A piece of pie

BBC pensioners (and others) know the feeling. If you're on a final salary scheme, your caring pension provider has been offering you a scheme called PIE (Pension Increase Exchange), where the fund offers to buy out inflation-proofing for an improved flat rate, and you take the risk on the future, not them.

A new deal on the complex lease arrangements for the Broadcasting House development was revealed yesterday. The refurbishment and new building cost a reported £1.01bn, and was funded by the BBC selling a 30-year lease to the developers, and paying back in the form of annual rent, which provided a nice return to investors in a bond. Divided evenly over 30 years, it would have cost £34m a year to pay back the capital costs; in 2013-14, the BBC reported the "running costs" of BH at £89m. So the current bond pay-back is close to the higher figure, and includes a element linked to inflation.

The long-term question facing the BBC is what happens in 2033, when the first lease runs out. The BBC might try to buy back the building altogether (but almost certainly wouldn't have nearly enough capital); or agree a new lease, from a fairly supine negotiating position. It looks like they've constructed a combination of the two - and used a "cash-flow swap" to gamble that inflation is on the way up, and fixed payments are a better route.

So there's an immediate cut in payments to bond-holders of £10m a year [from what ? Ed] which will then rise [in a way we're not told] to £34m a year through to 2033. The bond-holders, already doing very nicely, must have agreed it's a good rising deal, to surrender their inflation-proofing.

Then, from 2033, there's a new lease, through to 2045, on a "final fixed payment plan", which gets the long lease for the whole site back into the BBC's control. Again, we're not told details. But this is way on top of the £1.01bn 'cost'.

What's always interesting in these long term plans is the wonderful assumption that the BBC will still be functioning through to 2045. The current charter runs to December 2027. The bond holders presumably reckon it's a safe-ish bet beyond that as a paying tenant.