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 bodies he intended to reform the funding mechanism for S4C by removing its link with the Retail Price Index (RPI) and introducing a partnership arrangement with the BBC.

The Government is committed to Welsh Language programming and to the future of S4C as an independent service. The Government wants to ensure that the channel offers the best possible Welsh Language service to its audience and feels that the best way to secure its future while delivering a better service is through a partnership with the BBC.

The partnership arrangements should ensure an independent Welsh Language Service, retaining its brand identity and editorial distinctiveness, and that the service continues to meet the needs of the audience, whilst also helping the Government to reduce the fiscal deficit.

The Government is seeking increased efficiency of delivery at S4C as the existing funding mechanism has become unsustainable in the context of the public spending review. It was announced in October 2010 that S4C’s funding will be reduced from 2011/12; and that from 2013/14 the majority of S4C’s funding will come from the BBC Licence fee.

On 11 July 2011, a written statement was made in the House of Commons setting out the Government’s plan to reform the funding mechanism for S4C by removing the link with the retail price index (RPI) and add the relevant provision for removing the RPI/funding link to the face of the Public Bodies Bill currently in Parliament. This is simply a change to the proposed legislative mechanism by which S4C’s funding changes will be made and will give Parliament the opportunity to debate the change as part of the passage of primary legislation.

As S4C’s funding is enshrined in legislation, these changes can only be effected through legislation. Non regulatory measures will not produce the intended outcomes.

In the context of the Comprehensive Spending Review, Government is seeking greater efficiency in the service provided by S4C. Improved efficiency would mean that the benefits from S4C’s service could be delivered with greater value for money to the Exchequer. The main economic and social benefits from S4C, beyond its contribution in output and jobs, are outlined below. The proposed policy, removing the funding link with RPI, is intended to make achieving these benefits more cost effective.

S4C provide a high quality service, which can leave viewers better informed, or enhance their knowledge of Welsh language and culture. Individuals therefore gain more from watching S4C, for example through obtaining better information, than they may realise. The service provided by S4C can therefore be classed as a merit good, which is undervalued under usual market mechanisms. As a public sector broadcaster, one person’s viewing of S4C broadcasts does not prevent others from viewing them; and S4C cannot feasibly prevent anyone from viewing its service in areas to which it broadcasts. In other words, S4C’s service is a public good, warranting Government intervention. In addition, S4C’s focus on Welsh language and cultural programming leads to positive cultural spillovers, for example through generating interest and engagement in Welsh cultural events. All of these effects mean that Government intervention into the market is required to avoid under-provision of this type of service.

The presence of S4C increases plurality in the Welsh television sector. S4C provides an alternative source of information and entertainment to other public and private sector broadcasters. This ensures that viewers can access different perspectives and helps increase the reach of public sector broadcasting to different audiences. In addition, the focus of S4C on commissioning programmes from a number of independent Welsh production companies enhances plurality in production. Increased plurality of broadcasting and production is likely to stimulate greater competition, improving the quality of public sector broadcasting in Wales.