MUMBAI: Realistic funding through a new, long term licence fee settlement is essential if the BBC is to fulfil the Government's ambitious goal for digital switchover laid down in the new 10 year BBC Charter. This is the message that BBC DG Mark Thompson has sent out..

"Few people outside the industry have registered the scale of task – or the scale of the money required. This is a project of great size and intricacy. The risks are formidable. If it is under resourced it will fail. It's a simple as that – and the failure will impact on many millions of households," Thompson said in a speech at the Smith Institute.

"If all that was wanted in the new Charter was a steady-state BBC with the same line up of services and the same level of quality, we could deliver that well within our current resources. If you want a BBC which does no more than it is currently doing, then a budget that reduces in real terms - RPI-minus - is the right settlement."

Thmpson points out that a tough regime of productivity and cost reduction within the BBC over recent years will release an additional £355 million per year for new investment from 2008 – a total of £3bn over the next Charter. He adds that recent benchmarking and independent reports show the BBC is close to the 'efficiency frontier' and its proposals for continuous efficiency improvements should keep it there.

However to deliver the full mission set out by the Government the BBC could only fund 70 per cent of the costs itself though savings and efficiencies. thompson notes that the BBC needs additional net investment to fund the rest of the plans that successive reports have shown the public understands and is willing to pay for.

He said that the BBC's current licence fee bid could reduce to around RPI +1.8% (from RPI +2.3%) if, among other factors, the broadcasting regulator Ofcom decided not to levy a spectrum tax on the BBC over the next licence settlement period.

This would mean a licence fee of £149 in 2013/14 in today's prices, well below the £162.66 that the recent Work Foundation report commissioned by the Government says that licence payers would be wiling to pay. This bid would still include the wider broadcasting industry costs of switchover and building the digital transmission network for both TV and radio as well as investment in planned new digital access services through on demand and mobile.

The bid does not include the costs of targeted help for the most vulnerable which need to be ring-fenced but that the Government have said will be paid through the licence fee. He adds, "Historically the most powerful argument for a relatively long settlement has been a guarantor of the BBC's independence. Digital switchover will take place over the next seven years. The BBC's mission over the next seven years is crystal clear in the White Paper. There is a powerful case for settling the BBC's funding for the same period."

Thompson stressed that, in the event of a low settlement, the new BBC Trust would have to make some difficult decisions about what not to do, in the interests of public value and the BBC's current £1bn a year investment in the UK's wider creative industries. "We can't do everything. We can't rob existing core services to pay for switchover."

He said that in the event of a low settlement, he would not be able to recommend to the Trust that the BBC should go ahead with the transformational plan for creativity and jobs in the North based around a new broadcast centre in Salford. "We would have to find other, more modest ways of increasing our investment in the North."

In terms of public value he said: "Benchmarked against most of the public sector, the BBC has demonstrated one of the strongest and most consistent records of delivery. "It is wrestling with many of the same issues as the rest of the public sector, how to reform and modernise; how to drive efficiencies and improve quality at the same time. But it's still a success story in terms of delivery, public confidence and the ability to change and re-invent itself."