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Ofcom Funding for the year 1 April 2007 to 31 March 2008

2007/08 Budget and 2006/07 Outturn

1.1 Ofcom’s proposed work programme is set out in its Annual Plan, which was published in draft for consultation on 12 December 2006. The consultation period closed on 20 February 2007 and, having considered responses to the consultation, the final version of the Annual Plan will be published in early April 2007.

1.2 For the fourth successive year Ofcom will operate under a budget which is lower in real terms than the budget for the previous year. Ofcom’s budget for 2007/08 will be £126.7m, which is 5% lower in real terms than its budget for 2006/07 and 9.8% lower than its budget for 2005/06.

1.3 The £126.7m operating budget is reflective of anticipated RPI increases and the rescheduling of some projects from 2006/07. The budget is based on an adjusted cash basis, which includes capital expenditure and actual contributions to pension schemes, but excludes depreciation.

1.4 As a result of recent discussions with HM Treasury, there has been a minor change to Ofcom’s funding arrangements. In the past, technology research was funded directly by HM Treasury under the Spectrum Efficiency Scheme. In the future, this research, which is expected to cost £3.5m in 2007/08, will be included in Ofcom’s budget. However, because the research will relate predominantly to the management of the radio spectrum, it will be funded by the Department of Trade and Industry. This gives a total budget on the new basis of £130.2m.

1.5 In 2007/08, Ofcom will finish repaying the loan received from the Department of Trade and Industry to set up Ofcom, meaning that in subsequent years stakeholders will no longer have to contribute to repayments.

1.6 Greater efficiency savings and the re-phasing of some projects means that Ofcom expects to complete its work for 2006/07 at £128.5m, £1m below budget. The underspend will be remitted back to industry – in line with Sections 38 and 347 of the Communications Act 2003 – in the form of reduction in regulatory fees for 2007/08.

1.7 However, some stakeholders will experience a real terms increase in their regulatory fees for 2007/08 when compared to the previous financial year.

1.8 Ofcom’s operating costs are allocated to each sector according to the extent of work proposed for that sector. In 2004/05 and 2005/06 Ofcom spent less than its projected budget across a number of sectors. In these cases the underspends reduced the relevant sector fees for 2006/07. Therefore, while there is a clear reduction in the underlying cost of regulation, the actual fees that some stakeholders will pay in 2007/08 will increase.

1.9 Specifically for the radio sector, fees are affected by the phasing of the transitional relief (paragraph 5.3) from prior years, with the actual fees for some stakeholders increasing or decreasing disproportionately to changes in relevant turnovers.

1.10 Despite the necessary adjustments explained in paragraph 1.8 sector regulatory fees will still rise by less than RPI. Specifically they will increase by:

• an average of 1.4% for the radio sector;
• an average of 2.9% for network and services operators; and
• an average of 1.1% for the television sector before the inclusion of costs for additional regulatory duties specifically chargeable to the BBC Trust.

Comparison of 2006/07 Planned Costs with those for 2007/08

Table 1: Ofcom Costs

1.11 The analysis in Annex 1 sets out in tabular form the planned expenditure and fees and charges for 2007/08 by sector.

Allocation of 2007/08 Costs across Sectors

1.12 The allocation of costs is determined in accordance with the methodology described in the Statement of Charging Principles published on 8 February 2005. The use of Relevant Turnover in determining the fees and charges, as specified by the Statement of Charging Principles, means that actual costs for some individual licensees will vary from the sector average.

1.13 These 2007/08 Tariff Tables set out the payments due by sector, but do not include details broken down by licensee; these remain confidential to the companies concerned.

• Ofcom Tariff Table 2007/08 [pdf]
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