Don't mess with the model

There are a number of hot takes on the Ukraine war and the implications of Brexit for the UK’s role in world events. Thankfully this is not one of them. Instead this post looks at the media, specifically the role of public service broadcasting and how it should be funded. I must confess to having started writing this post before last week’s events and then put it aside. But on reflection and in light of the importance of the media in broadcasting events from Kyiv and Moscow, this remains a topical issue.

Public service broadcasting (PSB) has dominated the airwaves of nearly all countries for the better part of a century. It can best be defined as broadcasting intended for public benefit rather than to serve purely commercial interests, providing universal access to high-quality content, free at the point of use. The BBC, which celebrates its centenary this year, was one of the pioneers of PSB but broadcasters in Japan (NHK, 1924), Denmark (DR, 1925), Switzerland (SRG, 1925) and Finland (Yle, 1926) run  it close. Almost every country in the world offers PSB in some form or another – even the US, which has long been a pioneer of free market broadcasting. Germany, for example, has two public broadcasters (ARD and ZDF) which are funded via a licence fee model whilst France has five different entities (only one of which is a television service).

During its long existence, the BBC has established a reputation for free and fair reporting as well as high quality output. At a time when the number of news and entertainment channels has multiplied, questions are increasingly being asked of the BBC, and indeed of other broadcasters around the world, as to whether current funding models are appropriate and whether there is still a role for state-backed media.

Brand recognition is important

In a world where it is becoming increasingly difficult to differentiate between factual reporting and fake news, the importance of having a trusted brand in the media space is more important than ever. Public media scores highly for trustworthiness in Germany whilst the BBC performs well both at home and abroad on this score. According to a report in 2020: “The 2020 Reuters Digital News Report found the BBC to be the most trusted news brand in the United States. A full 56% of U.S. respondents rated the BBC as “trustworthy” … putting BBC News No. 2 only to “local television news,” and ahead of all major US news brands.” That might surprise many people in the UK who have been critical of the BBC’s domestic news coverage in recent years, but it is a reminder that it has a lot of global credit in the bank.

In the post-Brexit environment where the government extols the virtues of a global Britain it may come as a surprise to many that it does not share this positive view of the national broadcaster. Last month, the Culture Secretary Nadine Dorries called into question the BBC’s funding model with this article citing sources who suggested that “the days of state-run TV are over” and “it’s over for the BBC as they know it.” It is unfortunate that the BBC has now become an unwilling participant in the culture war which rages across social media these days. Much of the debate is fuelled by political considerations which to some extent represent the self-interested pursuit of those who would benefit from its demise. Despite this, and the fact that the BBC is part of the national fabric with a very strong global reputation, there are serious questions about how to fund public service broadcasting in an era of multimedia options.

Assessing the funding options

One of the most common objections to public service broadcasters is that the flat charge used to fund them acts as a regressive tax. Recently, however, a number of European broadcasters have changed the funding model. In 2013, Finland shifted to a progressive ‘tax’ paid by all individuals on a means-tested sliding scale to fund its public service broadcaster. Denmark has abolished the mandatory licence fee and the state broadcaster is now funded directly from central government tax revenues. The BBC is still funded by an annual levy which is device dependent (i.e. all those who consume BBC services must pay the fee). There is no sign that this is as much of a problem as many politicians seem to think. A recent parliamentary report suggested that “support for the principles behind public service broadcasting remains strong.” Moreover, in 2018, the Swiss electorate rejected efforts to cut taxpayer funding to public broadcasters, after a campaign that stirred debate about the media’s role in fostering national unity.

In the UK, the debate is often portrayed as a choice between maintaining the licence fee or adopting a Netflix-style user subscription. But there are other choices. Germany, for example, has introduced a household fee that sits outside of the state budget and is not tied to the ownership of a specific device or the use of particular media services. As with other public services, all citizens pay, regardless of their use of public service broadcasting. This is a similar principle to the Council Tax used to fund local UK services. Those who oppose the licence fee on the grounds it is regressive will find even more to object to in this model unless some account is taken of household income. However, it does have the advantage of eliminating the free-rider problem and could, in theory, lead to higher revenues. One study[1] suggested that if such a model were applied in the UK it would, assuming zero evasion, raise more revenue than the current funding model. But an evasion rate of 3.6% would produce no significant revenue gain. For the record, the UK evasion rate is currently estimated in excess of 7%.

A subscription-based service is generally not regarded as suitable for a PSB model since it is only available to those who choose (and can afford) to subscribe, thus defeating the objective of public service broadcasting to provide content for public benefit rather than financial gain. Indeed the broadcaster would be under pressure to provide content only for its subscribers. Against that, one advantage often put forward is that it reduces the role of the state which in the UK controls the granting of a Royal Charter every ten years. However, the BBC's editorial independence is enshrined in the Charter. Changing to a subscription model runs the risk of undermining the brand.

Ultimately PSB has to be viewed as a ‘merit good’ that creates positive social externalities, generally acting as a form of national glue, and which should be provided on this basis rather than ability and willingness to pay. Watching reporters from around the world covering events in Ukraine acts as a reminder that they are providing a valuable public service. Just as during the height of the Covid pandemic, people turn to their national broadcasters during time of national emergency. We should be thankful for the job they do and we mess with the way we fund them at our peril.

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[1] Ramsey P. and C. Herzog (2018) ‘The End of the Television Licence Fee? Applying the German Household Levy Model to the United Kingdom’, European Journal of Communication, 33, pp 430–444

Getting the message across

They say you should never believe everything you read in the newspapers, although in today’s post-truth world I wonder whether you can believe anything. We all suffer from various cognitive biases and tend to believe those elements of the media which affirm our own prejudices. Bearing this in mind, I was gratified to read the headline in today’s Irish Times, pointing out that the “British government realises Brexit is a mistake”. It goes on to quote John Callinan, the second secretary-general at the Department of the Taoiseach, who pointed out that the UK government is now “slowly” beginning to understand that Brexit is “an act of great self-harm.”

Whilst I did point this out last weekend (here) it is gratifying to hear others say what I – and most of the economics profession – have been saying for the past four (and more) years. The worrying thing, of course, is that the article uses the adjective “slowly” to describe the UK government’s dawning realisation of the scale of the challenge. If that is indeed true, it is not the cognitive biases of our elected representatives we should be worried about, but their cognitive processing power. Indeed, there was a total absence of leadership during the referendum campaign with no politician daring to make a coherent statement about the benefits of EU membership which was able to tug at the heartstrings in the way that the Leave campaign managed. There was very much a sense that politicians faced an onslaught from a press which seemed only to be interested in making the case for Brexit. To put it simply, it was as if we lived through a period when rationality broke down.

It is not the first time we have been through this. I was reminded of the article by Chris Dunkley, the Financial Times TV critic in 1997, who described the TV coverage of the funeral of Diana, Princess of Wales by highlighting that the British public had engaged in some kind of collective breakdown. He pointed out that although 60% of the British population tuned in to watch it on TV, that still meant a sizeable minority of 40% did not, but given the way in which it was reported one would have thought that everyone was glued to their TV. Unfortunately I no longer have a copy of the article to hand, so I am quoting from memory, but it got to the heart of the way in which events are distorted by the popular press so that it becomes part of the accepted narrative.

In a similar vein I was struck by a paper I came across recently which looked at the way in which Jeremy Corbyn has been portrayed by the British press. The study, produced last July by Bart Cammaerts, Brooks DeCillia, João Magalhães and César"Jimenez-Martínez of the LSE’s Department of Media and Communications (here), pointed out that “Corbyn was represented unfairly by the British press through a process of vilification that went well beyond the normal limits of fair debate and disagreement in a democracy … He was also systematically treated with scorn and ridicule in both the broadsheet and tabloid press in a way that no other political leader is or has been … The result has been a failure to give the newspaper reading public a fair opportunity to form their own judgements about the leader of the country’s main opposition.”

As one who does not have much time for Corbyn’s policies on the whole, this is a very astute observation. The paper goes on to point out that “UK journalism played an attack dog, rather than a watchdog, role. This is unhealthy from a democratic point of view and poses serious ethical questions as to the role of the media in a democracy, especially when it concerns the legitimate contestation of the Government of the day.” Such behaviour was also evident in the run-up to the 2015 general election, when Labour leader Ed Miliband was portrayed as “Red Ed”, a dangerous socialist who would damage the national interest (not, of course, like the current government whose Brexit policy should in no way be seen as damaging to the national interest).

I have no wish go further into the debate about the role of the media where the likes of Simon Wren-Lewis have discussed it in much detail (here). But we should be very aware of uncritical acceptance of policies such as Brexit (or indeed Trumpism) which make seductive promises which cannot be met. It is incumbent on all of us (politicians included) to act responsibly in the face of some of the wilder policy claims in the press (or indeed social media). Otherwise, it will not just be politicians who have a slow dawning realisation that their positions are untenable. Once voters realise it, they may become even angrier than they are now, and that would definitely not be good for our democracy.

The popularity contest

I had the pleasure today of participating in a roundtable discussion on the subject of (yes, you guessed it) Brexit. In the course of chatting with some of the attendees, I happened across a senior and very well-connected businessman who told me that in the past he had dealings with Theresa May and her department in her capacity as Home Secretary. What was shocking was the story he told of how he had tried to make certain policy suggestions in order to improve business operations, only to be told to get them in the Daily Mail first and then government would listen (I am not making this up).

His reaction was the same as mine: How on earth can a government whose job it is to manage the country in the interests of its people possibly think that policy can best be served by courting the tabloid press? All politicians know that you can’t please all the people all the time but sometimes you have to take unpopular decisions in order to do the right thing. I am reminded of the great quote from the BBC satire The Thick of It (here), which I must confess to having used before but it is so accurate in this instance, which states that many political decisions are taken by “a political class, which has given up on morality and simply pursues popularity at all costs.”

With this little snippet of information in mind, many aspects of government policy now become a lot clearer. It explains, for example, why Theresa May has suddenly gone from being a nominal supporter of the Remain campaign to one of the most ardent advocates of a hard Brexit. And it certainly explains today’s decision by Chancellor Philip Hammond to reverse the increase in National Insurance Contributions for the self-employed. As I noted a few days ago (here), the economic rationale for raising NICs was sound enough. Indeed, the Chancellor reiterated that “the government continues to believe that addressing this unfairness is the right approach … However, since the budget, parliamentary colleagues and others have questioned whether the increase in class 4 contributions is compatible with the tax lock commitments made in our 2015 manifesto."

But if the rationale for implementing the policy was correct, then it logically follows that he has made an economic mistake by reversing the decision. Quite clearly, the decision has been made on political grounds, with the manifesto commitment used as justification. That in itself raises a question of whether the government – and don’t forget that the decision to raise NICs in the budget would have been approved by the prime minister – recalls what it promised in the 2015 election campaign? Or did they just think that no one would notice? Having caved in to populism on this issue, what is to stop the tabloid press making life even more difficult for the government in future? Flip-flops on policy issues like this do not bode well for the government’s policy credibility and should be avoided at all costs.

It also raises a bigger question, which one of the participants raised at today’s event. If in, say, 2019 or 2020 the UK economy has been severely damaged by the prospect of Brexit and the electorate is restive, would the government be tempted to backtrack on its Brexit promise? My answer to that question was, given what we have heard on the issue so far, it would be most unlikely to do so. But knowing what I know now, if the Daily Mail were to change its mind, you would not bet on a change of heart from the government either. Or as Carole King put it, in the song Change in Mind, Change of Heart, “The things that once held meaning / We're no longer sure about.”