Amid the controversy surrounding suggestions that television news presenters are overpaid and under-talented, the economics have been overlooked.
It is assumed that when Five’s Kirsty Young is paid &£500,000 a year to read an autocue – a task described by John Humphrys as requiring little work and no brain – the laws of economics either don’t apply or are erroneous. That, however, is to misunderstand those laws. In fact, they do apply to newsreaders and, moreover, they suggest a solution to the problem.
First, it has to be conceded that in the fictitious world of perfect competition postulated by economic theorists, the laws of supply and demand would set a wage for a newsreader slightly above – or possibly slightly below – the national average of about &£25,000. This is because there is an almost limitless potential supply of newsreaders and a buyer’s market would drive down the price of their labour. Supply exceeds demand because a) Britain has an adult literacy rate of some 99 per cent, so many millions of people are qualified to read an autocue; and b) it’s an observable fact that such is the popular demand to appear on TV that many applicants would pay for the privilege, thus negating the need for a salary to be paid at all.
But, of course, we do not live in a world of perfect competition. Indeed, the BBC is to all intents and purposes immune from economic reality as it is funded by a compulsory poll tax. Newsreaders’ salaries are, therefore, determined by processes at which we can only guess. They may be plucked out of a hat, chosen on the throw of a dice, or conjured out of thin air. It doesn’t matter which, because taxpayers’ money, unlike real money, has an arbitrary value. This gives rise to what we economists call Birt’s Law, after the former director-general of the BBC who spent &£20m a year on management consultants to achieve an increase in administrative costs of &£140m. Birt’s Law – that for every &£1 of licence-payers’ money wasted, seven more pounds disappear down the same hole – explains why Huw Edwards is paid &£250,000 instead of about &£35,000.
But to argue, as Humphrys and others do, that autocue-reading requires no talent at all misses the point as it assumes that the viewers are either listening to, or interested in, what the newsreaders are saying. No one watches TV news to be better informed, they want to be entertained. That is why TV news is sketchy, gimmicky and inadequate, and why the presenters are, by and large, good-looking, come in pairs, and are encouraged to be “personalities”.
The argument that they must be paid ten times the average wage to prevent them being poached by the competition does not hold water, since, as we have seen, there would be no shortage of replacements and, far from missing the old faces, the viewers would welcome a variety of new ones at which to gawp.
To return to the economics, classical economists identified what they called “economic rent”. Unlike the commonplace definition of rent – the income from hiring out durable goods – economic rent is a measure of market power. It is the difference between what a factor of production is paid and how much it would need to be paid to remain in its current use.
So, to take an example at random, Huw Edwards is paid &£250,000 to read the news four nights a week. If he were not a newsreader, what else might he do? Well, he is Welsh, so he might sing in a male voice choir, or he might be a curator in a mining museum. He looks, however, as though he would make a competent manager of a middling-sized building society branch in, say, Stoke Newington, salary circa &£40,000. His economic rent is therefore about &£210,000.
Natasha Kaplinsky, on &£175,000, would do well selling cosmetics in Harrods. Her economic rent would therefore be in the region of &£150,000. Fiona Bruce is paid &£400,000 and has the qualities needed to be a team leader in a telemarketing company. Her economic rent is about &£320,000.
Now, the attractive feature of economic rent is that if it is indeed rent, reducing it would not change production decisions, so it could be taxed without any adverse effect on the real economy. If the high economic rents paid to newsreaders – and footballers, too, for that matter – were to be deducted by the Inland Revenue in their entirety it would make no difference to the economy and the funds could be usefully diverted by Gordon Brown in the usual way – to fund the creation of thousands of jobs in the public sector as real nappy consultants and teenage pregnancy co-ordinators. Again, the economic effect is pleasingly neutral.v