contract

4.5 The Capita contract is based on four critical success factors:

•

continuously improve the cost of operational and support services;

•

improve collection rates through innovation, process improvement and

commercialincentives;

•

enhance the public acceptability of the licence fee; and

•

ensure service continuity in collecting the licence fee.

Contract performance

4.6 The contract planned to save £227 million over eight years, compared with

previous contract costs. The BBC reports it is on track to exceed these savings,

forecasting lifetime contract savings of £238 million.

4.7 Under its original terms, the Capita contract offered strong incentives to increase

revenue, as a means to increase the BBC’s income and reduce evasion. The main

payment mechanism gave Capita higher rates of payment for achieving higher

collectionrates:

•

Each year, the BBC agreed a minimum revenue collection level it expected Capita

to deliver (the contractor baseline). This was adjusted for estimated household

growth, the estimated number of households watching TV, and any changes in the

licence fee’s cost (though the cost has been frozen in recent years).

•

The BBC also agreed more stretching targets with Capita to improve collection

rates (the contractor forecast), thereby reducing evasion. Capita’s performance

against these targets determined the size of its revenue-based payments.

TV licence fee collection Part Four 37

4.8 The contractor baseline was achieved in every year of the contract apart from

2012-13.

However, in three of the four years covered by the original terms of Capita’s

contract, the amount collected has been below the contractor forecast (Figure 14), which

meant BBC payments to Capita were lower. In 2015-16, when the contractor forecast was

met, this was largely because of the Broadcasters’ Audience Research Board’s (BARB’s)

underestimate of the number of households with a TV (see paragraph 2.2). In essence,

the target was easier to achieve than it should have been. This has been addressed in a

contract renegotiation between the BBC and Capita (paragraphs 4.15 to 4.19).

23 July 2012 (when the contract began) to March 2013.

Figu

re 14

licence fee revenue collected against contractor baseline and

target

s, 2012-13 to 2015-16

£ million

The contractor baseline was achieved in every year of the contract apart fr

om 2012-13; while in

thr

ee of the four years the amount collected has been below the contractor forecast

tes

The baseline is the contracted minimum expected revenue collection level. It is adjusted for estimates of household

growth and licensable premises.

The revenue compared to baseline for 2012-13 includes only nine months (July 2012 to March 2013) as the Capita

contract commenced in July 2012. The revenue compared to target includes the full 12 months of 2012-13.

Sour

ce: BBC data

Revenue compared to baseline

Revenue compared to target

-4

-3

-2

-1

2012-13 2013-14 2014-15 2015-16

-16

-1

-16

-27

38 Part Four TV licence fee collection

4.9 The Capita contract also imposes ﬁnancial penalties (service credits) if performance

in deﬁned areas drops below agreed levels. Penalties can amount to a maximum of 11%

of total contract charges. Key performance indicators can be changed annually, but

currently relate to:

•

enhancing the TV Licensing brand;

•

contact centre performance, including measures on call response times and the

resolution of customer email queries;

•

the availability of technology, including self-service channels, core business

systems and the website;

•

ﬁeld performance, including measures relating to visits; and

•

data quality and completeness measures.

4.10 Overall key performance indicator scores have been high since 2012-13.

In2015-16, 97% of key performance indicators were at or above contractually-agreed

levels (Figure 15). Capita carries out analyses to understand any underperformance.

Since 2012-13, most underperformance has related to the availability of technology

and systems, with £565,000 in service credits deducted from the BBC’s payments

toCapitabetween 2012-13 and 2015-16.

The transition programme

4.11 An important part of the BBC’s contract with Capita was a transition programme

that was due to be fully completed by July 2016. The programme has achieved various

improvements including: restructuring contact centres; updating the TV Licensing

website; and upgrading handheld units that ﬁeld staff use to input visit attendance and

outcome information. However, the programme has not delivered signiﬁcant planned

changes to old ICT systems.

4.12 As noted in our 2002 report on collecting the licence fee, the BBC has had

a long-standing ambition to improve its main TV licensing databases so that their

structure would become based on individual customers rather than households.

Thiswould enable it to target its activity better by analysing individuals’ past addresses

and payment history. Additionally, the BBC believes it would improve efﬁciency and its

wider understanding of customer behaviour, as well as allowing it to respond better to

changesin licence fee policy or how people access licensable broadcast content.

24 Comptroller and Auditor General, The BBC: Collecting the television licence fee, Session 2001-02, HC 821,

NationalAudit Ofﬁce, May 2002, paragraph 2.14.

TV licence fee collection Part Four 39

4.13 Capita substantially subcontracted the transition programme to CSC Computer

Sciences Limited (CSC), which also provides the core ICT systems to support

TVLicensing. In all years of the contract, the BBC’s contract reporting noted concerns

about achieving intended milestones for some parts of the transition programme.

Therewere revisions to the programme in 2012-13, and further revisions were agreed

in March 2014. However, in September 2015, following a dispute between Capita and

CSC, the transition programme element of the contract was terminated. The BBC

told us that it is reviewing its approach to upgrading its ICT systems, and will delay

implementation for at least two years while it responds to licence fee policy changes.

The BBC gave approval to Capita for IBM to start the process to replace CSC as the

provider of existingcore systems in 2016.

Figu

re 15

Capita contract

key performance indicator levels, 2012-13 to 2015-16

Service credits payable (£)

KPI performance (%)

Key performance indicator (KPI) scor

es have been high with 97% of indicators at or above

contractually-agr

eed levels in 2015-16

The period 2012-13 covers July 2012 to March 2013.

Sour

ce: BBC data

Service credits payable (£) 185,000 75,000 230,000 75,000

KPI performance (%) 91 96 88 97

2012-13 2013-14 2014-15 2015-16

100

50,000

100,000

150,000

200,000

250,000

40 Part Four TV licence fee collection

4.14 The BBC has only paid Capita for elements of the transition programme that

weredelivered. Of the £50.7 million that would have been paid for full delivery, only

£22.9million has been paid. The BBC has also had to allocate £9 million of the

remaining £27.8 million, over three years, to support the ongoing use of old systems

that were due for replacement. But this is likely to be only part of the negative ﬁnancial

impact of the transition programme’s partial abandonment. The BBC has not sought to

quantify the revenue foregone by the programme not being delivered in full. Without the

new databases and other improvements, however, and given the delay of at least two

years, there is a risk that TV Licensing will be left with less ﬂexible ways of working and

increasingly expensive, aged ICT systems. This could result in:

•

more being spent on licence fee collection;

•

less capability to increase revenue;

•

risks to future service continuity if legacy systems cannot be fully supported; and

•

additional complexity and expense to respond to changes in licence fee policy.

The BBC told us it will review its intentions to modernise its systems after the new

RoyalCharter comes into effect in 2017.

The Capita contract renegotiation

4.15 The BBC’s contract with Capita transferred high levels of ﬁnancial risk to the

contractor. Under the payment mechanism, Capita’s failure to meet stretching revenue

targets reduced its proﬁt on the contract, and it was also not paid for the aspects of the

transition programme that have not been delivered.

4.16 The ﬁnancial risks to Capita increased when problems with BARB’s estimate of

TVhousehold data were discovered (paragraph 2.2). BBC analysis suggested that, if the

previous contract payment mechanism had been maintained using revised BARB data,

Capita would have had to make additional savings beyond those already planned, which

would have increased the risk of less TV licence revenue being collected. In the interests

of sustaining the contract and maximising net licence fee revenue, the BBC and Capita

agreed to renegotiate the contract. The BBC’s Executive Board and the BBC Trust

approved new contractual arrangements in October and November 2016, respectively.

These included:

•

Providing greater cost certainty for both the BBC and Capita, to reduce risks to

the sustainability of the contract. Payment to Capita will be based primarily on a

ﬁxed charge equating to Capita’s existing operational costs, with more modest

incentives and penalties than under the previous terms for performance above

or below target. If Capita exceeds its annual target by up to £20 million, the BBC

will pay up to an additional £4 million. The BBC stated this level was calculated

following a review of contract performance over the last ﬁve years. An equivalent

arrangement applies in reverse with up to £4 million deducted from Capita’s

payment if it misses the target by up to £20 million.

TV licence fee collection Part Four 41

•

Changing revenue targets to align with the BBC’s central estimate of expected

licence fee income, adjusted for household growth and the number of TV

households (what the BBC calls its budget estimate) rather than the more

stretching contractor forecasts (paragraph 4.7).

•

Ensuring that Capita does not reduce the amount it spends – or the number of

people it employs – on its licence fee collection contract without the approval of the

BBC. The BBC and Capita would share any savings from future cost reductions,

which the BBC intends to validate using pre-existing open-book monitoring of

Capita’s costs and operations. This may require additional BBC investment in

contract management in order to oversee routinely Capita’s costs and proﬁts.

4.17 The BBC and Capita also agreed to extend the contract for two years, up to the

end of June 2022. The BBC’s rationale for doing this was to align the contract with

the mid-term review of the Royal Charter

and avoid contract extension negotiations

happening in 2020, when the BBC will become responsible for licence fee concessions

for those aged 75 and over (paragraph 1.13).

4.18 Overall, the BBC told us that it expects the new arrangements to have no impact

on the net revenue collected, compared with its current revenue expectations. It will,

however, pay Capita £25 million more than under the previous payment mechanism, over

the duration of the original contract term. The BBC considers that this will be offset by:

•

retaining £13.6 million that it had held as a provision to pay Capita for achieving

high levels of revenue collection in 2015-16. The BBC considered that Capita

achieved its contractor forecast, and earned this additional amount, because of

BARB’s underestimate of the number of TV households; and

•

increasing the revenue target for 2016-17, so that it is £12 million above the BBC

budget of £3.74 billion, which forms the basis of the revenue target under the new

contractual terms. Any changes, resulting from the new licence fee settlement

(Figure 5) that have an impact on Capita’s costs or ability to collect revenue will be

managed through separate contractual change processes.

4.19 While the contract has been renegotiated to improve its sustainability by changing

the balance of ﬁnancial risk, and the BBC forecasts that net revenue levels will be at

least equal to that under the previous arrangements, there remains a risk that the revised

terms will provide insufﬁcient incentives for Capita to increase revenue and reduce

evasion to the levels originally planned when the contract was awarded in 2011.

25 Department for Culture, Media & Sport, Draft BBC Charter and Draft Framework Agreement, September 2016, p.29.

42 Part Four TV licence fee collection

The Proximity contract

4.20 The majority of Proximity’s payments relate to staff costs at contractually-agreed

rates. Some payments are, however, performance-related and linked to objectives that the

BBC sets. In 2015-16, these objectives related to licence fee income, reputation, complaint

levels, and Proximity’s contribution to the transition programme. Proximity achieved a high

proportion of these performance-related measures.

4.21 Separately, Proximity can be penalised for underperformance, for instance on the

accuracy and delivery of campaigns, and the availability of core systems. Proximity must

also provide the BBC with a report explaining campaign errors. If it delivers this report

late it can incur a service credit.

4.22 Generally since 2010-11, Proximity has incurred few penalties under the contract,

with the vast majority of indicators being achieved (Figure 16). In total, between 2010-11

and 2015-16, the BBC deducted £77,500 from payments to Proximity. Most of this related

to campaign errors. Proximity carries out analyses to understand any underperformance.

Commercial capability

4.23 The BBC’s Licence Fee Unit manages its contracts with support from wider

BBCﬁnance, procurement, legal and analytical staff, when necessary. In 2015-16,

some2.2 full-time equivalent (FTE) staff managed the Capita contract, including 10% of

a manager’s time to provide the BBC with assurance over the progress of the transition

programme, with 0.5 FTE staff managing the Proximity contract. Contract management

costs, respectively, accounted for 0.4% and 0.5% of contract costs. This is lower than

the average of 0.8% across the BBC’s 11 strategic contracts.

4.24 The BBC Licence Fee Unit does not routinely assess its commercial skills and

future requirements. This will be particularly important within the context of changes to

policy, the wider environment for collecting the licence fee and contract requirements

over the next two years and beyond.

TV licence fee collection Part Four 43

Figu

re 16

oximity contract key performance indicator scores, 2010-11 to 2015-16

Service credits payable (£)

Key performance indicator scor

es have been high with 94% of indicators at or above contractually-agreed levels in 2015-16

KPI performance (%

)

Sour

ce: BBC data

Service credits payable (£) 10,000 8,500 20,500 11,000 17,500 10,000

KPI performance (%) 92 94 94 92 88 94

5,000

10,000

15,000

20,000

25,000

2010-11 2011-12 2012-13 2013-14 2014-152015-16

44 Appendix One TV licence fee collection

Appendix One

Our audit approach

1 This study examined whether the BBC’s approach to managing the collection and

enforcement of the TV licence fee provides value for money.

2 Our analytical framework was based on assessing the BBC’s ability to maximise

licence fee revenue and meet current and future risks. We reviewed:

•

the BBC’s performance against its objectives to increase revenue, reduce costs,

and improve the reputation of the TV licence and TV Licensing;

•

the BBC’s management of its strategic contracts for licence fee collection;

•

the operational performance of Capita and the BBC’s Licence Fee Unit; and

•

the BBC’s response to a changing external environment, including future

opportunities and challenges.

3 Our audit approach is summarised in Figure 17. Our evidence base is described

inAppendix Two.

TV licence fee collection Appendix One 45

Figure 17

Our audit approach

Our evaluative

criteria

We assessed the

BBC’s performance

against TV

Licensing’s overall

objectives to

increase revenue,

reduce collection

costs and improve

the reputation of

the TV licence and

TVLicensing.

We explored the BBC’s

response to a changing

licence fee collection

environment, and

outlined opportunities

and challenges in

thefuture.

We reviewed the operational performance

of Capita and the BBC’s Licence Fee

Unit, with particular focus on self-service

migration, process efficiency, field and

enforcement activity, and user satisfaction.

We evaluated

the BBC’s

management

of its strategic

contracts

for licence

feecollection.

Our evidence

(see Appendix Two

for details)

Our study:

•

Reviewed internal and external

published documents.

•

Interviewed senior management and

operational staff within the BBC and

itscontractors.

•

Undertook quantitative data analysis,

including on revenue collection,

collection costs, reputations,

complaints and contract management.

•

Used the NAO’s commercial

assessment framework

(seeAppendixThree).

•

Used the NAO’s data and modelling

assessment toolkit.

Our study:

•

Reviewed internal

andexternal

published

documents.

•

Interviewed senior

management and

operational staff

within the BBC and

its contractors.

•

Attended and

observed a

meeting of the

monthly Operations

Forum.

Our study:

•

Reviewed internal and external

published documents.

•

Interviewed senior management and

operational staff within the BBC and

itscontractors.

•

Undertook quantitative data analysis,

including on enforcement visits.

•

Benchmarked the BBC’s performance

against relevant public, private and

international comparators.

•

Shadowed enforcement officers

visiting premises in London.

•

Visited the main Capita contact

centre and observed a TV Licensing

Operations Forum.

•

Used the NAO’s behavioural insights

evaluative framework.

The BBC’s

objective

The BBC’s overall aim in collecting the licence fee is to increase long-term net revenue in a way that sustains public support

for the TV licence. Maximising net revenue depends on increasing revenue, while reducing evasion and collection costs.

How this will

beachieved

The BBC uses a contracting model to collect the licence fee. The two main contracts, with Capita and Proximity

respectively, heavily incentivises the providers to increase revenue that is collected, reduce the costs associated

withcollection, enhance the public acceptability of the TV licence, and ensure the continuity of service provision.

Our study

This study examined whether the BBC manages the collection and enforcement of the television licence fee

inawaythat achieves value for money.

Our conclusions

The BBC has made progress against most of its main performance measures for collecting the licence fee, increasing

revenue every year since 2010-11, albeit often below target levels, reducing collection costs, and improving the reputation

of TV Licensing among the general population. In these core aspects of its activities, it has improved value for money.

This progress is welcome but the BBC has had less success delivering its aim to reduce licence fee evasion. Theevasion

rate is higher than was previously thought and it is now unlikely that the aspiration to reduce it to 3.95% will be achieved.

Inthis context, catching fewer evaders than previously is worrying. Furthermore, due to the incomplete transition

programme, the BBC’s optimisation of efficiency and effectiveness has been delayed. The BBC, therefore, has scope to

improve further the value for money of licence fee collection.

46 Appendix Two TV licence fee collection

Appendix Two

Our evidence base

1 We reached our conclusions on whether the BBC manages the collection and

enforcement of the television licence fee in a way that achieves value for money following

analysis of evidence collected between June and August 2016. Our audit approach is

outlined in Appendix One.

2 We assessed the BBC’s performance against TV Licensing’s overall

objectives to increase revenue, reduce collection costs and improve the

reputation of the TV licence and TV Licensing in the following ways:

•

We reviewed internal and external published documents, including revenue and

marketing plans, TV Licensing annual reviews, licence fee collection strategies,

andreports to the BBC Executive Management Forum.

•

We interviewed staff from the BBC, Capita and Proximity across a number of

rolesincluding ﬁnance, performance and planning, commercial, marketing,

andportfolio management to understand how strategic objectives are balanced

and prioritised.

•

We analysed quantitative data to assess performance in various areas, including

revenue collected, collection costs, reputation and complaints.

•

We used our modelling review framework, supplementing the Comptroller

andAuditor General’s reports as part of the BBC’s annual Television Licence Fee

Trust Statements, to assess whether the BBC’s evasion model was reasonable

androbust.

3 We evaluated the BBC’s management of its strategic contracts for licence

fee collection. We did this in the following ways:

•

We reviewed internal and external published documents, including original

business cases, contract documents, revenue and marketing plans, and relevant

annual strategic contract reports that are produced by the BBC across its 11 major

outsourced contracts.

•

We interviewed staff from the BBC, Capita and Proximity across a number of

roles including the ﬁnance and contract management teams to explore the BBC’s

procurement and commercial approaches, including its management of the two

main licence fee collection contracts.

TV licence fee collection Appendix Two 47

•

We analysed quantitative data in commercial areas, including on key performance

indicators, service credit payments and contract management costs.

•

We used our commercial assessment framework to assess the maturity of

the BBC’s commercial approach in various areas, including its commercial

strategy, stafﬁng and allocation of ﬁnancial and operational risks to contractors

(seeAppendix Three). We also considered the impact of the recent Capita

contractrenegotiation.

4 We reviewed the operational performance of Capita and the BBC’s Licence

Fee Unit inthe following ways:

•

We reviewed internal and external documents, including TV Licensing annual

reviews, external reviews, revenue and marketing plans, licence fee collection

strategies, and annual reports to the BBC Executive Management Forum.

•

We interviewed staff from the BBC, Capita and Proximity across a number of roles,

including front-line operations, planning and performance, and ﬁnance to evaluate

the approach to operational planning and management.

•

We analysed quantitative data on evasion rates, direct debit and self-service use,

online sales, complaints, reputation measures, ﬁeld visits and outcomes, and

numbers of full-time equivalent staff.

•

We benchmarked the BBC’s performance against relevant public, private sector

and international comparators in key areas such as direct debit use, rates of

evasion and complaints.

•

We undertook a site visit to the main Capita contact centre in Darwen and

observed a monthly Operations Forum.

•

We shadowed two enforcement ofﬁcers during ﬁeld visits in West London.

•

We used our behavioural insights evaluative framework to assess the approach

tomarketing and user insight.

48 Appendix Two TV licence fee collection

5 We explored the extent to which the BBC captures changes to its operating

environment and responds appropriately. We did this in the following ways:

•

We reviewed internal and external published documents, including BBC Television

Licence Fee Trust Statements, the Department for Culture, Media & Sport’s white

paper A BBC for the future: a broadcaster of distinction, independent research

reports on audience behaviour and trends, and BBC project documents.

•

We analysed quantitative data on debt and advice trends from Citizens’ Advice.

•

We interviewed senior staff from the BBC, Capita and Proximity to understand

their approach to considering future change, how they identify challenges and

opportunities, and to explore their response to upcoming policy, legislative and

operational challenges.

•

We observed a monthly meeting of the Operations Forum, which included

discussion of the Licence Fee Unit’s response to future risks and threats.

26 Department for Culture, Media & Sport, A BBC for the future: a broadcaster of distinction, May 2016.

TV licence fee collection Appendix Three 49

Appendix Three

NAO commercial assessment framework

1 To structure part of our review we used the National Audit Ofﬁce’s commercial

assessment framework.Theframework has been developed to help audit commercial

relationships across seven stagesofacontract’s lifecycle. It uses existing knowledge and

experience from across government to identifywhatgood practice looks like.

Figure 18

Findings on the BBC’s strategic contracts for collecting the TV licence fee

Area

Summary Paragraphs

Commercial strategy:

Is there an

overarching commercial strategy,

withaclear rationale for the approach

being taken?

The commercial strategy for the Capita contract is based on four

critical success measures. These align with the TV Licence Fee

Collection Strategy’s aim of growing “…long-term net licence

fee revenue in a way which sustains public support for the TV

licence”, which is also supported by the terms and structure of

the Proximity contract.

1.11, 4.5 to 4.10,

and4.20to 4.22

Commercial capability and governance:

Does the BBC have the capability

needed to manage the contracts and is it

developing capability for the future?

Extensive contract governance and reporting are supported by

a multi-disciplinary team model and a wider strategic contracts

infrastructure. Contract management costs are lower than the

average across the BBC’s 11 strategic contracts and the BBC

Licence Fee Unit does not routinely assess its commercial skills

and future requirements.

4.2, 4.23 and 4.24

Market management and sourcing:

Has sourcing supported the commercial

strategy and followed recognised good

practice to optimise value for money?

The contractors have been involved with TV Licensing since 2002

but there was competition throughout the procurement forboth

contracts. The supplier market is known and managed.

4.3 and 4.4

Contract approach:

Does the

balanceofrisk and reward

encourageservice improvement,

minimiseperverse incentives and

promotegood relationships?

The BBC’s contract with Capita transferred high levels of financial

risk to Capita. Following revisions to BARB data on the number

of households with a TV, the levels of revenue that Capita needed

to achieve over the remainder of the term made the contract less

profitable, creating a risk that Capita would reduce its spending

to the detriment of TV Licensing’s objectives. In the interests of

sustaining the contract and maximising net licence fee revenue,

the BBC and Capita agreed to renegotiate the contract, with key

terms including a new payment mechanism and providing the

BBC with more assurance of Capita’s spending on the contract.

4.5 to 4.10, 4.15 to

4.19, and 4.20 to 4.22

50 Appendix Three TV licence fee collection

Area

Summary Paragraphs

Contract management:

Is the service

being managed well, with costs and

benefits being realised as expected?

Extensive contract governance and reporting are supported

by the strategic contracts infrastructure that provides regular

reporting, sharing of lessons learned, and delivers training

andworkshops.

Key performance indicators and service credits for both

contracts have incentivised operational improvements.

Performance has been high (88% or above) in every year of

both contracts. Data is validated through automated contractor

systems, supplemented by manual checks.

4.2, 4.4, 4.9 to 4.11,

and4.15 to 4.24

Contract lifecycle:

Will the service

continue to demonstrate value for money

through its lifecycle?

The contract has delivered strong operational performance

andincremental improvements, collection costs have decreased

and revenue has increased. However, targets to meet stretching

licence fee revenue increases (as a means to increase the BBC’s

income and reduce evasion), and introduce improvements to

legacy ICT systems as part of a transition programme, have not

been delivered. Furthermore, risks to the financial sustainability

of the Capita contract have led to itbeing renegotiated.

2.3 to 2.21, 3.2, 3.3,

and4.11 to 4.19

Transitions:

Is the BBC ready for the end

of the contract?

The BBC’s contract with Capita was set to end in July 2020,

withthe option to extend the contract by up to seven years.

Recent negotiations have extended the contract to 2022.

TheBBC’s contract with Proximity has been extended twice –

to end in April 2018. The supplier market for both contracts is

known andmanaged.

1.4, 4.3, 4.4, and

4.15to4.19

Figure 18

continued

Findings on the BBC’s strategic contracts for collecting the licence fee