House of Commons Culture, Media and Sport Committee
BBC Licence Fee Settlement and Annual Report
Fourth Report of Session 2010–12
HC 454
House of Commons Culture, Media and Sport Committee
BBC Licence Fee Settlement and Annual Report
Fourth Report of Session 2010–12
Report, together with formal minutes, oral and written evidence
Ordered by the House of Commons to be printed 12 May 2011
HC 454 Published on 19 May 2011 by authority of the House of Commons London: The Stationery Office Limited £0.00
The Culture, Media and Sport Committee
The Culture, Media and Sport Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Culture, Media and Sport and its associated public bodies.
Current membership Mr John Whittingdale MP (Conservative, Maldon) (Chair) Ms Louise Bagshawe MP (Conservative, Corby) David Cairns MP (Labour, Inverclyde) Dr Thérèse Coffey MP (Conservative, Suffolk Coastal) Damian Collins MP (Conservative, Folkestone and Hythe) Philip Davies MP (Conservative, Shipley) Paul Farrelly MP (Labour, Newcastle-under-Lyme) Alan Keen MP (Labour, Feltham and Heston) Mr Adrian Sanders MP (Liberal Democrat, Torbay) Jim Sheridan MP (Labour, Paisley and Renfrewshire North) Mr Tom Watson MP (Labour, West Bromwich East)
Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk.
Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/parliament.uk/cmscom. A list of Reports of the Committee in the present Parliament is at the back of this volume.
The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume.
Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee are Emily Commander (Clerk), Andrew Griffiths (Second Clerk), Elizabeth Bradshaw (Inquiry Manager), Ian Hook (Senior Committee Assistant), Keely Bishop/Alison Pratt (Committee Assistants), Steven Price, (Committee Support Assistant) and Jessica Bridges-Palmer (Media Officer).
Contacts All correspondence should be addressed to the Clerk of the Culture, Media and Sport Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6188; the Committee’s email address is [email protected]
BBC Licence Fee Settlement and Annual Report 1
Contents
Report Page
Summary 3
1 Introduction 5
2 The negotiation process 7 The narrative of events 7 Settlement: Choice or coercion? 11 Independence 12 Transparency and accountability 14
3 Outcome 16 The BBC’s defence of the settlement 16 The financial settlement and its critics 17 Wider concerns 18
4 New responsibilities 22 The BBC World Service 22 S4C 25 BBC Monitoring 28 Broadband 28 Local TV 29
5 Content 30 Strategic Review: Initial conclusions 30 Strategic Review: Outcome 31 The Strategic Review and the new settlement 32
6 Transparency and accountability 35 Transparency 35 Accountability 36
7 Salford Quays 40
8 The way ahead 42
Conclusions and recommendations 43
Formal Minutes 48
Witnesses 49
List of printed written evidence 49
List of Reports from the Committee during the current Parliament 50
BBC Licence Fee Settlement and Annual Report 3
Summary
In October 2010, a comprehensive licence fee settlement was unexpectedly agreed between the BBC and the Secretary of State for Culture, Olympics, Media and Sport as part of the Comprehensive Spending Review. We recognise that the Government made the first move, that time was of the essence and that the BBC seized the opportunity to pursue a wider settlement, securing its immediate future. This meant, however, that the opportunity to consult licence fee payers and Parliament was lost, undermining confidence in both the Government’s and the BBC’s commitment to transparency and accountability. We recommend that this model for setting the licence fee is not used again.
In the current climate, we believe that the financial terms of the licence fee settlement are reasonable. However, some of the additional responsibilities that the BBC has taken on under the terms of the settlement widen the scope of licence fee spending beyond any previous interpretation of the BBC’s mission and purposes. The BBC and Government will need to demonstrate how this will benefit the licence fee payer.
We believe that there is a very strong case for reversing some or all of the planned reduction in funding to the BBC World Service. We agree with the Foreign Affairs Committee that part of the funding requirement could be met by the Department for International Development. There is a risk that domestic services and content might be adversely affected if additional BBC funding is diverted to the World Service and we undertake to monitor very closely how the BBC strikes a balance between these important but competing claims. A formal concordat between the Foreign Office and the BBC World Service might provide helpful clarity of roles so long as it did not undermine BBC editorial independence.
There may be benefits to both the BBC and S4C from their new partnership but we remain unclear as to how S4C can retain its independence if the BBC Trust is involved at a strategic level. We find it extraordinary, however, that the Government and the BBC should agree such wide-ranging changes for another statutorily independent broadcaster without consultation and without S4C having any notice or say at all. Substantial public funding otherwise available for other BBC content and services will be diverted to S4C and we undertake also to monitor this aspect of the settlement.
The plans for local TV, however, are still in their formative stage and it remains to be demonstrated that the admittedly modest funds the BBC has undertaken to commit to this project represents good value for the licence fee payer.
The BBC Trust has made public commitments on transparency. This makes it all the more disappointing that banded information on talent salaries is still not in the public domain. We urge the BBC to increase the speed with which it implements this, and other, changes.
Having originally made a clear commitment to allow the National Audit Office unfettered access to the BBC, we are very concerned that the Government’s proposals fail to deliver this. We urge the Government to address the concerns expressed by the Comptroller and Auditor General and to reach an agreement that will give the National Audit Office all the powers it needs to provide independent assessments of the value for money of BBC
4 BBC Licence Fee Settlement and Annual Report
expenditure. These should be reported to Parliament rather than to the Secretary of State through the BBC Trust.
We assess that the new development at Salford Quays should deliver the creative and employment benefits which were hoped for, if not the immediate financial ones. We expect the BBC to keep under review the scope for transferring further production to its new home in the North West where there are clear benefits from doing so. The employment of a “migration manager”, based in the US, opened the BBC up to ridicule. This lowers the esteem of the BBC, its senior management and the Trust in the eyes of the public and its own staff.
The main outcomes of the BBC Trust’s strategic review do not move the BBC on to the extent required by current circumstances. Important questions remain as to how radically the BBC will need to re-configure both its content and the way in which it delivers its content in the years ahead. There is much for the incoming Chairman of the BBC Trust to get to grips with.
BBC Licence Fee Settlement and Annual Report 5
1 Introduction
1. The Culture, Media and Sport Committee conducts annual scrutiny of the British Broadcasting Corporation (BBC) and its Annual Report and Accounts on behalf of Parliament and the licence fee payer. Our role in holding to account the BBC Trust (the independent governing body responsible for setting the overall strategic direction of the BBC) and Executive — and the part played by the Government in relation to them — has been of particular significance over the last year. During this time, pivotal decisions about the future direction of the BBC have been made without consultation or significant Parliamentary debate.
2. When we began our annual scrutiny of the BBC in September 2010, it was already clear that this was an important year for the BBC, given the anticipated publication of the outcome of the BBC Trust’s review — entitled Putting Quality First — of the BBC’s overall strategy. The BBC Trust initiated the first stage of this review by tasking the BBC Executive to submit its own proposals. In its own words, the BBC Trust:
[…] challenged the Director General to undertake a review of the BBC’s overall strategy in July 2009 to address questions about the scope of the BBC’s activities, focusing on how the BBC can most effectively deliver its public service mission and meet audience needs and deliver value for money.1
The Strategy Review also offered the BBC the opportunity to address criticisms that it was straying too far from its public service broadcasting remit; was being too profligate with licence payer money; and was insufficiently transparent, particularly with regard to the salaries of senior staff and talent. During the last Parliament, our predecessor Committee had highlighted some problem areas, including the expansion of BBC Worldwide;2 the level of expenditure on Project Kangaroo (a now-defunct proposed joint venture video- on-demand service with ITV and Channel 4 that was blocked by the competition authorities);3 and the need for greater transparency on pay.4
3. At the time of the Committee’s oral evidence session with the BBC on Wednesday 8 September 2010, the BBC Trust had already published the initial conclusions of its Strategy Review, and BBC Director General Mark Thompson had recently highlighted some key themes when he gave the MacTaggart lecture on Friday 27 August 2010 at the Edinburgh International Television festival.
4. Shortly after the session, on 16 September 2010, the Rt. Hon Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport, announced that the Government had accepted a proposal from the BBC Trust to forego the planned rise in the licence fee in 2011/2012. Already in September 2010 then, the BBC was coming under pressure to show that it was aligned with the new climate of austerity and public sector belt-tightening.
1 Lyons sets out initial conclusions on future direction of the BBC, BBC Trust Press Release, 5 July 2010 2 Culture, Media and Sport Committee, Fifth Report of Session 2008-09, BBC Commercial Operations, HC 24 3 ‘Project Kangeroo’ – Final Report, Competition Commission Press Release 05/09, 4 February 2009 4 Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBC Annual Report 2008-09, HC 515
6 BBC Licence Fee Settlement and Annual Report
However, it was only in the days leading up to Wednesday 20 October, the day of the Government’s announcement of the outcome of its Comprehensive Spending Review (CSR), that reports started to emerge of a comprehensive licence fee settlement that would last until the end of 2016/2017. The previous BBC licence fee was not due to expire until 2013. The confirmation on Wednesday 20 October 2010 that the Government and the BBC had indeed done a deal — and one moreover which also involved the BBC taking on a number of new responsibilities in return for a guarantee that the licence fee would remain at £145.50 until the end of 2016/2017 — was, therefore, highly significant.
5. We quickly concluded that the settlement had huge ramifications for the BBC and licence fee payers. We also observed that negotiations had been completed in an unprecedentedly short period of time, with no opportunity for consultation. Despite its significance for the BBC and viewers, Parliament had been given no opportunity for scrutiny. We decided, therefore, to prolong our scrutiny process, and held a second oral evidence session with the BBC on Wednesday 15 December to provide the opportunity for the detailed scrutiny that the settlement, and the manner of its negotiation, called for. Following this oral evidence session, we sought further clarification on a number of points, in writing, from both the BBC and the Secretary of State. This correspondence is published with our Report. Finally, on 10 March 2011 we held a pre-appointment hearing for the position of Chairman of the BBC Trust, with Lord Patten of Barnes, the Government’s preferred candidate to replace outgoing Chairman, Sir Michael Lyons.5
6. In recognition of the unprecedented nature of the events of October, the next three chapters look at the negotiation process and the settlement outcome, explaining what went on and why and assessing the wider significance and impact. Chapters five and six — set within the context of the new settlement, the Strategic Review and the BBC’s 2009/2010 Annual Report and Accounts — assess the progress that the BBC is making against three key themes of long-standing interest to the Committee: content, transparency and accountability. Chapter seven examines the progress of the BBC’s relocation to Salford Quays, which the Committee visited in November 2010. Finally, chapter eight concludes with a brief look at the way ahead for the BBC.
7. Finally, we would like to extend our thanks to Ray Gallagher, the Committee’s broadcasting specialist adviser, for his invaluable contribution to this Report.
5 Culture, Media and Sport Committee, Second Report of Session 2010-12, Pre-appointment hearing with the Government’s preferred candidate for Chairman of the BBC Trust, HC 864-I
BBC Licence Fee Settlement and Annual Report 7
2 The negotiation process
The narrative of events 8. In his speech to the Voice of the Listener and Viewer (VLV) in November 2010, one month after the CSR settlement announcement, BBC Director General Mark Thompson highlighted the unique nature of the negotiation process:
Setting the BBC’s funding usually seems to involve months — or even years — of research, analysis and debate — not to mention gainful employment for an army of commentators and consultants. But on this occasion, the first time that people realised that a settlement was in the offing was when it was announced.6
9. Because the negotiations for this historic and unprecedented mid-term BBC licence fee settlement were conducted quickly and in private, we judged it important to obtain from the BBC — and from Government — a narrative of events. BBC Trust Chairman Sir Michael Lyons told us that the negotiation process started on Monday 11 October when “officials from DCMS [the Department of Culture, Media and Sport] rang both the Trust to speak to me, and the Director-General, to say that the Government had a shopping list and was inclined to shift the responsibility for the over-75 licence fee”.7 He made it quite clear to us that
unequivocally the overture came from Government with a shopping list that included transfer of responsibility for the World Service, and much more significantly, as far as opening discussions were concerned, the proposal for the BBC to fund the costs for over-75 licence fee remission.8
As we explore in more detail later, potentially this proposal had profound implications — both for the BBC’s finances and its independence. The singular status of the BBC is set out in a Royal Charter and Agreement between the Secretary of State and the BBC.9 As set out in section 78 of the Agreement (Compensation for free television licences), when the BBC issues to any person a TV licence for which no fee is payable, the Secretary of State for Work and Pensions “shall pay to the BBC out of money provided by Parliament such sums as the Treasury may authorise” to equal what the licence fee payers would have paid to the BBC and the administrative costs incurred by the BBC in issuing the free licence.
10. In his letter to the Chairman dated 9 March 2011, responding to the Committee’s questions on the negotiations and settlement, the Rt Hon Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport, provided further confirmation that:
6 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 7 Q91 8 Q88 9 BROADCASTING – Copy of the Royal Charter for the continuance of the British Broadcasting Corporation, Cm 6925, October 2006 and BROADCASTING – An Agreement Between Her Majesty’s Secretary of State for Culture, Olympics, Media and Sport and the British Broadcasting Corporation, Cm 8002, February 2011
8 BBC Licence Fee Settlement and Annual Report
Officials in my department informed the BBC on 11 October that the Government was assessing the scope for the BBC to take financial responsibility for some areas of spending currently covered by the Exchequer. Transferring the funding of TV licences for those aged 75 and over and the World Service from the Government to the BBC were two of the options under consideration.10
The Secretary of State further informed us that “both Liberal Democrat and Conservative Ministers were involved” in the decision to put these options to the BBC.11
11. Right at the beginning of the negotiation process, Mark Thompson became the BBC’s lead negotiator, taking an exploratory phone conversation with the Secretary of State on Tuesday 12 October and meeting him, with colleagues, on Wednesday 13 October in the Palace of Westminster.12 Sir Michael Lyons was, however, at pains to point out to us that the BBC Trust remained in charge of the BBC’s negotiations, stressing that:
The negotiations were essentially between the Trust and the Secretary of State. The Trust laid down red lines and the Director-General reported back to the Trust on the shape of the negotiations. The remit was set by the Trust, and the agreement, in the end, was one signed off by the Trust.13
Mark Thompson confirmed that “at all times, I was operating within a mandate and within clear parameters that had been laid down and agreed by the BBC Trust”.14 The Secretary of State similarly affirmed that during the negotiations he was satisfied that the BBC negotiators had the full authority of the BBC Trust and were in close contact with Sir Michael Lyons.15
12. Against this background, negotiations appear to have started in earnest on Wednesday 13 October when Mark Thompson told the Secretary of State that the proposal to fund free licences for the over-75s through the licence fee was “wholly unacceptable to the BBC Trust and to BBC management as well”.16 Sir Michael Lyons summarised for us why the BBC was so opposed to this proposal:
That remission is firstly very expensive, secondly a welfare payment that we believe has no part to play in the BBC’s funding, and thirdly an uncapped liability.17
Mark Thompson did, however, indicate that the BBC might be willing to absorb World Service costs. This came with the caveat that it would have to be part of a full licence fee settlement running to the end of the Charter period (2016/2017). It appears, therefore, that it was the BBC — not the Government — which first raised the prospect of a comprehensive licence fee settlement. Indeed, in his aforementioned speech to the VLV,
10 Ev 63 11 Ibid. 12 Q91 and summary of events 13 Q78 14 Q78 15 Ev 64 16 Q92 17 Q88
BBC Licence Fee Settlement and Annual Report 9
Mark Thompson stated very clearly that “the idea of reaching a comprehensive funding settlement was ours”.18 We asked the Secretary of State if in fact the Government had pressed for such a settlement, but he responded only that “it quickly became clear that it was in the interests of both parties and of licence fee payers to finalise a new licence fee settlement”.19 Sir Michael Lyons explained that the decision to “debate an alternative, acceptable package in the context of a new licence fee settlement” was a means of fending off the over-75 licence fee proposal. 20 Mark Thompson further observed that it now became a key issue “whether it would be possible to include a multi-year licence fee settlement in the time between these conversations and the announcement of the CSR the following Wednesday”.21 This was an incredibly tight timescale to be locked into, and we consider the pros and cons of this decision to negotiate a wider licence fee settlement in more detail later in the chapter.
13. On Thursday 14 October, the Trust endorsed the position taken by the Chairman and the Director General the previous day. Intensive negotiations between the BBC and DCMS continued on Thursday and Friday and into the weekend. It appears that the Secretary of State was loath to drop his original proposal for licence fee funding of free TV licences for the over-75s because on Sunday 17 October Sir Michael Lyons broke off discussions and wrote to the Prime Minister reiterating his opposition to this proposal, and highlighting the BBC’s assessment that it would cost nearly £600 million to fund this commitment, necessitating drastic cuts to BBC services. In the letter, Sir Michael Lyons asserted that if the Government still wished to include this proposal in the CSR, then “the BBC will have no option but to cease all further consideration of an immediate settlement that incorporates funding for the World Service” and that “we will also need to make public our opposition to such a proposal and will clarify that it has not been agreed with the BBC, as the terms of the Agreement suggest it should”.22
14. This letter did not, though, have the desired effect because on Monday 18 October the Secretary of State informed both Sir Michael Lyons and Mark Thompson that the Government still had in mind to impose the full cost of the over-75s licences on the licence fee, prompting a further suspension of talks. We pushed Sir Michael Lyons on the seriousness of this impasse, receiving the answer that implementation of the over-75s licences proposal would have been a resigning matter for him and, he believed, for the Trust.23 We also asked Sir Michael Lyons and Mark Thompson if the Government had tabled any other proposals that crossed the BBC’s red lines. They explained that a Government proposal for the BBC to become a vehicle for “showing a large amount of information produced by the Central Office of Information — Government messaging — to the public” was also unacceptable to the BBC because it would have been a serious breach of the BBC’s editorial independence”.24 They explained that this proposal too was
18 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 19 Ev 64 20 Q101 21 Q94 22 Letter from the BBC Chairman to the Prime Minister, 17 October 2010 23 Q105 24 Q138
10 BBC Licence Fee Settlement and Annual Report
raised several times during the negotiating process before the Government finally dropped the idea. We sent the Secretary of State specific questions inviting him to provide his own detailed account of the negotiation process. However, he responded in more general terms. He did confirm, though, that:
During the course of discussions, we discussed several issues, including the scale and scope of the BBC’s commercial activities and the future carriage of public information broadcasts.25
15. As Sir Michael Lyons observed to us, the media started to run with the over-75s licence proposal on Monday 18 October. Mark Thompson painted a picture of furious briefing behind the scenes as the BBC “made a lot of phone calls to a lot of our people across the political spectrum making clear our position on this issue of the over-75s”.26 He further explained that the BBC was not just concerned about the funding implications of this proposal, but also about what it would mean for the BBC’s independence if it were to take on responsibility for funding a Government social welfare policy.
16. Mark Thompson told us that “over the course of that Monday [18 October], the mood that was around that proposal [over-75s option] began to shift. By the early evening it was shifting very considerably”.27 Talks resumed on the Secretary of State’s initiative, with the Government giving ground on the over-75s proposal, but bringing into play further additional responsibilities for the BBC to fund. At this stage, the issue for the BBC was, in Mark Thompson’s words, “either accepting this deal on its merits or accepting the alternative that was a separate licence fee negotiation with Government on the original plan in 2011/2012”.28
17. On Tuesday 19 October the BBC Executive Board met and agreed that the draft proposals hammered out during the night represented a possible settlement. On this basis, the Trust considered the proposals during two teleconferences. The Trust has placed a record of these two meetings on its website.29 This makes clear that the proposals the Trust considered became the basis of the final settlement, including the BBC taking responsibility for funding the BBC World Service and BBC monitoring; the BBC entering a form of partnership with S4C (the only Welsh language public service broadcaster) with the vast majority of the funding for S4C to come from the licence fee; the continuation of a ring fence of funds within the licence fee (currently used to fund the Digital Switchover Help Scheme) to fund broadband; and some funding to support the provision of local television. The licence fee would be set at £145.50 until 31 March 2017, with a Government guarantee of no additional obligations being placed on the BBC and/or licence fee revenues in this period, except by mutual agreement.
18. The meeting note records that, during the first meeting, the Trust agreed, before supporting the proposed agreement, that it was vital for the BBC to retain full editorial and
25 Ev 64 26 Q107 27 Q134 28 Q135 29 Minutes of the BBC Trust meeting, 19 October 2010
BBC Licence Fee Settlement and Annual Report 11
operational control over the World Service, and that the Trust should not enter into any agreement which reduced broadcasting plurality in Wales before supporting the proposed agreement. Trust members then delegated authority to the Chairman to agree the final exchange of letters with the Government and for resolving any outstanding issues.
19. Details of the agreement subsequently came into the public domain on Tuesday 19 October, and were confirmed on Wednesday 20 October as part of the Government’s CSR announcement. On Thursday 21 October an exchange of letters between the Secretary of State and the Chairman of the BBC Trust — both published on the Trust website — formally recorded the licence fee settlement reached. Intriguingly, Sir Michael Lyons also wrote a side letter to the Secretary of State the same day addressing his particular concerns about the scale and scope of the BBC. This side letter confirmed that the BBC was planning, subject to agreeing satisfactory commercial terms, to dispose substantially of BBC Worldwide’s magazine business; would recognise publicly the principle that it should not launch services more local than its current offerings; and would propose a reduction in the budget of BBC Online by 25%. This side letter was not published on the Trust’s website, though it was subsequently disclosed by the BBC in response to a request under the Freedom of Information Act.30
Settlement: Choice or coercion? 20. We consider the outcome of the licence fee settlement in more detail in the next two chapters. For the remainder of this chapter, we consider the implications of the negotiation process itself. The first issue to get straight is whether the BBC had any choice with regard to entering into negotiations with the Government. The answer is that it did, at least in principle. The BBC’s briefing note to the Trust of 14 October makes it clear that the BBC felt it had legal protection under its Agreement with Government to resist both the over- 75s proposal and the World Service proposal — that is both the items on the Government’s initial shopping list.31 That at one stage the BBC withdrew from negotiations and that Mark Thompson could highlight to us an alternative option of waiting for a separate licence fee negotiation with the Government on the original plan in 2011-2012 (see paragraph 16 above) support this premise. When, therefore, Sir Michael Lyons observed to us that:
[...] there is a reality that Government decided to approach this issue in the closing stages of the Comprehensive Spending Review. Did the BBC have any real choice but to enter into discussions then? No it didn’t32 he was perhaps making a different point, namely how difficult it would have been for the BBC in practice not to respond to the Government’s overtures at this time. Implicit, perhaps, is the sense that the BBC feared what the Government might impose on the BBC from 2013 if it did not agree a final settlement in 2010. Indeed, Sir Michael Lyons told us that the Secretary of State used the option of a more fundamental review of the BBC as a threat during the negotiations:
30 Ev 62 31 Spending Review – Latest Position, Confidential Briefing Note, 14 October 2010 (Released by the BBC under the Freedom of Information Act 2000). 32 Q86
12 BBC Licence Fee Settlement and Annual Report
There was, throughout these discussions, an attempt to condition that agreement by leaving the scope for a further examination of the scale and scope of the BBC to be conducted by the Secretary of State himself and that was another component of the negotiations where we were clear that that was out of the question.33
He also acknowledged a feeling in the BBC that it would have found it hard to rally wider sympathy if it was seen to “somehow enjoy some privileged separate position from the experience of the rest of the economy”.34
21. Nevertheless, the BBC did have a choice — both as to whether and then as to how it responded to the Government’s overtures. It could, for instance, have focused on a smaller deal involving the more obviously CSR-related elements — that is the transfer of funding for the World Service and the BBC Monitoring Service from the Foreign and Commonwealth Office (FCO) to the BBC — without opening up the wider licence fee settlement and, in the process, opening up the possibility of taking on further additional responsibilities. It is fair, therefore, to consider the downsides of the Government’s initial decision to involve the BBC in the CSR; the BBC’s decision to respond by proposing wider licence fee settlement negotiations; and the Government’s decision to accommodate this.
Independence 22. One issue the Committee was particularly keen to consider, was how the negotiation process has affected the singular status of the BBC as an autonomous public body, independent of Government. BBC written and oral evidence to the Committee makes a number of references to the importance of retaining this independence. Its opposition to the over-75s proposal and the carriage of public information broadcasts proposal appears at least as bound up with issues of independence as it does with the financial impact. In his November 2010 speech to the VLV, for instance, Mark Thompson referred to the need for institutional and financial independence as well as editorial independence, and to the increasing danger, at a time of financial austerity, that Governments would underplay or even forget this. In that speech, he specifically cited the over-75s proposal as something which would have damaged the BBC’s independence if implemented because “the BBC is a public broadcaster, not an arm of the welfare state”. He also referred to the public information broadcasts proposal as “a fundamental and wholly unacceptable attack on the BBC and one we’d fight tooth and nail”.35 More recently, during an interview on The Media Show, Sir Michael Lyons stressed that protecting the independence of the BBC was a continuing challenge. 36
23. A number of commentators have, however, pointed out that, by being drawn into the CSR process at all, the BBC risked being seen as little different to a Government Department or Agency.37 Arguably, the BBC’s decision to let its Director General — and
33 Q142 34 Q86 35 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 36 Radio4, The Media Show, 6 April 2011 37 See for example FT editorial of 23 October 2011
BBC Licence Fee Settlement and Annual Report 13
Editor-in-Chief — rather than the Trust, lead the negotiations with the Government was also unhelpful in terms of asserting a distinct identity for the Trust as guardian of BBC independence. The BBC Trust, as the independent governing body of the BBC, has a key role to play in protecting the BBC Executive from undue Government interference, so it is surprising that it did not seek to intercede between the Government and BBC Executive during the licence fee negotiations. Ironically, during our first oral evidence session, Mark Thompson himself made the point about the importance of the role of the Trust as a buffer between the BBC and politics:
[...]... The challenge, in a sense, in framing any governance model for the BBC is about how you balance two things: the need for the BBC to be independent of political influence and, above all, separate from Government, versus accountability. [...] The Trust is given [...] the task of holding the BBC to account for value for money [...] it is done as a constitutional safeguard to ensure that you don’t have the BBC too close to the political process.38
Furthermore, the Trust has wider responsibilities than holding the BBC to account for its expenditure of public money. Key functions include setting the BBC’s strategy and high level budgets, and representing licence fee payers’ interests.
24. Unsurprisingly, in evidence to us, the BBC was keen to counter any suggestion that it had compromised its independence by the manner in which it had chosen to engage in negotiations. Sir Michael Lyons made the point to us that the negotiations were conducted in “extraordinary circumstances”.39 Mark Thompson went further, asserting that:
[...] What this settlement means is that there will be no part of the BBC’s activities that are, as it were, part of the scope of Government spending. [...] Because World Service and Monitoring have been paid for historically for many decades by the Government, part of the BBC had always been in scope for Comprehensive Spending Reviews. But in the next CSR, the BBC will not be in scope at all.
During his speech to the VLV, Mark Thompson also argued that, by concluding an agreement at this time, the BBC had protected itself from the risk of a “continuous and permanently open-ended debate” and that independence had been enhanced because the BBC had secured a settlement that prevented further attempts to “chip away” at its mission.40
25. Sir Michael Lyons also defended his role in negotiations, telling us that he would not have expected to be involved in face-to-face negotiations because “in most commercial negotiations, you don’t have the principals in the room conducting the discussion; you have agents of the principals during the negotiations”.41 We responded by expressing surprise that Sir Michael Lyons had not at least been present when the final decisions were made, particularly given the extensive involvement of the Secretary of State who told us
38 Q20 39 Q86 40 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 41 Q80
14 BBC Licence Fee Settlement and Annual Report
that he attended four meetings with the BBC in the course of securing the licence fee settlement.42
26. The Government’s proposal to have the BBC fund the cost of free licences for the over-75s would have had a significant impact on the BBC’s finances, and the present Trust and management clearly regarded this as unacceptable. This may well have made them more amenable to other suggestions and to the eventual outcome. It was inevitable that the BBC would be required to contribute to the effort to reduce the overall level of Government spending but the broadening of this negotiation into a licence fee settlement was not necessary and has weakened the distinction between the BBC and other publicly funded bodies.
27. We recognise that the Government made the first move, that time was of the essence and that the BBC seized the opportunity to pursue a wider settlement, securing its immediate financial future. We consider, however, that the decision to leave the vast majority of the negotiations with the Government to the BBC’s Editor-in-Chief and senior management further weakened the arm’s length principle. In future licence fee negotiations, we would expect the Trust Chairman, as head of the independent Governing Body, to play a more prominent lead role, acting as a buffer between the BBC and Government.
Transparency and accountability 28. A second issue that we were particularly keen to explore was the lack of consultation during the negotiations. In this respect, the negotiation marked a notable departure from the manner in which the BBC Trust handled the previous Government’s proposal (in the Digital Britain Report) to allocate some of the licence fee to public service content on non- BBC services. Then Sir Michael Lyons wrote an open letter to licence fee payers, together with a rebuttal of the proposal to share the licence fee. He also commissioned research on licence payers’ views and preferences in relation to the proposals. This time, as well as excluding licence fee payers from the negotiation process, the short time-scale and the link with the CSR effectively meant there was no opportunity for Parliamentary scrutiny of the proposals. This stands in contrast to Sir Michael Lyons’s assurances to the Committee’s predecessors in July 2009 — admittedly in a different context — that “the setting of the licence fee is a matter for Parliament, and indeed the use to which it is put”.43
29. The negotiating process was also in stark contrast to the BBC Trust’s conduct of its Strategy Review, as evidenced, for instance, in the following Trust statement from 26 February 2010, prior to publication of the BBC Executive’s own response to the review:
We will shortly be publishing the Director General’s proposals, to find out what licence fee payers think of them and to test opinions and reactions to them from outside the BBC. This is consistent with the Trust’s approach of basing all its work on the views and interests of licence fee payers.44
42 Ev 64 43 Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBC Annual Report 2008-09, HC 515, Q4 44 Chairman’s Statement on BBC Strategic Review, BBC Trust Press Release, 26 February 2010
BBC Licence Fee Settlement and Annual Report 15
30. It is worth considering within this context, Mark Thompson’s comments in his speech to the VLV that:
setting the BBC’s funding usually seems to involve months or even years of research, analysis and debate — not to mention gainful employment for an army of commentators and consultants […]
we entered the negotiations with confidence and I believe with the public’s priorities and preferences front of mind […]
more time would have allowed more detailed discussions and more debate. But I’m sceptical, I have to say, that it would have led to a better or fairer agreement [...].45
There is something almost cavalier about the first assertion, just an air of the patrician in the second, and an element of complacency in the third.
31. It was, though, the Government that made the initial decision to place financial imperatives over consultation and transparency. We asked the Secretary of State how he would justify to the licence fee payer and to Parliament committing more than £20 billion of public money (the value of the licence fee agreed for the next six years) without any opportunity for wider debate and consultation. In his written response, he observed that:
During four years as a frontbench spokesman for media issues I have publicly set out my views on the BBC and direction of travel in relation to the licence fee and had thought long and hard about these issues.46
It is, however, rather a big jump to get from the Secretary of State’s previous pronouncements on the BBC to the actual terms of the settlement and the additional responsibilities now to be taken on by the BBC.
32. If the BBC is to continue to benefit from a universal licence fee then it is vitally important that both licence fee payers and Parliament should have some involvement when far-reaching decisions about funding and the responsibilities are taken. It is regrettable that the decision to broaden the negotiations over expenditure into a full licence fee settlement meant that the opportunity for this was lost, thus undermining confidence in both the Government’s and the BBC’s commitment to transparency and accountability. We recommend that it should not become a model for the next round of licence fee negotiations for the post 2016/2017period.
45 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 46 Ev 64
16 BBC Licence Fee Settlement and Annual Report
3 Outcome
33. This chapter looks at the broader implications of the settlement, assessing how good a settlement it is both for the BBC and for licence fee payers.
34. Under the terms of the settlement, the annual licence fee will remain at £145.50 until the end of 2016/2017. The BBC will take on a suite of additional spending requirements, including the BBC World Service, a significant contribution to S4C, and support for local television. The Government undertakes during this period not to impose any new financial requirements or fresh obligations of any kind on the BBC and/or licence fee revenues except by mutual agreement. According to both the Government and the BBC, the BBC will need to make savings of 16% over the four years from 2013/2014 to 2016/2017 if it is both to absorb the additional responsibilities and adjust to a freeze in the level of the licence fee. The saving to the Exchequer is estimated at some £340 million annually from 2014/2015. Sir Michael Lyons told us that the 16% figure is the joint assessment by the Government and BBC of the impact of the agreement.47 In more recent statements, he has also emphasised that the 16% figure assumes inflation at only 2%, and that, therefore, “the full impact on BBC services depends very much on the level of cost inflation over the next five years, and no-one knows what will happen there”.48
The BBC’s defence of the settlement 35. Defending the settlement requires a difficult balancing act for the BBC as it has to respond to criticisms that it is both too harsh and too lenient. Understandably, both before the Committee and elsewhere, the BBC has tried to navigate a middle course, arguing that the settlement is hard but fair and thus represents good value for the licence fee payer. Sir Michael Lyons was clear that “this is a tough settlement for the BBC that will require changes in the way we do business”.49 He strongly refuted the suggestion that there were “whoops of joy” in the BBC Trust when the settlement was agreed.50 Mark Thompson told the Committee that the settlement was tough but that:
[…]Nonetheless, given the length of time and certainty about the BBC’s future funding and moreover the guarantees from Government about not adding additional obligations either to the BBC or to the licence fee until the next Charter can be debated, these benefits were sufficiently good that we could recommend the deal.51
He emphasised that the BBC would need both to become more efficient, producing as good or better quality services for less, and to make cuts, reallocating resources away from some services, to meet its obligations, but that the certainty of funding was “itself precious,
47 Q119 48 The BBC Trust – Past Reflections, Continuing Challenges, Speech by BBC Trust Chairman Sir Michael Lyons at the London School of Economics, 9 March 2011 49 Q119 50 Q119 51 Q77
BBC Licence Fee Settlement and Annual Report 17
and more or less unique in an industry which, wherever you look in the world, is facing enormous threats”.52 In his speech to the VLV, Mark Thompson appeared thankful that the settlement had effectively staved off what he saw as unreasonable demands for a root- and-branch debate about what the BBC should and should not do.
The financial settlement and its critics 36. With regard to the financial side of the settlement, the majority of the criticism appears to have been based on the notion that it was too lenient rather than too harsh. This is partly because it is not always clear from BBC statements where it is being forced into making new savings as opposed to merely implementing existing programmes and pre-settlement plans. Sir Michael Lyons appeared to imply that the 16% savings requirement was on top of existing programmes when he told the Committee that it:
[…] is not affected by and doesn’t take into account the track record in earlier efficiency savings —the efficiency savings and other measures required by the BBC Trust to live within a fixed licence fee for the last two years of this settlement.53
However, this assertion is not always reflected in other BBC statements about savings measures following the settlement. In his evidence to the Committee, for example, Mark Thompson spoke of how productivity gains from new digital broadcast and production centres opening in West One and Salford would contribute to the 16% savings. These are both pre-existing programmes. He also referred a proposal to “reduce our spend on our website by 25%”,54 which first surfaced during the Trust’s strategy review process and again pre-dates the settlement. In its BBC strategy review interim conclusions published in July 2010, the BBC Trust observed that “an average of £100 million per year is projected to be released through a new BBC-wide efficiencies programme from 2013/2014”.55
37. There are other variables too, which will help the BBC to stay within the financial confines of the settlement. As Mark Thompson observed during evidence to the Committee:
we expect the number of households paying a licence fee to go on growing and that obviously, to some extent, increases the amount of money you get from the licence fee. We believe that we can make further significant strides in terms of the cost of collecting the licence fee and in terms of further reductions in evasion of the licence fee. Depending on a number of other assumptions, we would expect commercial revenue to the BBC to continue to grow fairly rapidly […]56
All in all, it does appear reasonable to suggest that the BBC has already identified headroom to absorb at least some of its new responsibilities from existing programmes and
52 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 53 Q119 54 Q118 55 BBC Strategy Review: Initial Conclusions, BBC Trust, July 2010 56 Q117
18 BBC Licence Fee Settlement and Annual Report
plans. It may well be that, in practice, the BBC will have to make rather less than 16% new savings.
38. In the current climate, the financial terms of the settlement appear to us, on balance, to be reasonable. In reaching the agreement, the BBC clearly believed that the terms were worth the certainty given by a licence fee agreement securing its financial future to 2016/2017. We urge the BBC to make it very clear in future financial statements where they are proposing new savings measures, and where they are simply progressing previously announced plans.
Wider concerns 39. The BBC’s mission is “to enrich people’s lives with programmes and services that inform, educate and entertain”. In order for the BBC to fulfil its mission, the Royal Charter and Agreement sets out six public purposes:
• sustaining citizenship and civil society;
• promoting education and learning;
• stimulating creativity and cultural excellence;
• representing the UK, its nations, regions and communities;
• bringing the UK to the world and the world to the UK; and,
• delivering to the public the benefit of emerging communications technologies and services.
Although the above values are admittedly potentially very broad, it is debatable whether they can reasonably be expanded to capture all the new responsibilities.
40. The BBC has sought to portray the settlement as a logical end point. In his speech to the VLV, Mark Thompson saw it as a “highwater point” for the BBC taking on new responsibilities, and emphasised that it “sets out clearly that there should be no further calls on the licence fee, no new commitments”.57 It could equally be argued, however, that the settlement paves the way for further demands on the licence fee, if not during this Charter period, then during the next one. The suggestion is that if the licence fee can be put to such diverse ends as the World Service, S4C, broadband and local TV, then the boundaries as to what the licence fee can be used for have been breached. This matters for the BBC, because it has long regarded the licence fee as being exclusively for the use of the BBC and BBC content/services. It has set itself against the alternative view that there can be benefits from using the licence fee to promote wider public service content. In evidence to our predecessor Committee, Sir Michael Lyons conceded the principle that the setting of the licence fee and the use to which it was put was a matter for Parliament and not the BBC, but added the strong caveat that:
57 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010
BBC Licence Fee Settlement and Annual Report 19
It is a matter of some public moment, I think, if, after 50 years of the licence fee having been collected solely on the premise that it is to fund the BBC and nothing else, that any change in that is a matter that the public need to be very clear about the pros and cons and the risks that might flow from that.58
In assessing, therefore, whether the settlement is a good deal for the BBC, it is important to consider the extent to which the settlement departs from this principle — whether, for instance, it actually involves the “top-slicing” of the licence fee to fund non-BBC activities. After all, as recently as August 2010, Mark Thompson felt able to claim during his MacTaggart lecture that “top-slicing is firmly off the agenda”.59
41. Sir Michael Lyons told us that “all the proposals […] are consistent with the BBC’s public purposes and the BBC Trust oversight of money is maintained”.60 In his speech to the VLV, Mark Thompson posed the question as to whether all the additional responsibilities were consistent with the BBC’s mission and values, and answered “yes, I believe they are”.61 In the BBC’s view, there is, therefore, no deviation in the settlement from the principle that the licence fee is for the use of the BBC and BBC content/services, nor from the BBC’s mission and public purposes. During oral evidence we challenged this view.
42. There are, for example, similarities between the BBC’s new funding responsibility for broadband and its funding for the Digital Switchover Help Scheme. In September 2005, the then Secretary of State for Culture, Media and Sport announced details of a comprehensive Digital Switchover Help Scheme that the BBC would fund via the licence fee.62 Those eligible can receive equipment, help with installation and follow-up support, either free or for a subsidised fee. The Help Scheme is available to people who are aged 75 or over, or registered blind or partially sighted, or entitled to certain social security benefits.63 The funding for the Help Scheme, ring-fenced and set aside from the licence fee for this purpose, will be increased and reallocated for ensuring access to broadband across the UK.
43. We put it to the BBC that there was a clear welfare element associated with funding broadband roll out, as it aimed to reach those groups who would not have been reached had it been left to the market. Sir Michael Lyons responded that “the momentum here is essentially one of national economic importance,64 while Mark Thompson observed that broadband rollout “will mean that all these households can receive BBC public services – our website, iPlayer and so forth”.65
58 Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBCAnnual Report 2008-09, HC 515, Q4 59 James MacTaggart Memorial Lecture, speech by the BBC Director General Mark Thompson at the Media Guardian Edinburgh International Television Festival, 27 August 2010 60 Q122 61 The BBC and the new settlement, speech by BBC Director General Mark Thompson to the Voice of the Listener and Viewer (VLV), 24 November 2010 62 Tessa Jowell confirms Digital Switchover Timetable and Support for Most Vulnerable, DCMS Press Release 116/05, 15 September 2005 63 Switchover Help Scheme – www.helpscheme.co.uk 64 Q125 65 Ibid.
20 BBC Licence Fee Settlement and Annual Report
44. We also asked how the BBC could justify putting more money into S4C than it was putting into any other region of the UK, given its commitment to represent all the nations equally. We suggested that it must, instead, be an example of “top-slicing” in support of wider public service content. In his response, Sir Michel Lyons stated firmly that:
[…] it’s not top-slicing, because top-slicing would only be the case if it was inconsistent with the public purposes and there was no oversight by the BBC Trust.66
We suggested — given that money was being taken away from the BBC and transferred to S4C — that to argue that this was not “top-slicing” was dancing on a pin-head. Sir Michael Lyons replied that the money was not being taken away from the BBC because, although S4C would have creative independence, the BBC Trust would retain oversight “to ensure the licence fee payer’s money has been spent wisely”.67
45. We pressed too on the precise nature of the arrangement for the BBC’s funding of local TV, a high priority project for the Secretary of State, under the terms of the settlement. Moving into local TV appears to be in direct contradiction to the BBC’s intent, stated in the Strategy Review, to pursue its central mission by doing fewer things better. Sir Michael Lyons responded that the BBC had a long-standing interest in developing local coverage, because audiences would like to see more of it. He described the relationship as one of partnership working, and also saw a clear benefit to the BBC from its commitment to purchase £5 million a year of content. Mark Thompson further observed that Nicholas Shott’s report to the Government on local TV was clear on the wider benefits of BBC involvement in the development of local TV. He argued that “what Nicholas Shott is seeing is that a partnership model with significant BBC engagement has potentially powerful benefits to it. That doesn’t sound like simple top-slicing”.68
46. In his letter to the Chairman dated 9 March, the Secretary of State confirms that “the settlement means that the licence fee will be used to support non-BBC services to a far greater extent than at present”.69 Whether such financial support is considered good or bad for the licence fee payer depends on two things. First, the importance attached to retaining the licence fee exclusively for BBC content and services. Second, even if it is accepted that there may be benefit in using the licence fee to promote wider broadcasting in the public interest, including communications infrastructure benefiting both public service and commercial providers, whether the additional responsibilities under consideration do actually add such value.
47. It seems evident to us that some of the additional responsibilities that the BBC has taken on under the terms of the settlement widen the scope of licence fee spending beyond any previous interpretation of the BBC’s mission and purposes. By any normal definition, this constitutes “top-slicing”. The challenge for both the BBC and the Government over the rest of the Charter period will be to demonstrate a clear benefit to
66 Q127 67 Q129 68 Q130 69 Ev 64
BBC Licence Fee Settlement and Annual Report 21
the licence fee payer from the BBC taking on additional responsibilities outside its core remit.
22 BBC Licence Fee Settlement and Annual Report
4 New responsibilities
48. In this chapter we look, in more detail, at the extent to which the benefits of the BBC’s new responsibilities are likely to outweigh the downsides. It is not possible accurately to ascribe costs to 2016/2017 for each of the BBC’s individual new responsibilities, as in some cases (for example the World Service) the amount of future BBC funding is dependent upon the extent to which the BBC is able to make efficiency savings through restructuring and deliver an acceptable level of service. In the case of S4C, the terms of the settlement do not set the exact level of BBC funding beyond 2014/2015. The following table is, therefore, indicative only.
The BBC’s financial Settlement Commitments
New 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 commitment
World Service — — — BBC to set BBC to set BBC to set budget. Annual budget. budget. level of Government funding at hand-over will be £227M
S4C — — £76.3M £76M Funding Funding subject to subject to review review
BBC — — BBC to set BBC to set BBC to set BBC to set Monitoring budget. budget. budget. budget. Annual level of Government funding at handover will be £20.2M
Local TV — — Up to £25M Up to £5M (to Up to £5M Up to £5M (capital acquire (to acquire (to acquire costs) content) content) content)
Additional — — £17M £17M £17M £17M broadband
Indicative — — £138.5M £345.2M £345.2M £345.2M Total
The BBC World Service 49. In financial terms, the largest new BBC responsibility is the BBC World Service, which accounts for roughly two thirds of the total new financial commitment. In order for the BBC to take over this funding commitment from the FCO, the Government has had to amend the terms of its Agreement with the BBC as previously the BBC was inhibited under
BBC Licence Fee Settlement and Annual Report 23
the terms of the agreement from using licence fee payers’ money for the World Service.70 In their evidence to the Committee, both Sir Michael Lyons and Mark Thompson were very positive about the implications of this change. Mark Thompson explained that it was:
[…] a big opportunity potentially, in much more closely combining — there’s some dangers and risks as well — the World Service with BBC News, our domestic news operation, in the new Broadcasting House and around the world.71
He told us that the BBC had been interested in the idea of the licence fee funding the World Service for some time and that the BBC had received a positive reaction when it tested the idea with the public in the summer:
[…] it turned out that an awful lot of licence payers already believed that it was being funded by the licence payer and that broad support for the World Service is very high amongst the British public.
Overall, he expressed confidence that “the public would want to make sure the BBC was a really good custodian of its international services as well as of its home service”.72 From the BBC’s perspective, therefore, this new commitment is a win-win for both it and the licence fee payer, and for both the World Service and BBC News.
50. The BBC World Service broadcasts in more than 30 languages to some 180 million listeners around the world.73 As the Foreign Secretary told the Foreign Affairs Committee (FAC), which has recently published a report into the implications of cuts to the World Service, it is “of fundamental importance to this country’s presence in the world” and a key means for exerting “our soft influence”.74 In recognition of the strategic importance of the World Service to the UK, we pressed the BBC for more assurances about the level of funding that it would make available for the BBC World Service. Under the terms of the settlement, the BBC does not formally take over funding responsibilities for the World Service until 2014/2015. In the three years before this, FCO Grant-in-Aid for the World Service will be cut by 16%, though Mark Thompson explained to us that:
[…] the particular character of the World Service, the fact that its baseline this year was reduced significantly, in a sense before the CSR began, mean that the actual savings the World Service is going to have to make over the next three years are significantly deeper than the headline numbers suggest…we are looking at savings of around 19%.75
The implications of these cuts are explored in detail in the report of the Foreign Affairs Committee, which expresses concern about the adverse impact of the cuts proposed in the CSR on World Service services.
70 Q58 71 Q169 72 Q166 73 BBC Annual Report and Accounts 2009/10, p1-13 74 Foreign Affairs Committee, Sixth Report of Session 2010-12, The Implications of Cuts to the BBC World Service, HC 849, p.14 75 Q164-165
24 BBC Licence Fee Settlement and Annual Report
51. Mark Thompson was able to offer some reassurance on future funding levels. He noted that the Government had committed to allowing the BBC to use some licence fee funds to support the World Service in the three years before it received full funding of the World Service.76 In his letter to the Chairman, the Secretary of State confirmed that:
On 14 February, I laid in Parliament an amendment to the BBC Agreement that ensured the BBC Trust can decide to use licence fee money to contribute to the cost of restructuring the World Service ahead of it transferring to the licence fee in 2014-2015.77
Mark Thompson also affirmed that it was the BBC’s intention “if we can, to slightly increase the funding for the World Service in year four [2014/2015]”.78 Sir Michael Lyons was anxious not to raise expectations too high, however, observing that:
Just let me underline that whilst the BBC would like to ameliorate the impact of this very concentrated reduction, in time, we can’t avoid the scale of reductions that the Director-General is talking about.79
He also affirmed that there would be no ring-fencing of the World Service budget once the BBC had taken on responsibility for it, and that no final decisions had been made on future funding levels.
52. We share the concerns of the Foreign Affairs Committee regarding the risk to BBC World Service services arising from the proposed 16 per cent cuts in the years 2010 to 2014/2015 before the BBC has taken on responsibility for its funding. We strongly believe that, for relatively modest expenditure, the BBC World Service delivers huge benefits in terms of extending Britain’s reputation and influence overseas. We are concerned at the proposed closure of a number of services and, although we have not examined the scope for efficiency savings, we agree with the Foreign Affairs Committee that there is a case for reversing some or all of the planned reduction in funding. We also support its view that this could be achieved by meeting part of the funding requirement from the Department for International Development budget.
53. While acknowledging the importance of an adequately funded World Service, there is also a separate funding issue for the licence fee payer; namely the extent to which domestic services and content might be adversely affected if additional funding is diverted to the World Service. This is, of course, the mirror image of concerns expressed by the Foreign Affairs Committee that the BBC may seek to “raid” World Service funding to support domestic services. Together with that Committee, we will follow closely BBC plans to strike a balance between its new World Service and existing domestic priorities.
54. Like the Foreign Affairs Committee, though perhaps with a slightly different emphasis, we are concerned with governance issues arising from the new relationship as well as with
76 Q166 77 Ev 64 78 Q164 79 Q166
BBC Licence Fee Settlement and Annual Report 25
funding issues. One benefit of the change in funding arrangements is that it becomes easier to show that the World Service is independent from Government. A potential disadvantage for the BBC, however, is that because the Government retains the final say on opening and closing World Service services it has, for the first time, a direct influence on expenditure allocation within the BBC.
55. We pressed the BBC on the nature of the relationship it would have with the Foreign Office once it became responsible for funding the World Service. How, for instance, would the situation be resolved if the FCO wanted the BBC to open a new service that the BBC felt was unaffordable? Sir Michael Lyons replied that the current arrangements — under which the Foreign Secretary has the final say — would remain in place. The FAC, however, has concluded that when the BBC holds assumes financial responsibility for the World Service, governance arrangements will inevitably change, noting that “whoever holds the purse strings exercises a great deal of power”. It recommends that a formal concordat be drawn up between the BBC and the FCO, under which the Foreign Secretary would “have the right to stipulate minimum levels of service provision which the BBC will have a formal responsibility to fund”.80 The risk of this approach, however, is that it could threaten — or be seen to threaten — editorial independence: a core principle of the BBC.
56. Like the Foreign Affairs Committee, we believe that there is a need for clarity as to how the dynamics of the new relationship between the BBC and the Foreign Office will work in practice. A formal concordat between the Foreign and Commonwealth Office and the BBC World Service might provide the desired clarity, so long as it did not undermine BBC editorial independence. We will continue to monitor closely the BBC’s progress in securing a positive future for the World Service and the balance of its relationship with the Government.
S4C 57. After the World Service, the next biggest new financial commitment for the BBC under the terms of the settlement is S4C, worth £76 million a year in 2013/2014 and 2014/2015. The Welsh Affairs Committee has recently undertaken a detailed inquiry into S4C and we do not propose to repeat all its findings here. We do, however, find it extraordinary that the Government and the BBC, which is fiercely protective of its own independence, should find it acceptable to agree a change in the funding and governance arrangements for another statutorily independent broadcaster, S4C, without the latter having any involvement, say or even knowledge of the deal until it has been done. It is, perhaps, revealing that the minutes of the BBC Trust meeting held on the morning of 19 October 2010 to discuss the terms of the proposed settlement merely noted “the complexities associated with entering an even more extensive partnership with S4C” and that while “it was unclear whether other parties had been consulted”, this “was a matter for the Government”.81 With considerable understatement, when the meeting resumed later in the day, the Trust member for Wales is recorded as noting:
80 Foreign Affairs Committee, Sixth Report of Session 2010-12, The Implications of Cuts to the BBC World Service, HC 849, paras 81 and 83 81 Minutes of the BBC Trust meeting, 19 October 2010
26 BBC Licence Fee Settlement and Annual Report
The potential difficulties in Wales over the Government’s proposed new partnership model for S4C, especially as it had become apparent that S4C was not fully aware of this being a possible outcome.
When S4C gave evidence to the Welsh Affairs Committee in December 2010, they were clear that they had been completely unaware of the proposal until after the deal was done.82
58. In defence, Sir Michael Lyons told us that
it’s very important that the BBC doesn’t leave you with the impression that we went looking to fund S4C. We did not. […] it was indeed a component of the initial negotiations, which we were most wary of for two reasons: firstly, that there might be a danger of top-slicing, and we think we’ve got a way round that. Also, we know that in Wales, the issue of the independence of S4C is felt very strongly and the BBC did not want to leave any suggestion that it was somehow the pioneer of this proposition.
This reluctance is in stark contrast to the keenness of the BBC’s desire to take on funding responsibilities for the BBC World Service. Mark Thompson sought to put a more positive spin on the nature of the S4C agreement by stressing the partnership element and highlighting synergies: the BBC, like S4C, has “a profound interest in the Welsh language”;83 S4C’s core news and current affairs spine is BBC branded; and “many of the most popular programmes on S4C are BBC programmes such as Pobol y Cwm, our soap opera, and our sports coverage and so forth”.84 However, the overall impression was still that the BBC felt it was doing the Government a favour by offering a more sustainable means of supporting S4C.
59. The problem the BBC has set itself with S4C is that it needs, on the one hand, to ward off accusations that this is “top-slicing” — as covered in the previous chapter — by arguing that it will retain oversight over how S4C spends licence fee money, while, on the other hand, to refute accusations that it is in effect looking to take over S4C. We suggested that it was very hard to see how S4C could be both independent and subject to BBC Trust oversight. In response, Sir Michael Lyons suggested that the relationship between the BBC Trust and S4C might be analogous to that which currently exists between the Trust and the BBC Executive, fronted by the Director-General, where:
the Trust lay[s] down the strategy advised by the Director-General, but the day-to- day decisions, and the running of that, all of those matters, rest entirely with the Director-General and his staff. 85
When we suggested that this model sounded more like a takeover than a partnership, Sir Michael Lyons said that the BBC’s motivation was the critical issue:
82 Welsh Affairs Committee, S4C, transcript of oral evidence, 14 December 2010, HC 614-iii Q265-273 83 Q127 84 Q127 85 Q162
BBC Licence Fee Settlement and Annual Report 27
There is no motive here for the BBC to take this over. It is basically an initiative of the Secretary of State with the BBC contributing, in the spirit of partnership, to see if it can find a solution for Welsh language broadcasting.86
60. The extent of the practical difficulties associated with this part of the settlement can be gauged from the fact that arrangements for S4C cover over a page of the four page letter from the Secretary of State to the Chairman of the BBC Trust detailing the settlement. A sense of the strained nature of subsequent negotiations to pin down the new arrangements can be gleaned from the tone of correspondence between the interested parties. On 10 November 2010, Sir Michael Lyons wrote to John Walter Jones, then S4C Authority Chairman, stating that “the BBC has no ambitions to take over S4C” and affirming a commitment to “a creatively independent S4C”.87 On 18 November 2010, John Walter Jones responded welcoming the first statement, but challenging the second:
In your letter you refer to a ‘creatively independent’ S4C. These are your words, not mine. The S4C Authority, along with a large number of organisations in Wales, believes that the independence of S4C, both editorial and operational, is of the utmost importance, and your use of the term ‘creatively’ implies something that falls far short of meaningful ‘independence’ […]
On 7 December 2010, John Walter Jones wrote to the Secretary of State observing that “the situation pertaining at S4C cannot be allowed to continue” and confirming his intention to retire as Chair of the Authority with immediate effect.
61. A clause in the settlement appears to rule out an alternative solution whereby a part of the licence fee is used to fund non-BBC public service content, with no strategic BBC involvement:
In the event that a new partnership model does not prove viable for any reason, the Government will not take licence fee money itself for this purpose
The implication is that, if the new BBC/S4C partnership does not work, then the Government will resume funding S4C, presumably at a lower level. In this event, presumably to deter the BBC from pulling out (despite the fact that this option might be attractive to licence fee payers) the licence fee would be reduced by an amount “equivalent to the contribution that the BBC would otherwise have made to S4C”.88
62. We remain unclear as to how S4C can retain its independence if the BBC Trust is involved at a strategic level. While there may be benefits to both parties from the partnership, there can be no doubt that substantial public funding otherwise available for other BBC content and services will be diverted to S4C. The shotgun marriage of S4C and the BBC is an awkward match, and we shall monitor developments closely to see whether this aspect of the settlement really does represent best value to the licence fee payer.
86 Q163 87 Letter from BBC Trust Chairman to S4C Chairman, 10 November 2010 88 Letter from the Secretary of State for Culture, Olympics, Media and Sport to BBC Chairman, 21 October 2010
28 BBC Licence Fee Settlement and Annual Report
63. Should it become apparent that the partnership agreement is not the best way forward, or that S4C is unable to maintain sufficient editorial or operating independence under the agreement, then an alternative funding mechanism will be needed. In this event, we recommend that consideration be given to sharing the licence fee in support of increasing public service content choice in Wales without involving the BBC in S4C governance arrangements, as well as to a reduction in the level of the licence fee and alternative funding for S4C.
BBC Monitoring 64. After the BBC World Service and S4C, BBC Monitoring is the third largest new financial commitment taken on by the BBC as part of the settlement. BBC Monitoring is part of the BBC Global News Division, which also includes the BBC World Service. It is currently funded by the BBC World Service and Government, but has complete editorial independence. It is an open source news and information publisher, which compiles political news, comment and reaction from the world’s press, radio, TV and the internet. Reports are translated into English from more than 100 languages. It is available on subscription, and is used by Governments, NGOs, analysts, academics, multi-nationals, journalists and individuals worldwide. Although part of the BBC’s global news division, its priorities are also influenced by its Government stakeholders — the Cabinet Office and agencies, the Ministry of Defence and the FCO. The Cabinet Office is the lead stakeholder, and currently provides the Government funding. As with the BBC World Service, under the SCR agreement Government funding will reduce in the years before the BBC takes charge of the budget — in this case from £23 million in 2010/11, to £21.7 million in 2011/2012 and £20.2 million in 2012/2013. Under the terms of the licence fee settlement, BBC Monitoring will become part of the licence fee funded BBC from 2013/2014.
65. BBC Monitoring is a strategic asset, with the Government being the main customer. There is arguably little direct benefit to licence fee payers, who are less likely to be aware of, or to avail themselves of, the service. Once the BBC assumes budgetary responsibilities, it will need to agree a new framework for the adequate supply of monitoring services to the Government. Although the changing nature of the partnership has understandably received far less scrutiny than the more high-profile BBC Worldwide, there is again scope for tension under the new funding arrangements if the Government stakeholders wanted to maintain or expand monitoring services that the BBC judged to be unaffordable. We recommend that the Government and the BBC identify how the licence fee payer benefits from BBC Monitoring and clarify how the decision-making process regarding prioritisation and funding allocation for BBC Monitoring will work once the BBC assumes budgetary responsibilities.
Broadband 66. Under the terms of the settlement, the licence fee money currently ring-fenced for digital switchover will be increased from £133 million per annum to £150 million from 2013/2014 to 2016/2017, but reallocated to ensuring access to broadband across the UK. Mark Thompson justified this additional financial responsibility as consistent with BBC public purposes. However, one issue we have not had clarified to date is the extent to which the BBC retains control of the share of the licence fee earmarked for broadband. We
BBC Licence Fee Settlement and Annual Report 29
recommend that the Government clarifies the BBC’s involvement in the broadband rollout programme and the extent to which it will be involved in the allocation of licence fee money earmarked for broadband.
Local TV 67. The final, and least costly, additional responsibility for the BBC is supporting the Secretary of State’s initiative to establish local TV in the UK. In our most recent evidence session with the Secretary of State, we were left in no doubt as to the importance he attached to this initiative. When we asked him what he would like his time at DCMS to be remembered for, a “a thriving local TV sector” was the first thing he cited.89 This is perhaps, surprising, given widespread scepticism that this is a viable option.
68. The settlement commits the BBC to playing an active role in supporting new local television services through a partnership fund providing capital costs of up to a total of £25 million in 2013/2014 for up to twenty local TV services, and by committing ongoing funding of up to £5 million per annum from 2014/2015 to acquire content for use on its own services from these new services. The BBC justified this partnership as consistent with BBC public purposes. Sir Michael Lyons also stressed that the BBC was making “a very modest contribution to the capital start-up costs […] of a much lower value than the BBC has offered in the past”, with viewers benefiting from any purchase of local TV content.90
69. We put it to the BBC that the Government was effectively calling on the BBC to subsidise an initiative that was not commercially viable. Mark Thompson responded by saying that:
The debate about whether it’s necessary and sustainable, and whether there’s a long-term commercial model, is all to come.91
Plans for local TV are only in their formative stages and we look forward to the Government’s decision, hopefully before the summer, on how it intends to proceed. We applaud the Secretary of State’s commitment and enthusiasm, but the project will certainly merit close scrutiny as to its viability. It remains, therefore, to be demonstrated that the admittedly modest funds the BBC has undertaken to commit to this project represents good value for the licence fee payer. We urge the Government and the BBC to clarify the extent to which the BBC will retain control of the licence fee resources allocated to local TV, and the pre-conditions for such an outlay.
89 Q103 90 Q136 91 Q136
30 BBC Licence Fee Settlement and Annual Report
5 Content
70. As well as assessing the additional responsibilities that the BBC has taken on as a result of the settlement, we have also looked at BBC content.
Strategic Review: Initial conclusions 71. In summer 2009 the BBC Trust decided to undertake a major strategy review to determine how the BBC could most effectively deliver its public service mission for the rest of the Charter period until 31 December 2016. This decision was announced through an open letter to licence fee payers in September 2009. The BBC Trust initiated the first stage of this review by tasking the BBC Executive to conduct its own review and put proposals to the Trust. The BBC’s proposals were published in March 2010. The Trust then undertook a three-month consultation period before publishing its initial strategy review conclusions in July 2010. The Trust published its final conclusions in December 2010, just before our second evidence session.
72. By the time of our first oral evidence session, the Trust had already endorsed the central components of the Director General’s proposals, so the broad outline of the strategy review had already become clear. The key outcomes included commitments to:
• putting quality first;
• doing fewer things better;
• making the licence fee work harder; and,
• setting new boundaries.
73. Mark Thompson had also used his MacTaggart lecture of 27 August 2010 to expand upon his future vision for the BBC. He stated first that there was much to be proud of in the existing provision of services:
I believe that the real dirty little secret about British television is about how good it is, not how bad.92
Highlighting how important it was that the BBC spent as much of the licence fee as possible on high quality content “at a time when other broadcasters are struggling to maintain their origination budgets”, he went on to stress that the BBC needed to rededicate itself to this central mission, arguing for a “further significant shift towards distinctiveness” and a need to “create more room for other players”.93 This may be read, perhaps, as a tacit admission that the BBC had strayed into areas that it should not have done.
74. We explored these themes further in our first oral evidence session, pressing for examples of areas where the BBC intended to do less in order to concentrate on higher
92 James MacTaggart Memorial Lecture, speech by the BBC Director General Mark Thompson at the Media Guardian Edinburgh International Television Festival, 27 August 2010 93 Ibid.
BBC Licence Fee Settlement and Annual Report 31
quality and distinctiveness elsewhere. Here Mark Thompson mentioned in particular fewer leisure programmes, fewer repeats and reducing the amount spent on acquired programming (programmes neither commissioned by the BBC nor made in-House but brought in a finished state from another supplier) given that there are plenty of other channels catering for this demand.94 We subsequently obtained from the BBC the information that it spent £93 million on acquired television programming in 2009/2010, and intends to spend between £75-85 million on acquired programming in 2010/2011. This appears to represent a reversal of the previous trend — as spending on acquired programming grew from £88 million to £101 million between 2006/2007 and 2008/2009. A balance must be struck between BBC-generated and acquired programming, as there is clearly a place for the BBC acquiring distinctive, high quality programmes when other terrestrial broadcasters do not wish to bid. Generally, however, we welcome the shift of emphasis away from acquired programming, and trust that the downward trend will continue.
75. We looked at the emerging plans for radio, where the BBC Executive’s proposal to close the BBC digital music channel 6 Music and the Asian Network had been overturned by the Trust. Sir Michael Lyons told us that “the arguments didn’t stand up as a result of the consultation analysis we’ve done” but felt that the proposal had helpfully brought to the fore:
[…] the two big strategic issues sitting behind it. The first of those — the greater distinctiveness of Radio 1 and Radio 2 […] the second issue […] is the absence of a coherent digital strategy — not an issue for the BBC alone.95
Mark Thompson accepted that he needed to go back and look at the broad radio strategy.
76. Aligning with our predecessor Committee, we intend to take a keen interest in the BBC’s commitment to spending in the nations and regions. During the first oral evidence session, we also took the opportunity, therefore, to question the BBC on its commitment to fulfilling production quotas in the three nations of Scotland, Wales and Northern Ireland, receiving reassurances that:
The BBC’s commitment to it is evidence of the Director General taking up issues that the Trust gave a strong direction on but here you have targets set by the Trust being progressed and being met and a very real and palpable outcome for licence fee payers in the three nations.96
We urge the BBC to increase still further its efforts to support the production of quality programmes in the nations and regions when a strong case for doing so can be made.
Strategic Review: Outcome 77. By the time of our second oral evidence session the BBC Trust had — just — published the final outcome of the Strategic Review. As expected, it put the focus on increasing the
94 Q68 95 Q70 96 Q61
32 BBC Licence Fee Settlement and Annual Report
distinctiveness and quality of programmes and services while improving value for money. One issue which did strike us was how long it was taking the BBC to implement changes in areas that had long been identified — both by the BBC and outside commentators — as requiring attention, such as the strategy review itself, which had taken well over a year to complete.
78. As a further example of this tardiness, Mark Thompson confirmed the intent to reduce the amount spent on the BBC website while making it more distinctive. This is not before time. BBC Online expenditure rose by 12% from £178 million to £199 million in 2009/2010. From financial year 2003/2004 through 2009/2010, the BBC spent around £1 billion on BBC online services. This growth has continued despite growing concerns from the commercial sector about the scale of the BBC’s online activities. As far back as 2004, a Government review (The Graf Review) concluded that the BBC should redefine the remit and objectives for its online service; include more consistent and transparent links to all relevant commercial and public sources; increase distinctiveness; and introduce a deliberate, precautionary approach to investment. The BBC Trust conducted its own service review of BBC Online in 2008, concluding then that it required firmer editorial control and clarity of purpose. It is striking that, although the Strategic Review confirmed a 25% budget cut for BBC online, the Trust still did not feel able to sign off proposals for change at this time. The Trust finally agreed a new BBC online strategy on 24 January 2011. This is a good example, then, of an area where the BBC has allowed itself, for too long, to depart quite substantially from its public mission.
79. While we are content with the broad thrust of the BBC Trust’s strategic review, we have concerns that the BBC remains slow to implement necessary change. We will monitor closely the extent to which the BBC increases the speed with which it fulfils its strategic review commitments, including implementing improvements to the distinctiveness and quality of its services.
The Strategic Review and the new settlement 80. There was one alarming feature of the final strategic review documents; the strategy review and the new settlement are not fully aligned. Although the BBC has sought to portray the strategic review as a necessary roadmap for the settlement deal, it can equally be argued that the scope of the settlement has derailed the strategic review in a number of respects. Most strikingly, perhaps, while the strategic review argues strongly for the BBC to deliver better value to its audiences by doing fewer things better, the settlement requires the BBC to take on additional tasks, some of which, as we have seen, are of debatable relevance to its core mission and public purposes.
81. Slightly more hidden is a further concern. The BBC Trust’s December 2010 The BBC’s Strategy Putting Quality First document, which summarises the conclusions of the strategic review, contains the following statement:
The BBC’s new licence fee settlement changes the picture somewhat. […]In the course of the next two years, the BBC Trust and Executive will therefore need to agree a realistic target for productive efficiencies in the period from 2013/2014 to 2016/2017, and how any remaining gap in funding is best met. That is likely to
BBC Licence Fee Settlement and Annual Report 33
require a more fundamental review [our italics] of the cost base and the shape of BBC services than was undertaken in the course of the strategy review.
It sometimes appears as if the BBC is in a state of permanent review. We took the opportunity in the second oral evidence session to clarify the extent to which more radical changes to the BBC lay just round the corner. Sir Michael Lyons expressed regret that he had used the term “review” again, but admitted that there was a lot of work still to be done to determine how the priorities identified in the strategy review were going to be delivered against the 16% reduction in budget. Mark Thompson suggested that:
[…] I think we have the direction of travel. We now have the fairly considerable task of turning these broad themes and direction into practical plans for genre and services and platforms.97
82. We pressed further on whether future reviews would produce evolutionary change or a rather more fundamental rethink of what the BBC does. We detected a difference in emphasis from the Director General and the Chairman of the Trust. Mark Thompson appeared to us to favour an evolutionary approach. He pointed out, with reference to the opposition to the BBC’s earlier proposal to close 6 Music, that:
[…] the public do not want any diminution of the services offered by the BBC […] So our challenge is that the public want a broad range of services from the BBC; there isn’t a single service from the BBC that has not got a powerful constituency out there. They want a broad range of high quality content from the BBC, and our challenge, if you like, is can you meet that public expectation in the context of the reality of the funding the BBC will have over this period?98
The risk is that by trying to retain all its services, the BBC ends up spreading itself too thinly, so that quality and distinctiveness suffer. Our predecessor Committee questioned the value provided by BBC Three, including its effectiveness in reaching young people.99 Mark Thompson was, however, rather dismissive of the suggestion that the BBC might need to reduce its number of channels, arguing that, as a fully digital UK approached, so the underlying value of all the BBC’s digital channels increased. He also suggested that the logic for reducing a broad portfolio of channels lay many years in the future.100 In sum, he thought that the number of digital channels operated by the BBC was a second order issue:
Having ambitious, outstanding content is the key issue. How to make sure the licence is going into the best possible content — of course, there are some costs in having an extra digital channel, the last marginal digital channel. But they are very small economic questions when you compare them to the underlying point, which is making content. That’s where the money goes, in the making of content.101
97 Q150 98 Q151 99 Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBC Annual Report 2008-09, HC 515, paras 55- 63 100 Q154 101 Q154
34 BBC Licence Fee Settlement and Annual Report
83. Sir Michael Lyons, on the other hand, appeared to us to be more conscious of a need for radical change in order to work within the constraints imposed by the settlement. He noted that the strategy review had concluded that it would be premature to look at the current portfolio of television channels as the public’s viewing patterns had not changed significantly. He observed however that the BBC could no longer afford to put off this type of fundamental review:
In the context of a 16% budget reduction, the Trust is clear that we don’t have the luxury of that [the portfolio of channels]; it has to be looked at, as indeed does all BBC activity […]102
84. On 12 January Sir Michael Lyons wrote to Mark Thompson on the subject of implementing Putting Quality First and the new licence fee settlement.103 The letter noted that they were in agreement that:
[…] the scale of this challenge requires the BBC to undertake a fundamental review of its cost base and shape of services and activities.
He expected the BBC Executive to bring proposals to the Trust in the summer and that, thereafter, the Trust would:
[…] lead a programme of external consultation with licence fee payers and wider industry to test our understanding of their likely impact. We will aim to finalise our conclusions by the end of the year.
He went on to emphasise that savings “should be targeted in those areas where the BBC’s public value is lower” and that there should be no compromising of the pursuit of greater distinctiveness on BBC One, BBC Two, Radio 1 and Radio 2. Finally, he observed that:
We have also previously signalled that this process is a good opportunity to assess how the shape of the BBC’s television portfolio as a whole might develop after digital switchover is complete in 2012.
Media reporting interpreted these statements as a clear message that the future of digital channels BBC Three and BBC Four was in doubt.104
85. The main outcomes of the BBC Trust’s strategy review are largely underwhelming in that they simply repeat verities such as the importance of putting quality first, ensuring value for money and having boundaries appropriate to its publicly-funded status. Our sense is that the hard choices on content are yet to come, but that they should not be avoided any longer. We will await with interest any indication that the new Chairman of the BBC Trust and the Director General can give us on the future shape of BBC services and their content during our next annual oral evidence session, and look forward to comparing the options considered and the choices made against the values of the strategy review.
102 Q153 103 Trust publishes licence fee settlement commissioning note, BBC Trust Press Release, 12 January 2011 104 The Guardian, BBC Trust chair : we may cut back digital channels, John Plunkett, Wednesday 12 January 2011
BBC Licence Fee Settlement and Annual Report 35
6 Transparency and accountability
Transparency 86. In the previous Parliament, our predecessor Committee was frustrated by the BBC’s reluctance to increase transparency, particularly with reference to BBC staff and talent costs. In 2007, the BBC told the Committee that disclosing talent costs, even grouped in bands, would cause commercial prejudice to the BBC and potential exposures to actions for breach of confidence.105 It was only in February 2010 that the BBC first disclosed the total amount paid to artists, presenters, musicians and other contributors across its services (for the year ending 31 March 2009) and a breakdown of the total amount paid in four bands — the top one being £150,00 plus. The BBC did not disclose the numbers of individuals in each band.
87. Our predecessor Committee was still pressing for further transparency in March 2010 in its last report on the BBC, when it recommended that:
[…] additional payment bands for talent should be introduced, disclosing the number of individuals and total payments for those earning £250,000 to £500,000; £500,000 to £750,000; £750,000 to £1 million; £1 million to £5 million; and £5 million plus. We do not expect to see any entries in the £5 million plus category.106
In July 2010, we were able to publish the BBC Trust’s response to our predecessor’s Report. We were pleased to read that the Trust now:
[…] agreed with the Committee that the current bands are not sufficiently transparent in explaining how talent pay is broken up.
The Putting Quality First document also reflects the Trust’s commitment to publishing talent costs broken down into figures for aggregate spend in the bands suggested by our predecessor Committee, as well as indicating the numbers of individuals falling into each band. The same document also commits the BBC to producing an annual report on all public service senior manager pay, with salaries anonymised but published in bands no greater than £5,000 wide and fitted into an organisational plan. On 24 March 2011, our Chairman wrote to Mark Thompson expressing disappointment that the banded information on talent salaries was still not in the public domain, given that it was July 2010 when Sir Michael Lyons announced that the BBC would publish it. He pointed out that, by waiting until the publication of the 2011 Annual Report, the BBC would have taken nearly a year to implement the decision made by the Trust and saw no reason why this information could not be published now, in advance of the Annual Report. Mark Thompson’s response, published in this Report, was unhelpful.107
88. We welcome the commitments the BBC Trust has now made on transparency. We are, however, disappointed and frustrated that the banded information on talent
105 Culture, Media and Sport Committee, Fourth Report of Session 2007-08, BBC Annual Report 2006-07, HC 235 106 Culture, Media and Sport Committee, Fifth Report of Session 2009-10, BBC Annual Report 2008-09, HC 515 107 Ev 66
36 BBC Licence Fee Settlement and Annual Report
salaries is still not in the public domain, given that it was July 2010 when Sir Michael Lyons announced that the BBC would publish it. This is another example of the long gestation time between the BBC identifying a need for policy change and delivery of that change.
89. It is undoubtedly helpful that the outcome of the strategy review includes, as one of its key four objectives, setting new standards of openness and transparency. We note, in particular, that Putting Quality First states that:
A key test of the success of this strategy will be whether it can be shown to be working through a much wider pattern of public disclosure and reporting.
In the past our predecessor Committee has observed a perhaps unsurprising tendency in BBC Annual Reports to highlight favourable over unfavourable information, for instance with reference to BBC Three performance. In a similar vein, the recent NAO value for money study, The BBC’s management of the costs of producing continuing drama, noted that the BBC’s reliance on cost per viewer hour as its main measure of value for money had its limitations and recommended that the BBC Trust “require the BBC to use a range of measures to report against value for money, including the cost of producing an hour of programming”.108 We assess that the BBC still needs to raise the bar with regard to transparency. We welcome its commitment to go further in this area, and will continue to monitor its publications and statements closely for signs of change.
Accountability 90. Transparency and accountability are closely linked. During the last Parliament both our predecessor Committee and the previous Committee of Public Accounts pushed for the National Audit Office (NAO) to be given full access to the BBC’s accounts to ensure that the BBC was held sufficiently accountable for the licence fee money it spent. The coalition’s programme for Government included a commitment to give the NAO full access to the BBC’s accounts by November 2011. Knowing that the media had reported that Sir Michael Lyons and Mark Thompson had been lobbying against the NAO having anything more than selective access to BBC accounts, we pressed the BBC on this issue during our first oral evidence session.
91. In response, Sir Michael Lyons was cautious, arguing that there were three important principles at stake: accountability; transparency; and, perhaps in opposition to these first two principles, the independence of the BBC. He asserted that the BBC already worked closely and effectively with the NAO on value for money studies, and that he would have no objection to the NAO bidding to become auditors of the BBC when KPMG’s current contract came to an end. He observed, rhetorically:
Does the Trust take seriously its responsibility for both challenging expenditure within the BBC and making sure that people understand what money is being
108 National Audit Office and BBC Trust, the BBC’s management of the costs of producing continuing drama, Report by the Comptroller and Auditor General presented to the BBC Trust’s Finance and Compliance Committee, 3 March 2011, p 9
BBC Licence Fee Settlement and Annual Report 37
spent on? Yes, it does and I don’t think there is any room to criticise that role and I underline that the NAO has been an ally in the way that we do that job.109
Mark Thompson supported Sir Michael Lyons’ arguments, suggesting that:
[…] it is laid out very clearly in the Charter that the BBC will be unlike other public bodies. Yes, it gets public money but it will be unlike other public bodies in the matter of how it is held to account for value for money, specifically because of the need to keep it independent of Government and the political process for its editorial reasons.
Sir Michael Lyons did see scope, with respect to the NAO’s value for money exercises, for the NAO to have greater freedom to name the areas they want to go in — subject to certain ground rules being established, such as ensuring that the BBC’s negotiating position in the market place was not impaired by more financial information appearing in the public domain. He also affirmed that he would be content for the NAO to undertake a value for money audit of the BBC Trust.
92. At the time of the first oral evidence session, discussions with regard to delivering the Government’s commitment were ongoing. On 22 September 2010, the Government announced that agreement had been reached to give the NAO full access to the BBC accounts for the first time. The agreement included:
• NAO routine access to BBC management information;
• NAO right of access to any information it needed to identify and carry out its duties;
• NAO access to confidential BBC contracts with third parties; and
• Agreement that the NAO would not question the BBC’s editorial policy.
The Government press notice explicitly stated that the NAO would have the authority to determine which areas of BBC expenditure it wished to scrutinise. It also, however, advised that — uniquely for NAO reports — the value for money studies would be submitted first to the BBC Trust which would then transmit them to the Secretary of State for laying in Parliament. Normally, it is the NAO itself which determines when it reports its findings to Parliament, subject only to the limitation that its Reports are published when Parliament is sitting. The Government announcement also stated that discussions would now be taken forward to implement these changes well before the original deadline of November 2011.
93. Recognising that the devil might lie in the detail, we wrote to the Comptroller and Auditor General in October 2010 seeking his assessment of the new arrangement. We are publishing his response, which took the form of a covering letter, and a copy of a letter sent to the Secretary of State, on our website.
94. The Comptroller and Auditor General revealed in his letter to the Secretary of State his concerns at the manner in which the agreement had been announced — with the NAO
109 Q20
38 BBC Licence Fee Settlement and Annual Report
apparently only informed a few days before the announcement was made. He also queried the scope of the agreement, noting that the NAO was not solely interested in BBC spending, but rather in the use of all BBC resources. He noted that, without a statutory right of access, the NAO would continue to have no access to information covered by the Data Protection Act. He was seeking further clarity on the requirement to inform the BBC Trust before the NAO decided upon its programme of work, particularly given a Trust statement that this would be decided on an annual basis. 110 He made it clear that he would be unwilling to commit to annual plans, as the NAO needed the flexibility to react to changing circumstances and the issues of the day. He expressed his disappointment that the Government was content for NAO reports on the BBC to reach Parliament via the BBC Trust and the Secretary of State because:
It raises the possibility that the BBC Trust or the Secretary of State could redact material or indeed not publish the report, and, under current arrangements, it means that the BBC, uniquely, responds to the issues raised by our reports before they have been considered in Parliament.
He expressed his view that the NAO would be better placed to deliver a fully informed programme of value for money work if it was the BBC’s external auditor. Finally, he concluded that the fact that audit access remained dependent upon a continuing agreement between the Government and the BBC, rather than on statute, left important matters unresolved, and might mean in practice little progress in terms of independent scrutiny of the BBC.
95. We were copied in to the Secretary of State’s response, dated 18 November 2010, which we are also publishing on our website. He advised that he did not intend to give the NAO statutory access as he wanted a successful outcome within the current Charter and Agreement framework. He agreed that a mutually acceptable definition of editorial policy was required. He rejected requiring the BBC to appoint the NAO as its external auditor, observing that it was open to the NAO to compete for the contract when it came up for renewal in 2012.
96. Reading the Comptroller and Auditor General’s letter, we were surprised by the number of issues which still needed to be addressed. As things stand, the arrangements with regard to setting an inquiry programme on an annual basis and submitting resulting reports to the BBC Trust rather than to Parliament, do not meet the original commitment to give the NAO unfettered access. This matters because, as shown in its recent Report on the BBC’s management of its Digital Media Initiative, the NAO is identifying deficiencies in the BBC’s approach in this case to project management.111 Furthermore, the Public Accounts Committee’s (PAC) own Report into the Digital Media Initiative, concluded that:
110 Ev 65 111 The BBC's management of its Digital Media Initiative, Report by the Comptroller and Auditor General presented to the BBC Trust’s Finance and Compliance Committee, 13 January 2011
BBC Licence Fee Settlement and Annual Report 39
The BBC’s confidential settlement with the contractor delayed the C&AG’s access to relevant information, and led the National Audit Office’s review being held up for eight months.112
Calling this unsatisfactory, PAC affirmed that it expects the BBC and BBC Trust to ensure that full access is given promptly in the future.
97. We understand that negotiations on the detail of this agreement are ongoing. Having originally made a clear commitment to allow the National Audit Office unfettered access to the BBC, we are very concerned that the Government’s proposals fail to deliver this. We urge the Government to address the concerns expressed by the Comptroller and Auditor General and to reach an agreement that will give the National Audit Office all the powers it needs to provide independent assessments of the value for money of BBC expenditure. These should be reported to Parliament rather than to the Secretary of State through the BBC Trust.
112 Public Accounts, Twenty Ninth Report of Session 2010-12, The BBC’s management of its Digital Media Initiative, HC 808
40 BBC Licence Fee Settlement and Annual Report
7 Salford Quays
98. There is one further long-standing issue that the Committee has taken a keen interest in this year; namely, the progress of the BBC’s relocation to Salford Quays. The BBC is on schedule to open its new purpose built broadcast centre — Media City — in Salford Quays in May 2011, and it is expected to be fully operational by December 2011. In 2007 it was confirmed that the BBC would be moving five of its departments to the development in Media City: BBC Children’s; BBC Learning; BBC Sport; Radio Five Live; and parts of BBC Future Media and Technology. In July 2010, it was announced that the BBC Breakfast programme would also move to Salford Quays.
99. As part of our annual inquiry we paid a visit to Media City, Salford Quays, in November 2010. We were immensely impressed by the facilities and by the creative, employment and commercial opportunities. It is disappointing that the potential of this new development has been somewhat overshadowed by concerns, extensively covered in the media, that BBC staff and talent were reluctant to relocate, despite a generous relocation package. A particular criticism was that the BBC management was not showing sufficient leadership, with a number of key senior managers not themselves planning to relocate. For example, Paul Gaskin, BBC’s Human Resources Director for Salford HQ, quit at the end of July 2010 because he did not want to relocate, while the director of BBC North, Peter Salmon, his deputy, Richard Deverell and BBC Live controller Adrian Van Klaveren, were all reported in the media as planning to rent property in Manchester while their families remained in the south.113 Peter Salmon responded to media criticism by stating that he would be buying a family home in Salford as soon as his children “finish this round of their education”.114 Moreover, it has been reported that the “Migration Manager” in charge of the relocation of BBC staff from London to Salford, Guy Bradshaw, has been US-based and commuted from his home in Kentucky in order to fulfil his duties at considerable expense to the BBC.115 At the Edinburgh TV festival in August 2010, producer Jimmy Mulville was quoted as accusing BBC senior management of “leading from the back”.116
100. In our first oral evidence session, we asked Mark Thompson if he was confident that a sufficient number of executives and talent would be prepared to relocate to make a success of the new development. He responded that he was, observing that both the Director of BBC North and his number two had now made it clear that they too would be relocating. He noted too that quite a few of the rest of the management team already live in the north, and that many others would be relocating.117 He went further to claim that, within the relocating departments:
113 See for example The Guardian, BBC Salford HR director quits, 23 August 2010 114 The Guardian, BBC North chief vows to buy family home in Salford, 27 August 2010 115 The Daily Mail, BBC 'migration' boss leading move to Manchester travels 4,000 miles to work (and avoids paying any UK income tax), 6 February 2011 116 The Guardian, Jimmy Mulville: Peter Salmon 'leading from the back' on BBC Salford move, 27 August 2010 117 Q59
BBC Licence Fee Settlement and Annual Report 41
[…] the percentage of staff in those departments who have chosen to move to the north, 46%, is much, much higher than most organisations, public or private, achieve in relocation.118
And to conclude that:
[…] I think we are going to end up with a pretty much optimal mix in Salford of a significant number of people […] who are moving […] but also plenty of opportunity to create jobs to get new people who are already based in the whole of the north of England to come and work with us in Salford.119
101. During our second oral evidence session, subsequent to our trip to Salford Quay, we noted that there was still a lot of space available there and asked whether the BBC had any plans to move further services to the north-west. Mark Thompson replied that past precedent had certainly been to add rather than subtract services for relocation. He told us that he would not rule out further moves once the new centre was up and running. We pressed further as to whether the BBC would consider moving one of its two main terrestrial channels to Salford, something which would send a strong signal that the BBC had left any London-centric prejudice long behind. Mark Thompson replied that there were no immediate plans to do this but that “like anything else, I would not rule that out”.120
102. We believe that the new development at Salford Quays sends a powerful signal of the BBC’s intention to look beyond London for its production base. We assess that the early indications are that it should also deliver the creative and employment benefits which were hoped for, if not the immediate financial ones. Having made the commitment, we would expect the BBC to keep under review the scope for transferring further production to its new home in the North West where there are clear benefits from doing so.
103. It is inevitable that a major project such as the development at Salford Quays will attract media attention, not least regarding staff relocation, and attention from the newspapers, which tend to be critical of the BBC. Senior management would be well aware of this. To employ a “migration manager”, therefore, who commuted from his US home, simply opened the BBC up to self-inflicted and predictable ridicule. Such decisions cannot simply be dismissed as inconsequential gaffes. They lower the esteem of the BBC, its senior management and the Trust in the eyes of the public and its own staff. It is a task for the incoming Chairman to ensure that the BBC is seen always to lead by example in the future.
118 Q59 119 Q59 120 Q172
42 BBC Licence Fee Settlement and Annual Report
8 The way ahead
104. The last year has been an historic one for the BBC because of the unprecedented nature of the settlement concluded against the backdrop of the Comprehensive Spending Review. It is not a process that we would like to see repeated. It has left the BBC with a number of disparate activities that do not fit obviously with its core mission, and which threaten to alter its unique status as a publicly funded broadcaster of public service content. We had hoped that the long-running strategic review would have redefined the role of the BBC in a new era of digital broadcasting. In fact, the impression we are left with is one of unfinished business. Against this background, in January 2011, Mark Thompson launched a new initiative — Delivering Quality First — to identify how the BBC can deliver the commitments outlined in Putting Quality First within the new financial parameters established under the new licence fee settlement. The BBC is now consulting on how to make savings and deliver quality first, before presenting formal recommendations to the BBC Trust in the summer. As part of the ongoing progress, In March 2011, Mark Thompson outlined twenty-one areas for possible cutbacks, including: daytime services on BBC 2; local radio services outside peak times; and organisational layers.
105. Particularly when set against the additional responsibilities and financial challenges of the new settlement, the strategy review Putting Quality First did not move the BBC on to the extent required by current circumstances. Big questions remain as to how radically the BBC will need to re-configure both its content and the way in which it delivers its content in the years ahead. There is much for Lord Patten, the incoming Chairman of the BBC Trust, to get to grips with, and we look forward to hearing his views, alongside those of his Director General, in future oral evidence sessions.
BBC Licence Fee Settlement and Annual Report 43
Conclusions and recommendations
The negotiation process 1. The Government’s proposal to have the BBC fund the cost of free licences for the over-75s would have had a significant impact on the BBC’s finances, and the present Trust and management clearly regarded this as unacceptable. This may well have made them more amenable to other suggestions and to the eventual outcome. It was inevitable that the BBC would be required to contribute to the effort to reduce the overall level of Government spending but the broadening of this negotiation into a licence fee settlement was not necessary and has weakened the distinction between the BBC and other publicly funded bodies. (Paragraph 26)
2. We recognise that the Government made the first move, that time was of the essence and that the BBC seized the opportunity to pursue a wider settlement, securing its immediate financial future. We consider, however, that the decision to leave the vast majority of the negotiations with the Government to the BBC’s Editor-in-Chief and senior management further weakened the arm’s length principle. In future licence fee negotiations, we would expect the Trust Chairman, as head of the independent Governing Body, to play a more prominent lead role, acting as a buffer between the BBC and Government. (Paragraph 27)
3. If the BBC is to continue to benefit from a universal licence fee then it is vitally important that both licence fee payers and Parliament should have some involvement when far-reaching decisions about funding and the responsibilities are taken. It is regrettable that the decision to broaden the negotiations over expenditure into a full licence fee settlement meant that the opportunity for this was lost, thus undermining confidence in both the Government’s and the BBC’s commitment to transparency and accountability. We recommend that it should not become a model for the next round of licence fee negotiations for the post 2016/2017period. (Paragraph 32)
Outcome 4. In the current climate, the financial terms of the settlement appear to us, on balance, to be reasonable. In reaching the agreement, the BBC clearly believed that the terms were worth the certainty given by a licence fee agreement securing its financial future to 2016/2017. We urge the BBC to make it very clear in future financial statements where they are proposing new savings measures, and where they are simply progressing previously announced plans. (Paragraph 38)
5. It seems evident to us that some of the additional responsibilities that the BBC has taken on under the terms of the settlement widen the scope of licence fee spending beyond any previous interpretation of the BBC’s mission and purposes. By any normal definition, this constitutes “top-slicing”. The challenge for both the BBC and the Government over the rest of the Charter period will be to demonstrate a clear benefit to the licence fee payer from the BBC taking on additional responsibilities outside its core remit. (Paragraph 47)
44 BBC Licence Fee Settlement and Annual Report
The BBC World Service 6. We share the concerns of the Foreign Affairs Committee regarding the risk to BBC World Service services arising from the proposed 16 per cent cuts in the years 2010 to 2014/2015 before the BBC has taken on responsibility for its funding. We strongly believe that, for relatively modest expenditure, the BBC World Service delivers huge benefits in terms of extending Britain’s reputation and influence overseas. We are concerned at the proposed closure of a number of services and, although we have not examined the scope for efficiency savings, we agree with the Foreign Affairs Committee that there is a case for reversing some or all of the planned reduction in funding. We also support its view that this could be achieved by meeting part of the funding requirement from the Department for International Development budget. (Paragraph 52)
7. While acknowledging the importance of an adequately funded World Service, there is also a separate funding issue for the licence fee payer; namely the extent to which domestic services and content might be adversely affected if additional funding is diverted to the World Service. This is, of course, the mirror image of concerns expressed by the Foreign Affairs Committee that the BBC may seek to “raid” World Service funding to support domestic services. Together with that Committee, we will follow closely BBC plans to strike a balance between its new World Service and existing domestic priorities. (Paragraph 53)
8. Like the Foreign Affairs Committee, we believe that there is a need for clarity as to how the dynamics of the new relationship between the BBC and the Foreign Office will work in practice. A formal concordat between the Foreign and Commonwealth Office and the BBC World Service might provide the desired clarity, so long as it did not undermine BBC editorial independence. We will continue to monitor closely the BBC’s progress in securing a positive future for the World Service and the balance of its relationship with the Government. (Paragraph 56)
S4C 9. The Welsh Affairs Committee has recently undertaken a detailed inquiry into S4C and we do not propose to repeat all its findings here. We do, however, find it extraordinary that the Government and the BBC, which is fiercely protective of its own independence, should find it acceptable to agree a change in the funding and governance arrangements for another statutorily independent broadcaster, S4C, without the latter having any involvement, say or even knowledge of the deal until it has been done. (Paragraph 57)
10. We remain unclear as to how S4C can retain its independence if the BBC Trust is involved at a strategic level. While there may be benefits to both parties from the partnership, there can be no doubt that substantial public funding otherwise available for other BBC content and services will be diverted to S4C. The shotgun marriage of S4C and the BBC is an awkward match, and we shall monitor developments closely to see whether this aspect of the settlement really does represent best value to the licence fee payer. (Paragraph 62)
BBC Licence Fee Settlement and Annual Report 45
11. Should it become apparent that the partnership agreement is not the best way forward, or that S4C is unable to maintain sufficient editorial or operating independence under the agreement, then an alternative funding mechanism will be needed. In this event, we recommend that consideration be given to sharing the licence fee in support of increasing public service content choice in Wales without involving the BBC in S4C governance arrangements, as well as to a reduction in the level of the licence fee and alternative funding for S4C. (Paragraph 63)
BBC Monitoring 12. We recommend that the Government and the BBC identify how the licence fee payer benefits from BBC Monitoring and clarify how the decision-making process regarding prioritisation and funding allocation for BBC Monitoring will work once the BBC assumes budgetary responsibilities. (Paragraph 65)
Broadband 13. We recommend that the Government clarifies the BBC’s involvement in the broadband rollout programme and the extent to which it will be involved in the allocation of licence fee money earmarked for broadband. (Paragraph 66)
Local TV 14. Plans for local TV are only in their formative stages and we look forward to the Government’s decision, hopefully before the summer, on how it intends to proceed. We applaud the Secretary of State’s commitment and enthusiasm, but the project will certainly merit close scrutiny as to its viability. It remains, therefore, to be demonstrated that the admittedly modest funds the BBC has undertaken to commit to this project represents good value for the licence fee payer. We urge the Government and the BBC to clarify the extent to which the BBC will retain control of the licence fee resources allocated to local TV, and the pre-conditions for such an outlay. (Paragraph 69)
Content 15. A balance must be struck between BBC-generated and acquired programming, as there is clearly a place for the BBC acquiring distinctive, high quality programmes when other terrestrial broadcasters do not wish to bid. Generally, however, we welcome the shift of emphasis away from acquired programming, and trust that the downward trend will continue. (Paragraph 74)
16. We urge the BBC to increase still further its efforts to support the production of quality programmes in the nations and regions when a strong case for doing so can be made. (Paragraph 76)
Strategic Review: Outcome 17. While we are content with the broad thrust of the BBC Trust’s strategic review, we have concerns that the BBC remains slow to implement necessary change. We will
46 BBC Licence Fee Settlement and Annual Report
monitor closely the extent to which the BBC increases the speed with which it fulfils its strategic review commitments, including implementing improvements to the distinctiveness and quality of its services. (Paragraph 79)
The Strategic Review and the new settlement 18. The main outcomes of the BBC Trust’s strategy review are largely underwhelming in that they simply repeat verities such as the importance of putting quality first, ensuring value for money and having boundaries appropriate to its publicly-funded status. Our sense is that the hard choices on content are yet to come, but that they should not be avoided any longer. We will await with interest any indication that the new Chairman of the BBC Trust and the Director General can give us on the future shape of BBC services and their content during our next annual oral evidence session, and look forward to comparing the options considered and the choices made against the values of the strategy review. (Paragraph 85)
Transparency and accountability 19. We welcome the commitments the BBC Trust has now made on transparency. We are, however, disappointed and frustrated that the banded information on talent salaries is still not in the public domain, given that it was July 2010 when Sir Michael Lyons announced that the BBC would publish it. This is another example of the long gestation time between the BBC identifying a need for policy change and delivery of that change. (Paragraph 88)
20. We assess that the BBC still needs to raise the bar with regard to transparency. We welcome its commitment to go further in this area, and will continue to monitor its publications and statements closely for signs of change. (Paragraph 89)
21. Having originally made a clear commitment to allow the National Audit Office unfettered access to the BBC, we are very concerned that the Government’s proposals fail to deliver this. We urge the Government to address the concerns expressed by the Comptroller and Auditor General and to reach an agreement that will give the National Audit Office all the powers it needs to provide independent assessments of the value for money of BBC expenditure. These should be reported to Parliament rather than to the Secretary of State through the BBC Trust. (Paragraph 97)
Salford Quays 22. We believe that the new development at Salford Quays sends a powerful signal of the BBC’s intention to look beyond London for its production base. We assess that the early indications are that it should also deliver the creative and employment benefits which were hoped for, if not the immediate financial ones. Having made the commitment, we would expect the BBC to keep under review the scope for transferring further production to its new home in the North West where there are clear benefits from doing so. (Paragraph 102)
BBC Licence Fee Settlement and Annual Report 47
23. It is inevitable that a major project such as the development at Salford Quays will attract media attention, not least regarding staff relocation, and attention from the newspapers, which tend to be critical of the BBC. Senior management would be well aware of this. To employ a “migration manager”, therefore, who commuted from his US home, simply opened the BBC up to self-inflicted and predictable ridicule. Such decisions cannot simply be dismissed as inconsequential gaffes. They lower the esteem of the BBC, its senior management and the Trust in the eyes of the public and its own staff. It is a task for the incoming Chairman to ensure that the BBC is seen always to lead by example in the future. (Paragraph 103)
The way ahead 24. Particularly when set against the additional responsibilities and financial challenges of the new settlement, the strategy review Putting Quality First did not move the BBC on to the extent required by current circumstances. Big questions remain as to how radically the BBC will need to re-configure both its content and the way in which it delivers its content in the years ahead. There is much for Lord Patten, the incoming Chairman of the BBC Trust, to get to grips with, and we look forward to hearing his views, alongside those of his Director General, in future oral evidence sessions. (Paragraph 105)
48 BBC Licence Fee Settlement and Annual Report
Formal Minutes
Thursday 12 May 2011
Members present:
Mr John Whittingdale, in the Chair
Dr Thérèse Coffey Paul Farrelly Damian Collins Mr Adrian Sanders Philip Davies
Draft Report (BBC Licence Fee Settlement and Annual Report), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 105 read and agreed to.
Summary agreed to.
Resolved, That the Report be the Fourth Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Written evidence was ordered to be reported to the House for printing with the Report in addition to that ordered to be reported for publishing on 1 December 2010.
[Adjourned till Tuesday 17 May at 10.15 am
BBC Licence Fee Settlement and Annual Report 49
Witnesses
Wednesday 8 September 2010 Page
Sir Michael Lyons, Chair, BBC Trust, Mark Thompson, Director General, BBC and Zarin Patel, Director of Finance, BBC Ev 1
Wednesday 15 December 2010
Sir Michael Lyons, Chair, BBC Trust, Mark Thompson, Director General, BBC Ev 25
List of printed written evidence
1 BBC Ev 49; 60; 63; 66 2 Letter to the Chairman from Rt Hon. Jeremy Hunt MP, Secretary of State for Ev 63 Culture, Olympics, Media and Sport 3 Letter to the Chairman from Amyas Morse, Comptroller and Auditor General, Ev 65 National Audit Office
50 BBC Licence Fee Settlement and Annual Report
List of Reports from the Committee during the current Parliament
The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.
Session 2010–12 First Special Report Press standards, privacy and libel: Responses to the HC 351 Committee’s Second Report of Session 2009-10 Second Special Report BBC Annual Report 2008-09: BBC Trust’s response to HC 352 the Committee’s Fifth Report of Session 2009-10 Third Special Report Channel 4 Annual Report: Responses to the HC 891 Committee’s First Report of Session 2010-11 First Report Channel 4 Annual Report HC 423 Second Report Pre-appointment hearing with the Government’s HC 864-I & -II preferred candidate for Chairman of the BBC Trust Third Report Funding of the arts and heritage HC 464-I, -II & -III
cobber Pack: U PL: COE1 [SO] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 1
Oral evidence
Taken before the Culture, Media and Sport Committee on Wednesday 8 September 2010
Members present Mr John Whittingdale (Chair)
Ms Louise Bagshawe Paul Farrelly Dr Thérèse Coffey Alan Keen Damian Collins Jim Sheridan Phillip Davies Mr Adrian Sanders David Cairns ______
Witnesses: Sir Michael Lyons, Chair, BBC Trust, Mark Thompson, Director General, BBC, and Zarin Patel, Director of Finance, BBC, gave evidence.
Chair: Good morning. Can I welcome you to the or not it made sense to invest some of the money Committee’s annual session on the BBC Annual they get from their subscribers, rather more than they Report and accounts? I would like to welcome back currently do, in original British productions, but that to the Committee Sir Michael Lyons, the Chair of is very much in the context of regarding Sky as a BBC Trust, Mark Thompson, the Director General, British success story and an important part of the and Zarin Patel, the Chief Finance Officer of the BBC. equation. We have a lot of ground to cover this morning, but I So, in other words, I don’t accept the first part of the would like to invite Phillip Davies to start. premise of your question, which is that I launched a full-scale attack on Sky. On the contrary, I think Sky Q1 Phillip Davies: Can I start off about your is a very successful British company and should be MacTaggart lecture that you made recently. Different congratulated on their success. newspapers seem to take out different elements of Phillip Davies: Yes, it’s like starting a comment with, your speech to focus on in their reporting of it. I just “With all due respect”, isn’t it? Your premise might wondered what was the single most important have been to say “With all due respect to Sky”, but it message you thought we should take from your was what you went on to say. lecture? Mark Thompson: If I may say so, I didn’t just say Mark Thompson: I think my own summary would be that. I said, in terms, that they had been a major that what I was saying in that lecture was, I believe, contributor to the success of our industry. contrary to the views of certain others: that we have a Phillip Davies: A commercial business like Sky, very strong tradition of quality broadcasting in this which has proved itself very successful, clearly country, which the British public strongly support and delivers what its customers want and that is reflected which is the envy of many other countries around the world. It faces issues, in particular the question of how in its success. Do you not think it is a bit rich for a much money can be directed into original British person, the head of a publicly funded broadcaster that content and British talent, and there are some issues gets £3.5 billion a year landed on a plate in front of which we need to work through, but these are issues them, to start lecturing a commercial organisation which can be potentially solved by the industry about what they should be doing to look after their working together and with the right public policy. customers? Mark Thompson: Well, I don’t accept the premise of Q2 Phillip Davies: Do you not think it was strange the question. that you seemed to devote so much time doing what Phillip Davies: You were telling them about what you might call sticking the boot into Sky, or certainly they should be doing in terms of investing in this and talking about Sky, when there are so many problems investing in— and issues within the BBC that perhaps you might Mark Thompson: All I pointed out was that we’ve have wanted to focus on instead? had a history where successful commercial Mark Thompson: Well, it’s quite interesting, isn’t it, companies—and particularly I'm thinking of ITV and Mr Davies? If you read the speech—I don't know if the regional companies that made up ITV—have had you’ve had a chance to look at it—I went out of my an outstanding record in investing in British way to say that I thought Sky was an important and programmes and British talent, and that is the very successful part of the broadcasting landscape; background and a big part of the success story of that they brought great innovation to bear; that they British broadcasting. It has not just been the BBC stood for, not against, quality broadcasting. So, on the investing in independent production, in British stars, contrary, I went out of my way to congratulate Sky on British writers and British actors; it has been their success. commercial companies as well. That is a significant I went on to say one thing, and only one thing, which part of the reason our broadcasting is exceptionally is that it seemed to me that, given the scale of Sky’s good and I think it’s not unreasonable to suggest that activities and their profits, they could look at whether might be part of the solution going forward. cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 2 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Q3 Phillip Davies: Is it not the case that Sky spend what we can do to make sure it remains strong in the somewhere in the region of £1 billion each year future. That is what the speech was about. investing in Britain and the creative industries in Chair: Paul Farrelly. Britain, and is it not true that the BBC probably spends somewhere in the region of about £100 million Q6 Paul Farrelly: Thanks, Chair. Mark, you said it a year investing in Hollywood studios? was time for Sky to pull its weight in its investment Mark Thompson: I think if you look at the amount of in UK original content and you also said it was time money that BSkyB invest in original British television for Sky to pay some carriage charges. In a sense, you production, and in particular I would say beyond the could have been seen then as pressing the right news and sports categories, and compare it with the buttons, trying to hit Sky in its pocket and in its historic level of investment made by ITV plc and by patriotism. There was another issue that you companies like Granada, Yorkshire and Thames mentioned which in a recession pressed another before that, you will see it’s a very different picture. button, which was the contribution of the UK, I want to be quite clear: this is part of a story about particularly the independent sector, to exports and the what is the best way in which, by the BBC reforming need to support the industry in tough times by and spending as much as it can on original production, carrying on supporting creative investment. Can you by looking hard at what it would take to get a really expand on that and also on the extent to which the strong ITV, Channel 4 and 5 who can afford to invest independent sector agrees, given that the dilemma for in British production; Sky is one part of the story. I people looking at the BBC is that it is always the think they’re a success story. I do think they could do elephant in the room, to be encouraged in its public more investing in British production but I also think service broadcasting but to be restrained so it does not we need to work together to try and see if we can find crowd other entrepreneurs out. ways of ITV, Channel 4 and 5 having the ability to Mark Thompson: I think there are a number of invest more, and for the BBC to reform itself, to elephants in the room of which the BBC is one. It’s a reduce, by the way, the amount of money it spends on room which is not quite an elephant house but there acquisitions, and it, too, to spend more of the licence are a lot of big players and big global players who are fee on original British production. I think in a way it’s now a significant part of UK media. Again, it’s a fairly all a bit less controversial than you’re making it straightforward point. It’s demonstrable, and this sound. Committee has done some work on this, that we have a moment now, an opportunity, whereby a British set Q4 Phillip Davies: Can I just touch on sport, because of perspectives and values and British talent are of you seem to indicate that spending on sport—and Sky more interest to audiences around the world, and to does a big thing on sport—is less important than other broadcasters and other media players around the sorts of content that the BBC covers. Is it not crucial world, than has been true in the past. That stretches that as the BBC has gradually been removing itself from the World Service and the incredibly high trust from certain sports—things like horse racing spring to and authority that the BBC’s World Service and its mind—is it not essential that companies like Sky are other global news service have around the world, to providing something that the BBC has been gradually the fact that you have independent companies coming up with entertainment formats created in this country backing out of? which are world beaters; “X Factor”, “Strictly Come Mark Thompson: I would absolutely say again that it Dancing” will be examples of that but there are many is not only Sky’s right but it is completely reasonable others. What I said in Edinburgh was that one of the for them to invest very heavily in sports rights, which things that makes that possible is because we have indeed they do, but to be honest you could have a a national culture and a reservoir of talent which is BSkyB which was investing extremely strongly in exceptional, I believe. We also have the great benefit sport and still able to spend significantly more than it of making content in the English language which currently does on other forms of British TV travels around the world. production. Another critical success factor has been the high levels of investment that are placed in original Q5 Phillip Davies: I don’t want to cover the ground production in this country, much higher than other that other people are going to cover, but it seems to European competitors. That to some extent is under me that your MacTaggart lecture was something that threat currently because of changes particularly in the you have been building up to for a year from James advertising market. And it seems to me that one of the Murdoch’s speech the previous year. What would you things I was trying to say in Edinburgh is one of the say to people who think that your speech was due to things that policymakers should look at: are there the fact that James Murdoch rattled you a year ago ways in which that pot of money that is available to with his speech in the MacTaggart lecture? invest in talent, which can be exported and which Mark Thompson: I think it is deeply silly, if I may could be part of a success story for this country, can say so straightforwardly. I think that is ridiculous. The be protected and possibly grown? speech wasn’t obsessed with James Murdoch, he may Sir Michael Lyons: Do you mind if I just try and have had a couple of mentions, most of them light- gently bring us back to the Annual Report and hearted, nor was it obsessed with BSkyB. What the accounts, just to underline that one of the things the speech was obsessed with was how we can take an Trust has done throughout this last year in its industry which I have worked in for decades, which I deliberations on the Strategic Review and the Director continue to believe is outstanding and world class, and General’s “Putting quality first”, is to make strenuous cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 3
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel efforts to hear the views of other people in the wider I don’t believe it should go any further than it does communications industry. It has been very notable, currently. and indeed you will see that reflected in our initial conclusions on the Strategic Review, that far from a Q9 Dr Thérèse Coffey: I appreciate that the charities consistent message of get the BBC down in scale and operate, effectively, independently but they are still size, get it off of our landscape, there was a very the people you have to care for in your staff review balanced discussion about the areas that people want and your staff exercises, and I just wonder if that is to see the BBC doing different things and more. So, I unnecessary given that creativity and excellence is the think there is an issue here, as the Director General true skill that you bring to these activities. Why not was underlining, of redefined relationships within the raise the money and basically give it to other charities communications industry, changed behaviours to deal with? perhaps from the BBC, clearer boundaries, certainly, Mark Thompson: You will understand that obviously but a co-operative future which everybody can gain by far the majority of the activities the BBC occupies from and the nation will gain from. in this space are done in partnership with entirely external charities, like the Disasters Emergency Q7 Paul Farrelly: The very clear message, because Committee. We recently broadcast an appeal for we are coming to the Strategic Review now, was that Pakistan; £60 million raised from the British public if you clobber the BBC you clobber the British already. That is obviously done in partnership with the industry and its ability to contribute to national wealth DEC, our partnership with Comic Relief and the many through exports. The link is as direct as that. charitable appeals that we launch on television and Mark Thompson: I certainly said, and believe, the radio for other third-party charities. argument that if you reduce the BBC’s ability to invest Where we are at arm’s length, in other words where in the independent sector, let’s say, there would not be we are involved in the administration of charities— a commensurate increase in investment from for example, Children in Need—we take every step to elsewhere. The experience in many countries around ensure that all of the administrative costs of the the world is that a reduced licence fee, or reduced charities are as low as they possibly can be so that as public intervention in broadcasting, does not lead to a much of the public’s donations goes to the good rise in market-based investment in content but that causes involved. So we do try always to ensure that all investment just shrinks and that would be bad for the of the charities we’re involved in operate absolutely at creative industries. best practice in that way. As I say, I believe that the charities we have at the moment are justifiable. I Q8 Dr Thérèse Coffey: Moving on to strategy, I am would not want to see the BBC going further into going to take a very narrow view and I will be honest, this field, precisely because at a moment when we are Mark, I think you have had advance notice of this focusing on partnerships there are so many potential question because I asked it at the all-party group. partnerships as an alternative route for the BBC to I also need to make a declaration of interest. I worked take in this area. for the BBC until very recently and, due to an administrative error, I was overpaid and I am still Q10 Dr Thérèse Coffey: Moving further then into repaying that. So I need to make that clear. elements of strategic review, one of the questions I It is very simple. In the role of what we must do in would like to bring up is that, a couple of years ago, the future and what is nice to do and similar, I will in 2008, there was a staff survey. More than half the ask a very straightforward question: do you think it is staff believed the BBC was not heading in the right still necessary for the BBC to have its own four direction. I understand a more recent survey has been charities? The partnership model the BBC has with done on that. Now, I know you did quite a Comic Relief and Sports Relief, where the BBC comprehensive roll-out of education and discussion brings its creative talents and puts on a fantastic show, about the Strategic Review within the staff. Has that does the BBC need to be in the process of employing percentage changed? Do more of your staff now think people, with all that entails, to do charity decisions that the BBC is heading in the right direction? and similar? Mark Thompson: Yes, they do. We haven’t yet shared Mark Thompson: Firstly, it is worth saying that we the results with our staff themselves, but most of the take steps, as you know, with trustees to make sure key indicators about strategic direction, but also about these charities are operated in a way which is staff satisfaction and clarity from staff about strategy, independent of BBC management and independent of have moved significantly and are much more positive the BBC. I have to say that all of the charities with now than they were two years ago. In fact, 2008 itself which the BBC is associated, the ones which depend was an improvement on previous surveys, but for on UK public support, all of them have been very 2010, talking to MORI, they said that they thought successful in raising money for what I do believe are that the improvement on many of the most important very good causes. But I certainly think that although questions in the survey were some of the most striking I believe that the current charities we have, each of they had seen in any staff survey of any organisation. them can be justified, I don't believe that there should By the way, just for the sake of clarity, since that be a kind of process by which every few years the survey was conducted we have had a separate BBC launches new charities. I think we have more significant issue, which we’re working through at the than enough charities which are directly associated moment, which is the announcement of the pension with the BBC at the moment. So, in other words, I proposals, and there have been, to put it politely, lively think that what we have at the moment is justifiable. conversations inside the organisation. So I'm not cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 4 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel going to try and claim this proves there aren’t any Q13 Jim Sheridan: Can I also move on to what we issues in the BBC. call the more distinctive programming and editorial Thérèse Coffey: No, but that is not Strategic Review priorities. There are some people who would argue in a way, if you like, of the essence of the BBC. that there is no more distinctive programming than Chair: We will be coming on to that I think. Jim watching football, or indeed rugby, and there is a Sheridan? school of thought, particularly in Scotland, that the BBC exploited the position that Scottish football was Q11 Jim Sheridan: Thanks, Chair. Can I just refer in maybe a couple of years ago with the derisory offer to the pace of change in the BBC, and I think the that they gave to show Scottish football. Given the figure will be £600 million by 2013 to implement fact there is no variation in the licence fee and also these changes and efficiencies. I was just reading from the fact that the money that goes into Scottish football the brief that the Trust has decided to engage its own goes to the grassroots, would you accept that there advisers to work alongside the executive. Who are is a disproportionate discrepancy for what has been allocated to football south of the border as opposed to these advisers? football, and indeed rugby, north of the border? Sir Michael Lyons: This is an announcement as part Sir Michael Lyons: Apart from commenting by of our first reaction to “Putting quality first”. It is part saying that the BBC is clear that it needs to serve all of discussions which I'm sure we will spend a bit more audiences and get better at serving the different and time on about the remainder of this licence fee period distinctive needs of different audiences, I think these and ensuring that, despite the very considerable efforts are really questions for the Director General. that the BBC has been making to identify efficiency Mark Thompson: I just want to say that you can savings, we’re putting as much pressure on as possible imagine that when you come to sports rights, where in times where we know it is going to be very difficult the BBC is, quite rightly and properly, competing with for licence fee payers to find any increase in the many other interests, many other broadcasters—some licence fee. of them fully commercial, some of them other public In that exercise, we will be relying on the external service broadcasters—for the rights and where there auditors to the BBC. We’ve also had some initial is a real limit to how much the BBC can spend and discussions with the National Audit Office about where in some rights, including football, we’ve seen whether they too might play a part in validating this a period over many years of inflation in the cost of extra work required this summer, which we will be these rights, we’re faced constantly, Mr Sheridan, with learning the results of in the next week or so. quite difficult choices. Now, what is interesting is, firstly, these are proper Q12 Jim Sheridan: What will be the estimated cost markets. In other words, these are markets where we of these advisers? are legally required, and also morally required, to go Sir Michael Lyons: I don't think they are going to be in as one bidder amongst many. We go in there very high. Obviously, the majority of this work is attempting to achieve the best value-for-money for being undertaken by Zarin Patel and her staff. The licence payers and, exactly as the Chair says, trying role of the external advisers is basically to validate to find the best fit of programming, and in this case that work rather than to go and do it for themselves. rights, for audiences, absolutely also trying to reflect The Trust, of course, retains the freedom, if it needs on the different interests of different parts of the to, to bring in further external help if it’s not satisfied United Kingdom and, in particular, on trying to make with the results that we receive at our next meeting. sure that Scottish licence payers get a good deal and Jim Sheridan: The reason I ask is I have a very get in a sense the right mixture of programming. Even in the context of Scotland, we’re balancing how much jaundiced view of advisers or external consultants, we spend on journalism, how much we spend on particularly at a time when you are laying people off football, how much we spend on original Scottish in the BBC, sacking people. People are a bit frustrated television drama, documentary, comedy, and so forth. when you are making efficiency savings by making I have to say that my own view is that, in the context people unemployed but at the same time bringing in of Scotland and football, I don’t believe that we’ve external consultants who do not necessarily do the job made wrong choices, but I have to say I don’t required of them. apologise for the fact that sometimes we go in and try Sir Michael Lyons: Mr Sheridan, I absolutely agree to acquire rights which we believe are the right rights with you and that would be absolutely the approach to acquire but we try to acquire them at the lowest of the Trust and of the BBC more widely. Let me possible price. underline again: most of this work is being undertaken Jim Sheridan: I can understand that, you are in a internally by BBC staff, but let me also say that I fierce market, but the difference between the money think we would also be failing in our duties if we did that the BBC pays to English football, taking into not question as vigorously as we can, and sometimes consideration the quality of the product, the that needs to be reinforced by some external skills population size, et cetera, there is a distinctive case to brought in. That is indeed why we bring the National be made to suggest that definitely the BBC exploited Audit Office in to do our value-for-money studies. the situation that Scottish football was in a couple of Jim Sheridan: The costs will be made available in years ago. I understand you have to look after the due course? payers, but you are a public service as well. Sir Michael Lyons: I am very happy to share all the Mark Thompson: Absolutely, but these are markets costs with you. where it is appropriate I believe for the BBC to go in, cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 5
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel in the context of the supply and demand of that but once they are I'm very happy to speak to this particular market. I think that if somebody heard we Committee and others about them. had felt an obligation to pay much more than the market rate, I tell you now that there would be Q16 Alan Keen: Can I ask, Mark, this is an issue I competition complaints about us distorting the market. have raised before a number of times, especially Indeed, that has sometimes been claimed about the straight after the problem that arose after the previous BBC and certain sports rights. chair of the governors, I think he was then, Gavyn The point about the BBC is that, obviously, it is a Davies, and Greg Dyke had to step down. I raised it public body, but whether it is acquiring rights, then because it was clear that when there was a whether it is acquiring staff or executives or talent, it problem Gavyn Davies was acting as chair of the is in factor markets which are commercial markets governors but also almost as a non-executive chair. and we’re under an obligation to operate in those He was often involved in not the technical but moving markets as other players would. We’re not the only further than Sir Michael is able to move in his current public body. Many public bodies have to do that, by position on to the other side, the management of the the way. BBC and policy. Just to try to illustrate, I remember asking Michael Grade in one of these sessions, when Q14 Jim Sheridan: Just finally, Chair, I am reliably he was chair of the Trust, wasn’t he, I think? Am informed by the people that know these things that I right? trying to get an understanding about your negotiations Sir Michael Lyons: No, he never took that up. and what the values are and what values are attributed, Alan Keen: He never took that up? that it is very difficult to get that information from the Sir Michael Lyons: No. BBC. Is that the case? Alan Keen: When the discussions were going on I Mark Thompson: If we take sports rights, these are said to Michael Grade, “If you were restricted to just commercial markets with a presumption of the equivalent now of the Trust as chair, would you confidentiality which, believe me, is occupied by not be wasted by not being able to use some of your every single other player. If the BBC reveals, either talent that you have and your experience in the in the middle of a negotiation, before a negotiation or industry?” I am saying that to try to illustrate what I even after a negotiation, precise details of what has am talking about. been done, the danger is that you hobble the BBC’s Sir Michael Lyons: Do you mind if I have a first bite ability to get the best price on behalf of the public; at that before Mark refers to the experience that he and secondly, you run the risk of distorting the market had? because sometimes the BBC might be the only bidder Alan Keen: Yes. What I was going to say was, before or only one of a couple of bidders. you start your answer, with you, Sir Michael, being Jim Sheridan: But the other people are not publicly restricted to the Trust as chair, is Mark missing a non- funded. executive chair? I have had a long experience in the Mark Thompson: No, but none the less in a private sector, in industry, and it is rare for companies commercial negotiation if you insist that one of the to operate without a non-exec chair who is involved parties to that negotiation reveals everything and no in the practical management and policy areas. Do we other party—neither other bidders or the seller—does, need an extra chair? the danger is you end up distorting the market and Sir Michael Lyons: I will leave Mark to give you his also reducing the value-for-money that the public will own views on those questions, but let me firstly pick get from the eventual purchase. up this use of the word “restricted” which you’ve used on a couple of occasions. I think it’s not a helpful Jim Sheridan: I do not necessarily agree but I will word in the context of the new governance leave it there. Thanks, Chair. arrangements. The Trust, despite how some would Chair: Alan Keen? like to characterise it, is the governing body of the BBC. It is there to protect the independence of the Q15 Alan Keen: Sir Michael, can you tell us if you BBC and to more vigorously challenge the executive have had discussions with the new Secretary of State on behalf of licence fee payers than many believe the about the governance of the BBC? Is there anything former structure was able to do; so not limited, more you can tell us about that, if you have had powerful on behalf of licence fee payers. That means discussions? that there is a clear separation in terms of editorial and Sir Michael Lyons: I am pleased to say that very soon day-to-day business decisions, but let’s be under no after the Secretary of State took up his post we had misunderstanding, the strategic direction is set by the an initial meeting, an amicable initial meeting. He Trust. introduced the issue of the Government’s clear view Just to give you my own personal view on this, one of the importance of the independence of the BBC should not be bound by too simple a model of how and the fact that the Government would not be seeking companies operate because in practice they operate to reopen the Charter during its life up until 2016. We very differently, depending on the chemistry of chairs then had a discussion about some of the concerns he and chief executives. Mark and I meet very regularly has, and he is not alone, but equally it’s not a to discuss the full range of BBC business. I’ll leave unanimous view, on the current governance him to discuss whether that could be strengthened in arrangements of the BBC, and that dialogue continues. any way. And indeed, let me underline that when you I don't think it is in his or the BBC’s interests for me look a little more widely into European experience, to go any further until those discussions are complete, you find very successful companies operating with cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 6 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel two-tier boards, a supervisory board which not interests and their interests alone. I don’t want to take completely but in some ways is analogous to the Trust up too much time now but I am very happy to go into model where you’re seeking to protect a particular our track record to date on all the key indicators. interest, and in this particular case it’s that of licence fee payers. Q18 Alan Keen: Yes, there is certainly an analogy Mark Thompson: I think the three tests I’d want to with Tesco, Morrisons, et cetera. I am very happy that apply to any governance model for the BBC is: does they do what I want because they know what I buy it help defend and strengthen the BBC’s and what I don’t buy, and there is democracy in the independence; does it ensure there is appropriate BBC in that way. accountability so the public can be assured that their And just before I finish could I ask you, Sir Michael, interests are being put first and the BBC is serving the do you agree with me that I think public in the right way; and thirdly, is it workable? Is that Mark was too soft on Sky in his MacTaggart it a system which can be made to work? And I have lecture? to say I believe, notwithstanding the critics, that the Sir Michael Lyons: No, I don’t think that is going to current governance arrangements pass all three tests. do him any good making a comment on that sort of It is true, I think, that precisely because of the danger question here today. I’ll just leave it today. He gave a that you point to of a chairman of the governors being very able set of answers earlier on. perceived, rightly or wrongly, as being too close to Chair: Thérèse Coffey? management, that the 2007 Royal Charter puts somewhat greater distance between the governing Q19 Dr Thérèse Coffey: If I suggest to colleagues body, BBC Trust, and management. It does add, that my perspective perhaps on the BBC Trust is that however, on the executive board, non-executive it is almost like IPSA: it was created in reaction to a directors. We currently have some very experienced crisis and has evolved into something that has rather non-executive directors—Marcus Agius, for example, gone beyond and perhaps— chair of Barclays plc, is the senior non-exec—who are Chair: It can’t be as bad as that. there to offer advice and support to the management Thérèse Coffey: I am trying to use an analogy and side of the BBC, as well as this governing sovereign that is why I said that, but I will leave that for a body, the BBC Trust, above it. separate discussion. Of course I read any amount of column inches about However, I recognise what Mark has just said that it the Trust. I believe that when you get right down to passes the tests of that. Is there any reason to think it, independence, accountability and, of course— that perhaps if there was a new way of governing or pragmatically—workability are the three criteria, and almost going back to what it was before, you have I have to say I think the current arrangements pass all six non-executive directors to your 10 and also the three tests. enhanced role of Ofcom in certain aspects of regulation, which the BBC already has to comply with Q17 Alan Keen: That is good to hear. Could I ask: to a certain extent, do you not think there is an there have been various discussions and people have opportunity almost to say, “This was the solution for expressed opinions on whether it is possible to the time but we have moved on from there”? democratise the BBC to represent the people who pay Also, specifically, Sir Michael, I personally think that the licence fee more so than is the position at present, the costs of running the Trust are pretty high and that and I know very well the difficulties of having a some people would do this job for almost next to massive membership voting for various policies and nothing. Is there anything you could suggest to say things, and I understand that extremely well from my how the BBC Trust could save considerable sums? own work experience over many years, but what is Sir Michael Lyons: Let me go the one step that I the latest thinking on being able to give more direct can towards you on this, which is to absolutely and representation to the licence fee payers? unequivocally acknowledge there is no perfect Sir Michael Lyons: Well, the most important thing I governance model for any organisation, and the BBC am sure is that the people who are paying a licence is more challenging than most. fee in this country believe that the BBC is focused on I disagree with you about whether or not the Trust their interest, making best use of their money and is was born out of a crisis. The Trust was born out of independent of political and commercial pressure. As continuing concern to hold the BBC better to account we know, all of those issues are valued highly by the for the way that it used public money, its impartiality, public. Of course, you can speculate—and I know the way that it served some parts of the United some have—on different ownership models. You Kingdom which still feel that there is further to go might look to history as to whether or not in meeting the needs and interests of those different demutualisation of former public institutions has audiences, and that it sometimes was too improved accountability and performance on behalf introspective, too interested in the welfare of its staff, of those who pay, and you might sometimes question not interested enough in the interests of those who pay whether that has had the impact that people expected the bill. That is the debate that took place. Of course, of it. there were two different models at that time: those The most important issue here—future Governments arguing that the governors could do better, and I think can consider in whichever way they want the right it is interesting to look at the very last period of the model for the BBC—the job that we have in hand, is governors where they did take a more vigorous making sure that we’re open so the public can see approach to some of these issues than you might what is being done and we’re focused on their believe was taken previously. Others argued that you cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 7
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel needed, as you are in part suggesting, much more Government and Ministers are, and I think the stringent external regulation of the BBC and indeed question is that in the interests of transparency and the creation of a regulatory body solely for the BBC accountability why shouldn’t the accounts be fully alone. Out of the discussion which reflected on the open to the National Audit Office and fully subject to need for more challenge but also the need to protect the Freedom of Information Act? the independence of the BBC and to avoid a model Sir Michael Lyons: The BBC has no special privilege which step-by-step would start to make the in terms of the Freedom of Information Act, other programme and editorial decisions affecting BBC than for matters relating to journalism, but let us take output—instead you should come up with what is the wider question that you ask me. There is an undoubtedly a complex model of the Trust, which is important difference between the BBC and the sovereign body of the BBC but distant somewhat Government Departments in that it is independent and in its responsibilities so that the public can more that has not only been an important principle of 80 clearly see the process of challenge. years in the life of the BBC but something that the The other point I would agree with you is: have we public feels very strongly about. Part of the reason had to breathe life into that model? Yes, we have. And why they value the BBC is because of its has there been continual controversy around it? Yes, independence, not only of political voices but also of there has, in part because we have tackled some quite commercial interest. difficult issues, not the least of them being senior pay Adrian Sanders: That is a very separate issue to within the BBC as part of the value-for-money, not accountability and transparency. The fact is, like the least of them being the need to recognise that Government, you are funded by what people consider nearly true is not a good enough editorial standard for to be public funding. That is the similarity. the BBC and that from time to time mistakes made Sir Michael Lyons: Let me address the similarities. even by the best journalists need to be picked up if Adrian Sanders: The independence is not the issue. we are to improve in the future. Sir Michael Lyons: Well, I am going to come back to Dr Thérèse Coffey: Do you want to say anything that. It is not the only issue, I absolutely agree, and it about the cost of the Trust itself? is not a defence against proper scrutiny, transparency Sir Michael Lyons: Of course, and forgive me, I and openness. We are completely agreed on those wasn’t trying to duck that question at all. What you points. What we have to be careful of is in seeking now see, absolutely open for scrutiny and challenge, greater openness, transparency and accountability we is every penny of what the Trust spends. The Trust don’t slip into some damage to independence. has led the way—let me say not only in the BBC but Let me come to your point: does the BBC need to be across the public sector—in volunteering details of the accountable to the public? Yes, it does. At the moment money that it spends. Previously, the cost of the the Charter clearly and explicitly charges the BBC governors was concealed within BBC accounts. Is the Trust with being responsible for that accountability. Trust more expensive? Almost certainly, yes, it is That is why I am here today. Are we doing that job because the Charter lays down in some detail specific as well as we can? Let me come back to it. The Trust requirements for a separate advisory group, which is has led the way in the public sector in the argument the Trust unit, and for processes to challenge BBC for greater transparency. We work closely and decisions. They are all part of that greater effectively with the National Audit Office. We have accountability. gone so far as saying on public record that if the You know, as I do, that this same debate takes place National Audit Office would like to be the auditors of about the costs of democracy in this country. People the BBC we have absolutely no objection and they add up the cost of local government and central should tender the next time this is up against the Government and say, “Surely it would be possible to commercial companies, including the one that do all this more cheaply. Business does it more currently does that job. So there is no boundary here, cheaply”. The truth is that openness, transparency and it is about finding the right way to engage the National accountability are costly processes. Audit Office in the search for value-for-money, in the Dr Thérèse Coffey: Due to a confidentiality clause I process of openness and transparency, in preparation signed when I was a BBC employee I will not go any for accountability—and here is the rub—without further, but I think that the National Audit Office, if compromising the issues of independence. Of course, they do get in, may start to probe the costs and some the NAO is not just another auditor, it is an agent of of the decisions that are being made. So, I just Parliament, and so getting the detail of this right is mention that. very important, without losing sight of the points on Sir Michael Lyons: I don’t know about “when they which we would agree. get in”. The National Audit Office are an important Adrian Sanders: I think the bottom line for most partner in the process of seeking value-for-money. The people is that if you want to get to the bottom of how Trust invites them to be a strong partner in that. The the BBC is spending its money in comparison to other important point—and I think you might agree with bodies that are funded by a tax, what we have in a me strongly on this—is not to breach the issue of the sense is a barrier between the public and the BBC independence of the BBC in the role that the National which is the Trust. Can you imagine in local Audit Office is accorded. government if you had a trust set up that looked at the Thérèse Coffey: Yes, I do agree. accounts of that council and said to the council taxpayer, “That’s all right, don’t worry, they’re Q20 Adrian Sanders: The reality is that the BBC spending money correctly”, and the public could not, and the BBC Trust are not accountable in the way that as they can at the moment, find out every detail about cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 8 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel how their money is being spent. We cannot do that process for its editorial reasons. That is why. So the with the BBC. Either we accept it is public money or reason it feels like an oddity is it is intended as an we don’t. You are a public corporation, you are not a oddity and it is to defend the editorial independence company, and therefore I think the public should have of the organisation. that right and I know that the coalition Government David Cairns: Can I jump in for a second on that are very keen on having a commitment to give the one? NAO full access to the BBC’s accounts in order to Chair: Okay, quickly, David. ensure that transparency. Sir Michael Lyons: I do want to come back on this a Q21 David Cairns: On this point about the need to little bit later because I do not want to have left the keep clear water between yourselves and the impression that I disagree with you on the importance Government of the day, clearly there was some of clear accountability for the BBC; for the public to controversy the other week when you went to be able to see how their money is spent; for the BBC Downing Street with a particular memo. Do you think holding itself open for discussion at this Committee that that conversation that you had in relation to how and more widely in public life; all of those I the BBC was going to portray the Government’s absolutely agree with you. agenda on cuts was, firstly, appropriate; and secondly, Does the Trust take seriously its responsibility for do you think that the way in which it was reported both challenging expenditure within the BBC and has done some damage? making sure that people understand what money is Mark Thompson: It is hard to talk about the being spent on? Yes, it does and I don't think there is reporting. Most newspapers were sensible enough not any room to criticise that role and I underline that the to report it at all. It was a completely unremarkable National Audit Office has been an ally in the way that meeting, like many other unremarkable meetings I we do that job. have had previously in Downing Street with Let me now come to the last part. I am very clear that politicians and officials of other Governments, and I the coalition Government has included in their public have with all major parties. I'm the editor-in-chief of commitments a commitment for the National Audit the BBC and I frequently talk to both officials and Office to play a larger part and to have freer access to also to politicians. I even occasionally have meetings the BBC’s accounts. That is a matter at the moment with the Chair of this Committee, for example. of discussion between the Trust and the Secretary of Sometimes the BBC’s coverage comes up; sometimes State about how that is achieved; not if it is achieved, we ask about responses, attitudes and perspectives on how it is achieved. An important part of that, of past coverage; sometimes we’re looking for course, is that it should not be done in a way which interviews and for access. The same is true when I compromises the independence of the BBC, and I was meet officials and politicians from leading very heartened to hear the Secretary of State give Governments in other parts of the world as well. It is public assurance that he agrees with that principle. Let just part of my daily round of work as editor-in-chief me assure you that we have entered into those of the BBC and can I assure you it is wholly discussions very genuinely. They have taken place unremarkable. This meeting was like many others. over this summer between representatives of the Secretary of State’s Department and the BBC on a Q22 Paul Farrelly: I just wanted to come back to the constructive basis, and I am confident that we will get National Audit Office, but before that I am glad to to the right place. I say again there is no obstacle here hear that there is no implication of your visit to No. 10 to the right of the NAO playing a part in this search that you are allowing No. 10 to become über editor-in- for value and accountability within the BBC and chief of the BBC. certainly no obstacle provided by the Trust. Mark Thompson: I promise you I would get in front Mark Thompson: Can I just add a small constitutional of a microphone immediately if there was ever an point? The challenge, in a sense, in framing any attempt by any political party to influence the editorial governance model for the BBC is about how you content of the BBC in any way, or to take charge. I balance two things: the need for the BBC to be give you an absolute assurance that hasn’t happened independent of political influence and, above all, with this Government or the previous Government. I separate from Government, versus accountability. have been doing this job for six years. I have to say What happened in the 2007 Charter is the BBC Trust of my general experience of all the political parties— is formed and the Trust is given—if you like, this may to some extent be in the aftermath of the Parliament delegates to the Trust—the task of holding Hutton crisis—I have very few complaints of any of the BBC to account for value for money. Unlike other the political parties in terms of what you might public institutions who are directly accountable to describe as bullying or an attempt to influence or Parliament, it is done as a constitutional safeguard to engage in anything improper. I have to say that is not ensure that you don’t have the BBC too close to the my experience of the political parties we have in this political process. You can argue whether that is the country. right thing or the wrong thing but that is why it is laid Paul Farrelly: That is good to hear. Can I just come out, and it is laid out very clearly in the Charter that back very briefly to the National Audit Office because the BBC will be unlike other public bodies. Yes, it I am a little bit concerned that some misleading gets public money but it will be unlike other public analogies are being used here in the sense that the bodies in the matter of how it is held to account for BBC is resisting involvement of the National Audit value-for-money, specifically because of the need to Office and, therefore, it has something to hide? keep it independent of government and the political Clearly, when auditors like KPMG are engaged there cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 9
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel are terms of engagement. You all understand the scope put to one side and the Charter ignored in this process, of the audit. You all understand the end product, but the search for transparency and value continues. which is to give a true and fair view of a company or Chair: Louise Bagshawe? a corporation’s financial affairs. I am not sure in all the reporting of this that I Q24 Louise Bagshawe: Staying on the subject of understand what the end product is supposed to be value-for-money, if I could link it with senior from the National Audit Office involvement. And executive pay, Mr Thompson, you are one of 41 senior local government, which Adrian raised, have a very BBC managers that earn more than the Prime clear knowledge of the end product even if it is the Minister. Your basic salary is approximately three Audit Commission that audits them because it will be times that of the Prime Minister; approximately a similar document like this. It won’t be a document double that of your predecessor. I’m interested as to that, without agreement, will go into all the salaries, how it’s justified. It’s justified because it’s comparable for instance, of all the employees above a certain to other chief executives in commercial companies, level. So do you have an understanding, despite the other broadcasters; very different from other senior toing and froing, of what the end product would be if executives across the public sector and I have perfect the National Audit Office were to get involved? amounts of sympathy with that. Sir Michael Lyons: Let me say I think this is not a What I am worried about, though, is the perennial discussion that is complete at the moment. I think it question of value-for-money and how the BBC is is very important that at the end of those discussions handling it. In the last year the BBC spent more on everybody is clear about exactly what the right television, more on radio and more on online at a time expectations of any changed arrangements are. At the when other commercial broadcasters were in fact moment, from my perspective, they focused on two cutting their costs: ITV by £117 million, Channel 4 quite separate issues: who are the auditors of the by £56 million. Can you ensure that the business BBC? As you say, at the moment they are currently discipline that you bring, which is the justification for KPMG. The standards are clear. They are absolutely your very high salary, will prove to licence fee payers clearly laid down. Could the National Audit Office do that the BBC means what it says about value-for- that job? Possibly, and if it wants to, if it is interested money? in it, that should be a matter of open competition the If I could give one other small example, the public next time it’s up, and we have made it abundantly sector broadcasting headcount has been increased by clear the Trust has no problem with the NAO 160, we read in this report. That is attributed to a expressing interest at that time. consolidation in advance of the move to Salford. I Secondly, although not in every organisation, here find it a bit interesting that consolidation in this case separate discussion is around value-for-money apparently includes hiring more staff instead of hiring exercises. The National Audit Office is an important fewer staff and I just want to be sure that when value- ally in these exercises. They have a strong voice in for-money has been prioritised—both by you and by which areas to conduct their studies in, but at the Sir Michael and the BBC Trust—that it is being moment those are subject to agreement by the Trust. delivered because I do believe there is a perception It is not impossible to imagine them having greater out there that the BBC is always talking about value- freedom to name the areas they want to go in and I for-money for the licence fee, but when you look at don't think the Trust would be unwilling to consider what is being spent and you look at jobs being that as the way forward. There just need to be a few increased we don’t in fact see that coming through. ground rules then about how those are conducted. Sir Michael Lyons: If you don’t mind me just starting There has been, let me admit, a little bit of tension in on this. It is quite a wide-ranging question. There are recent years, as the search that the Trust has led for two particular areas of focus, the second on staffing greater examination of value-for-money has more and judgments made by the Director General and the rigorously tested what information can be safely put first on senior pay; although the bridge between them into the public domain without impairing the is not lost on me. I think I ought to answer the issue negotiating position of the BBC, and step-by-step the about pay policy. Would you prefer the Director boundaries have been slightly redefined as a result of General to begin with his answer on content spend those discussions. There is no general problem of the and staffing? NAO having the information that they want to do their job and it is in the Trust’s interests that they should Q25 Louise Bagshawe: I think it is perfectly valid have it. for you to talk about senior pay, whether that will be at all brought in line with other public sector bodies. Q23 Paul Farrelly: One final follow-up: might the But I’m reasonably content about senior pay being at Trust itself be open to the National Audit Office the level that it is because of the commercial looking at the way the Trust goes about its work to expertise, the parallels with other commercial ensure procedurally that value-for-money is companies brought in, but that has to include occurring? delivering value-for-money. That is the point of the Sir Michael Lyons: Of course. Why not? Absolutely. justification of the salaries. It can do that now. I don't think that would naturally Mark Thompson: I would accept that in full. I mean present itself as one of the top items, although Dr BBC senior pay, much discussed in the newspapers, Coffey might take a different view, but I have is manifestly high compared to many other public absolutely no objection to that. The issue is making bodies; compared to other broadcasters, rather low. sure that the current issues of accountability are not We’ve seen yesterday senior executives of BSkyB and cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 10 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel their pay. I think chief executive Jeremy Darroch, a bringing in the sorts of cost cutting that we see across colleague and friend, had £2.7 million total the public sector or across the private sector. remuneration last year and that’s a market rate. So our Mark Thompson: I think you have to be a little bit policy on senior pay, for all senior managers, is to go careful here. The nature of our television and radio for a very significant discount to the market; to pay broadcasting market is that there are fluctuations in much less than people could get if they were working commercial media. There are periods where their in the private sector in broadcasting because it is a income is going up much more steeply than the BBC great privilege to work for the BBC and because it is licence fee and there are periods where it dips. Over paid for by the public. You are absolutely right, it is time, the story has been of commercial media growing very important that the BBC drives as much value- and the BBC’s share of revenue across the for-money as it can. broadcasting economy reducing. Now, firstly on senior managers, we are committed to Once, famously, the BBC was 100% of the market. reducing the number of senior managers. I inherited a We were 45% of the market some years ago. We are BBC with about 700 senior managers. We have currently about 25% of spending. That will reduce committed to taking that down. We have already taken over coming years. So, again, looking at it over a it down. It is currently at 605 senior managers in the period of years, our share of investment, the money BBC in August this year. We have committed to and the revenue that is coming into broadcasting is taking it down by 18%, which will take it to about going down. I have to say I think it’s a benefit of the 510. If we can go further and run the BBC in a leaner licence fee and of a multi-year settlement to the way—I absolutely appreciate times are tough and it’s licence fee that you get steady investment from the appropriate that the BBC should be as efficient and BBC even though there are fluctuations in the should operate with as few managers as it can—we commercial market. will take it further than that. We have frozen senior I mean the other way of looking at what you’ve just management pay. We have frozen bonuses. We are said is if you’re an independent producer, at a time looking very hard at pension supplements. In my view when it is harder for Channel 4 and ITV to there should be the same pension offered to everyone commission programmes, at least the licence fee in the BBC. I think it’s likely that pension means there is a consistency of investment from the supplements will simply be removed in their current BBC and particularly at a time when the BBC is form altogether. That will have a further significant shifting the balance of its spend outside London. That effect on pension supplements and you will know that means if you’re an indie working in Glasgow or executive directors are also working this year and next you’re working in Cardiff or Greater Manchester, at year for 11 rather than 12 months’ pay. least what the BBC is investing in new programming More broadly, staff numbers are on the way down. remains steady. It is important to say that the The trajectory of staff numbers at the BBC is down. programming we do, so much of it is so different from There will be some individual variations in that year- what other broadcasters do. I mean we’re in the on-year but we are committed to running the BBC middle of the Proms season and we’re broadcasting with as few people as we can do whilst maintaining dozens of Proms. Nobody else is doing that. I think or, where we can, improving the quality of our that if symbolically you cut back the number of Proms services. So you are seeing, you have seen and you you’re broadcasting on BBC 4 because ITV’s will continue to see, the number of people working advertising has reduced, it would be crazy. for BBC go down. More generally, we are in the middle of a value-for-money programme that is on Q27 Louise Bagshawe: I do think there is a danger track to deliver and the NAO, by the way, are helping though perhaps of confusing inputs with outcomes. It us with the methodology and will come back to see is a question of whether you are spending more on whether we have achieved it. We will deliver 15% television, on radio and also online and what you are savings. This is on the back of a previous programme receiving back from it and how you focus that delivered as much as that again. administrative costs, other kinds of operational costs, I absolutely expect, from beyond the present life of and so forth, at a time when other broadcasters are these settlements, to move into further efficiencies. I cutting costs. think between the start of this process and the end of Mark Thompson: I agree with that. Although you will the licence fee, you will see, in terms of like-for-like have seen the overall story about the costs of running costs in the BBC, something like 25%, possibly the BBC are today: they are roughly half what they slightly greater, coming out of like-for-like costs in were at the end of the 1990s. We’ve said we want to the BBC. And so I think that those people who think take another around £100 million out of those costs that the BBC somehow thinks it is separate from the each year and try to transfer that money into rest of the public sector and is not going through the investment in services for the public. same disciplines are simply wrong about this. Louise Bagshawe: Okay, thank you.
Q26 Louise Bagshawe: Does it concern you that last Q28 Chair: On the question of the number of senior year the BBC in fact spent more across television, managers in the BBC, about a year ago a former radio and online at the time when other broadcasters employee of the BBC wrote, “Right now we have a were in fact cutting their costs? You have income BBC that is suffocated by massively over-remunerated totalling roughly £5 billion, £3.5 billion of which is and not terribly bright middle managers; people who licence fee income. There is a suggestion that the have failed ever upwards and have been removed BBC is so cushioned by the licence fee that it’s not from the difficult and genuinely creative business of cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 11
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel making stuff people want to watch or listen to”. That commitment and determination that the external seems to be a criticism that was widely voiced and consultants will be reduced as well? that, to some extent, you accept in that you are now Sir Michael Lyons: I think we can show that the BBC drastically reducing the number of people at that level. is absolutely sparing in the extent to which it uses Mark Thompson: If I may say so, Mr Chair, the external consultancy but, Mr Sheridan, you know impression one could get from such a quote is that, from your own experience sometimes it is more as it were, the numbers of senior managers has been efficient to bring somebody in externally than to insist increasing at the BBC and it’s been decreasing. As I upon having those skills on call all of the time. The said, we have already seen a decrease of 100 and we BBC has to take that approach to much of its on- are now committed to looking hard at whether, at screen talent and sometimes it’s right that it should every level of the organisation, we can run the take that approach to some of its professional talent. organisation with fewer managers still. So we have But we can give you more details. been tackling this. Where we can, some of the big Do you want to say anything, Zarin? jobs in the BBC, Director of Nations and Regions, Mark Thompson: I think Zarin might be able to help Director World Service, the first of those two jobs with the kind of controls that are in place about abolished altogether, simply removed; the second of consultancy spend. those two jobs combined. Closing jobs, merging them, Zarin Patel: So probably about four or five years ago simplifying structures. the BBC habitually spent somewhere between £25 to You’ve heard me say this before; we’re committed to £30 million per annum on consultants; not just accelerating that process and you will see, I think, a management consultants but consultants to help us fairly dramatic change on this front. Now, it’s not think through a new way of building our properties or because we haven’t regarded this as an important topic to think about what’s happening in technology. What over the last few years. We have and we’ve taken we have done since then is to reduce the areas in action. We do accept, though, that the challenge across which we allow consultancy spend. So every the entire public realm in this country of, to use in a consulting assignment above £100,000 has to be sense the Government’s words, “Can you do more for signed off by me and my assignments have to be less? Are there other ways of doing things?” is a signed off by Mark and that has brought down the challenge that the BBC should take seriously as well. amount we spend; so the physical amount we spend. And I want to be quite clear that the BBC Trust has But we also thought hard about which consultants we been particularly consistent in insisting that we take want to work with and to make sure that we give quite this entire area of activity very, very seriously. a lot of work to single consultants so we get massive Sir Michael Lyons: I don’t want to say much about discounts to their framework rate and they build their that, John, but, given that we had the discussion understanding of the BBC so they can do what we want them to do much faster and harder. On earlier about current governance arrangements and efficiency, being able to take 15% of our cost base out previous governance arrangements, it is worth of the five years, which is what we are in the middle underlining. The Trust came into being in 2007. Even of. I’ve had to use a number of people, who have in that year it was discussing the issue of the right experience in other industries about how to reduce expenditure on senior management pay, not only that cost, and that’s a good use of consultants. because of public anxieties that, of course, grew when The key thing when you use a consultant is to know people became aware of exactly what was being paid what you’re using them for, to have an end date and but also because of anxieties inside the organisation. then to ensure that the knowledge they bring you’ve If you look at the history of senior pay at the BBC transferred to your own staff so you don’t have to you have to go back to at least 1989 to understand keep using the same consultants over and over again. the different decisions that were taken that led to the You’re building your own capability. position that the Trust inherited. We have been very clear, to begin with by detailed private discussions Q30 Chair: The other issue that this Committee has with the Director General, about the direction we focused on in the past is transparency and, in wanted to move in. That was reflected early on in particular, the publication of bands of salaries and the agreement to suspending bonuses and then, more numbers in it. You will be aware that five months ago recently, in the setting of the 25% target for the there was a leak of an exchange of emails from within reductions in the cost of senior management. As the the BBC where the BBC reward manager said, “We Director General has underlined in some detail, that is purposefully changed the bands in an attempt to make well under way and has now been further accelerated it less obvious how many of the employees were because of what we found when we went out to above £100,000.” And the BBC reward director on a consultation on the strategic review; that how much salary of £196,000 replied, “We’re sticking to the the BBC pays its senior managers and its top talent salary bands in the note, aren’t we? We’re doing it to remains a niggling area of concern for the public and deliberately disguise the number in the over £100,000 one that gets in the way of, I think, a proper band.” I think you have accepted that that was a appreciation and a wholehearted appreciation of the wholly unacceptable practice. Can you tell me what work the BBC does. action followed it? Chair: Jim Sheridan, very briefly. Sir Michael Lyons: Can I just deal with the headline issue and then leave the Director General to talk about Q29 Jim Sheridan: I understand the commitment of the staffing issue because I think it is very important reducing staffing costs but can you give the same to underline that we announced in the summer, as part cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 12 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel of a package of measures to further respond to public continue to be, to publish, extensively, information anxiety about how much was paid to top talent—both and, as far as we can, to comply with FOI as well. managerial and on-screen—that we were accepting Chair: Yes, but did anybody suffer disciplinary this Committee’s recommendations for the right bands action? to publish that information in the future and were Mark Thompson: It has been made quite clear to the happy to acknowledge that recommendation had come individual involved that that was a wholly from you. We went on further to raise the question of unacceptable e-mail to have written. whether it might be in the public interest to be clearer Chair: But no action was taken? about those who earn the most from the BBC, in terms Sir Michael Lyons: Could I just ask Zarin Patel to of on-screen talent, although not going so far as just say a further word to supplement what the putting salaries beside names. But let me leave the Director General shared with you? Director General to comment on what, as you say, was Zarin Patel: When the proposal was put to the people a wholly unacceptable suggestion. who were thinking about this we absolutely rejected Mark Thompson: I think you should judge us by our it out of hand because it was not the right thing to do, actions and you’ll have seen that we have moved to a and we had a very serious discussion with the position of routinely publishing the salaries, the manager concerned about that sort of approach to it. I expenses, the hospitality registers and so forth for, am confident that we formally rejected it and we now, I think, 107 of us senior managers. So we have didn’t even think that it was the right thing to do at gone far beyond where the BBC was a few years ago the time. and its disclosures in the Annual Report. Moreover, Sir Michael Lyons: Indeed. I mean the point was Mr Sanders raised FOI. The BBC has tried to fully made it was not an acceptable proposal to have made. comply with FOI from day one. There was no attempt Chair: He is one of your most senior staff members to hide behind any excuses around FOI. There are on an extremely high salary, but no action was taken? areas to do with the BBC’s editorial business where Mark Thompson: You will recall at the time that the we sometimes have used a derogation to make the manager involved did issue a public apology for the case that a particular fact should not be disclosed but e-mail. So, in terms, the proposal should not have I believe that our record on FOI is a good one, in been made. It was made clear at the time that the terms of complying with FOI. proposal should not have been made. The proposal As I say, we are now committed, Chair, to very, very was rejected. The individual apologised and our extensive routine publication and if there are ways in subsequent actions have demonstrated this is not and which we can extend that we will. I’m just happy to never has been BBC policy. say, from my side of the BBC, I welcome the suggestion from this Committee on more detailed Q34 Louise Bagshawe: Mr Thompson, do you not bands of on-air talent. We will absolutely readily do accept that licence fee payers will not think that is at that and you’ll see in the Annual Report for next year all good enough? You have here a very senior much more detailed bands as a result. I am not executive at the BBC in so many words saying that suggesting that every single individual in the he is deliberately setting out to obscure pay from the organisation has got this message from day one but, public. If I may just finish, is this not a classic case of believe me, we are absolutely committed to— when we see terrible things go wrong and somebody Chair: It’s not a question of not getting the message. comes in front of a camera and says, “Lessons have This was “an attempt to deliberately disguise the been learned”, but no actual discipline is taken? I find number in the over £100,000 band”. it extraordinary that you seem to think a mere apology Mark Thompson: If I may say, sir, we’ve now moved and a talking-to is sufficient in this case. to a form of routine publication. Sir Michael Lyons: Do you mind if I just intervene here with just two comments? The first one is: in Q31 Chair: I quite accept you have changed the terms of running any large organisation, it is always a practice. What I want to know is who decided to adopt matter of judgment whether the most efficacious way a deliberate strategy to disguise the number in the over forward is discipline or re-education and it’s not as if £100,000 band? there was some substance to this debate. There is a Mark Thompson: But it wasn’t adopted. I mean what proper concern within the BBC about the dangers of you have here is an e-mail suggesting something that putting things into the public domain that enable didn’t happen. competitors to see how much is being paid for the most expensive on-screen talent. Q32 Chair: Clearly it was felt by a very senior Now, I’m clear and I’m on record now as saying I member of your staff that this was what was desirable think we have to go further in explaining to the public in the interests of the BBC. Was it his decision? how their money is used. Further still, even beyond Mark Thompson: The point is the suggestion in the the bands that the Committee has suggested, perhaps e-mail was not adopted and I certainly would not want by naming those who receive the biggest income from to defend what was said in that e-mail. the BBC. But I am absolutely sensitive to the fact that it would not be in the interests of licence fee payers Q33 Chair: Well, what I am saying is: did anybody if the outcome of more transparency was that it proved suffer disciplinary action? impossible to retain some of the talent that is high in Mark Thompson: The most important thing I want to the public’s affections. So it’s not as if there is no say here is that our practice has been, and will issue here. There is an issue. It doesn’t excuse that cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 13
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel behaviour or that suggestion but there is an issue Unequivocally the Trust is clear the BBC needs to underlying it on which people have a right to have— serve and reflect the whole of Britain—its whole Louise Bagshawe: I can see the fundamental— population in all its diversity—and believes that it has Mark Thompson: I don’t want to give you the further to go in fully representing every different impression for a second that this was not regarded as audience. Some of that is about ethnicity but also it’s wholly unacceptable. But I also want to say that I about where people choose to live and the different believe that an immediate public apology from a cultures in different parts of the country. I think you’ll manager who had never previously blemished their find, although this is really the Director General’s record at all—in particular, given that this suggestion territory, the target here relates, of course, in part to went nowhere and was immediately rejected, I think where the BBC finds its bases and so it reflects those by the management group with both Zarin and me, it labour forces from which it draws its staff. never led to any action or any harm being done. Even Mark Thompson: That’s exactly the point. to put it in an e-mail is unacceptable and required an apology, but it never reflected the policy of the BBC Q37 Philip Davies: But you are a national and, as I say, for an individual who previously had an broadcaster. You are not a regional broadcaster, you unblemished record, it seemed to me that a reprimand are a national broadcaster. and a public apology was an adequate response. Mark Thompson: No, but we’re also obviously a Louise Bagshawe: He was on £200,000 a year and physical employer with major bases in some of the not even to have received a warning, I don’t think UK’s biggest cities where the mix of population is licence fee payers will be very happy with that. But I very different. The target is much lower than the accept much of the rest of what you said. ethnic population of some of the bigger cities than of Chair: Philip Davies? London. It is slightly higher than the overall UK national average. But the key thing is what we have Q35 Philip Davies: It wouldn’t be a BBC Annual tried to do with these targets. These are not kind of Report without a certain amount of political blind quotas where we are insisting on or taking correctness creeping its way in, and we haven’t got improper or overly aggressive approaches to time to go into it in great detail— management. The right thing to do with all of the Mark Thompson I look forward to this moment things we’re trying to change in the BBC, around every year. representation and around where we make our Philip Davies: I will gloss over the proud boast of the programmes, is to work with the grain of talent and EastEnders all-black episode to make sure that we are getting the best people into and I will probably also gloss over the guff at the start the organisation. We’re open to talent from wherever of your diversity section that says that you want to it comes, which is why they’re not quotas. They are recruit and develop a diverse work force that is targets and we think that is the right way forward. representative of the contemporary British population. We don’t want to end up excluding talent from the Given that a certain proportion of the British organisation but nor do we want to end up with contemporary population are rapists and murderers, I artificially employed people who are not the best presume that the BBC does not want to make sure that candidates, the best people for the job to hit some it has a certain quota of rapists and murderers on its quota. What we are trying to do is to reflect back to books. So we will just accent that as guff that you this country the experience of contemporary Britain tend to get in these things. and to find access to all the different talents that exist Mark Thompson: I think we should want to reflect in this country but in a way that kind of goes with the the British public and the people who pay for and own grain of talent and goes with the grain of the the BBC. It’s not an entirely reprehensible objective, population. I’d suggest. Philip Davies: So you are having a quota for rapists Q38 Philip Davies: In your journalism trainee and murderers? I mean it’s just guff, isn’t it? scheme 40% join from an ethnic minority; 33% join Paul Farrelly: Chair, to be helpful to the in the journalism talent pool from an ethnic minority. stenographer, can you explain to the Committee how You are the one with the targets. If you just believe in we spell guff? recruiting people on merit and merit alone, which is the system I would commend to you—that you should Q36 Philip Davies: The point is that you say that you be colour-blind when you’re recruiting people, you want to be representative of the—I think it’s guff but just recruit the best people for the job—you shouldn’t you’re very clear about this. In the very next need targets. Targets and quotas are interchangeable paragraph you go on to say, “Given that we have an terms. ethnic minority population in this country of 8%” and Mark Thompson: If I may say so, in my view and you then go on in the very next paragraph saying you certainly the way I use those two words, they’re not. want to be representative of the British population and Quotas are numerical objectives that we hit. So we that you have a target for the BBC work force of have a minimum quota for independent production 12.5% for people from an ethnic minority. Now, how that is 25%—25% of qualifying television production on earth can you, with your own two paragraphs, must come from the independent sector. We hit that marry those two things up? Because one clearly does number. It’s a statutory quota. We hit it. Indeed we not reflect what you have put in your first paragraph? strongly exceed it now; we’re over 40%. So there are Sir Michael Lyons: Well, let me have a first bite of quotas that are requirements on managers to hit. A this, if you are happy for that, Mr Davies? target is not something that we require managers to cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 14 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel hit, or require them to distort judgments in an like other bodies up and down the country, saw the interview panel to hit. Our managers are required to very good performance of equity markets in particular find the right people and the best people. There are a as an opportunity to relieve the pressure, in the BBC’s number of training schemes where we do seek a case on licence fee payers; in the case of local higher number of ethnic minorities. We are allowed to authorities and others, on taxpayers. do that legally, and we do it in areas of the BBC where Zarin, do you want to say a bit more because you have we think there is a strong case for going out and been really leading on this. seeking new talent for the BBC from across the Zarin Patel: I will just add one thing. Of course in population, including those groups who are less those days excessive surpluses in pension schemes represented in those areas of the BBC. were taxed, so you were forced to think about a different way of relieving surpluses. Employee Q39 Philip Davies: Do you think it helps community benefits were increased as well and when the BBC cohesion to say to somebody who is white, who wants foresaw that pension costs were beginning to increase, to go on a training scheme, who is particularly well we increased our contributions into the scheme. So I suited, “I’m sorry, you’re not there because we’re think the pension holiday was of its time and has not deliberately upping our number of people on this let to these changes. There are real fundamental particular scheme from a particular ethnic minority”? changes going on in the pensions world, which you You should be calling these people on merit. Don’t all know, but the BBC’s income is not inflation have targets. Just have people on merit. proofed any more. It hasn’t been since 2005 and Mark Thompson: All I would say, Mr Davies, is that therefore our ability to withstand those kinds of we literally have received tens of thousands of financial shocks is much lower than it has ever been contacts from the public each year, many tens of before as well. So this is really the moment for us to thousands from people who want to work for the act for the long term in making pension reforms. BBC. In surveys of graduates we are always very close to the top—and for arts graduates at the very top—of institutions people want to work for. There is Q41 Adrian Sanders: While you are answering no danger, it seems to me, of putting anyone off questions could I ask: why has the BBC used the working for the BBC because there is such a strong windfall benefit of £334 million due to changes desire from many members of the public to come and already made to its pension scheme to increase its in- work for us. year surplus rather than reduce its pension liability? Chair: I think we do need to move on. Adrian Zarin Patel: It does both. In April 2009, the pension Sanders? scheme trustees estimated that the deficit was some £2 billion. So one of the things we have been doing, Q40 Adrian Sanders: Pensions are an issue that is as well as the pension reform we have announced raising its head, in terms of your financing. How does recently, is when people retire early we don’t reduce the BBC justify the employer contribution holiday that their pensions. We have changed that agreement, so if it took between 1988 and 2003 and isn’t this the real you retire early you get a reduced pension in a cost- problem? neutral way. That has led to a saving in the deficit of Sir Michael Lyons: No, it isn’t the real problem. The about £334 million and you will see in the accounts problem of pension fund deficits is not peculiar to the that our deficit is lower, at £1.6 billion. So we hope BBC. It’s not peculiar to the BBC amongst other that when the formal valuation for April 2010 is public organisations, it is across the economy. It is in announced, that those changes we have made, the part about the sluggish performance of equity markets changes we are making now plus the changes we in recent years. It is in part a reflection of increased made on pension augmentation, will reduce the deficit longevity and the fact that when, particularly, defined and therefore the burden on the licence fee payer. benefit schemes were first introduced people did not They are part of the same thing. have anything like the life expectancy that they now have. So it is a national debate in which the BBC finds Q42 Adrian Sanders: Roughly, what is the deficit at itself not insulated from that debate. It is very clear, the moment? and we focused on this over the last few years, that as Zarin Patel: The pension scheme actuaries haven’t we approach the further valuation with strengthened formally given us the numbers but we believe it will pension fund regulation—no objection to that at all— be somewhere between £1.5 billion and £2 billion. and a stronger voice for pension trustees, there would inevitably be demands for further, additional employer Q43 Adrian Sanders: And what was the saving from contributions from the BBC to help to bridge the the holiday? deficit. Zarin Patel: I don’t have those figures to hand. The Trust has been unequivocally clear, has shared the view with the Director General that, whilst we have to get the right balance between the interest of licence Q44 Adrian Sanders: It was around about £1 billion, fee payers and internal staff, there simply was no wasn’t it? room to significantly increase the costs of the pension Zarin Patel: I don’t believe it would have been that fund contribution and so pension fund reform was the high but, as I say, I don’t have the figures to hand. only alternative. It is simply misleading to suggest that Adrian Sanders: Around about £1 billion. somehow the problem has been created from that Zarin Patel: I am not sure that would be the right pension fund holiday. At the time, of course, the BBC, figure. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 15
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Q45 Chair: You are now facing a position where you adjust our proposals in the light of what staff are have had a ballot of the unions with over 90% voting saying we will do that, although we have to hit the in favour of the strike action. affordability test and you and others would criticise Mark Thompson: Yes, if we could just put that us if we did not do that. context: only a minority of BBC staff are unionised I am also committed to, as far as we possibly can, and the turnout in the ballot was 50% to 60%. making sure that pension arrangements at the BBC are fair up and down the organisation and that they apply Q46 Chair: Let me give you another quote by a to senior people just as much as they do to junior different employee of the BBC who says, “The chasm people, so that you do not get what your quote is between what is being demanded of the vast majority suggesting, which is a two-tier system where senior of the staff and the cushion of privilege that protects people get one deal and everyone else gets another its top executives has resulted in a level of rage that I one. have not seen since I joined the corporation as a trainee 25 years ago”. You plainly do have a major Q47 Chair: But the problem you face is exactly the problem in getting across what you want to do. same, that the vast majority of relatively low-paid Mark Thompson: Let’s just step back though. Around BBC employees, looking at savings and cuts, resent the country many, many private companies have been the number who are paid very considerable sums at going through, and some are still going through, the the top; exactly the same. In a survey of the top 10 pretty painful process of pension reform, in very individuals in the public sector who have the biggest similar terms to what is happening at the BBC. pension pots, positions two, three and four are held by Indeed, many private companies have taken a decision members of the BBC. When you have somebody like they simply cannot justify carrying on with defined the Deputy Director General, who is going to retire benefit schemes at all and have simply shut their on a pension of £215,000 a year at the moment—that defined benefit schemes and are moving entirely to is not his pay, that is a pension that is going to be defined contribution. Now I have to say that has been more than the Prime Minister is getting paid at the greeted in companies across the UK by staff members moment—you can understand why people resent it. and unions with real dismay, sometimes anger and Mark Thompson: Just a couple of points I would indeed sometimes industrial action. The idea that make in response to that: firstly I have to say that pension reform is one of the most sensitive and many senior people in the BBC are on absolutely difficult forms of reform to achieve, is almost standard pension terms. Indeed, the Deputy Director universally true. General is an example of that, he has simply been part Now partly because of the publicity focus that the of a traditional final salary scheme and the reason he BBC gets—centre of British public life and with much is going to have a large pension is because he has media fascination with the BBC—that can feel worked for the BBC for many, many years and paid magnified, but the process that we are going through into the pension pot. It has been exactly the same at the BBC is very similar to processes which have pension. The Deputy Director General joined the been going on and will continue to go on in many pension scheme pre-1989. Many thousands of other other private sector companies. Also, let’s see where colleagues in the BBC have exactly the same terms John Hutton gets to with his review for the and it is a large pension because of many, many years Government of public sector pensions. I suspect you of public service. will find other public bodies also going through this The second thing I want to say, just for the avoidance process. of doubt, certainly in the broadcasting world, is the Right now we are in the middle of a consultation ratio between top pay and median pay in the BBC is period with our staff and with our unions. Before you low. It is low. It is not high. It is not as if the gulf conclude anything about what is likely to happen at between senior pay and average pay in the BBC is the end of that dialogue, all I would say to you is: I unusually high, by the standards of the rest of the would like to see what happens. We said, and I have media it is unusually low. There is actually a very said publicly to all of my colleagues in the BBC, we tight ratio. It is still much larger than historic ratios are listening quite acutely to the points they are but, compared to anywhere else where people can making about pension schemes, in particular around work in media, ratios are relatively low. So although the proposal we made about the defined benefit side sometimes it is implied that you are talking about an of the contribution. Many members of staff are unusual gap in terms of terms and conditions or pay, unhappy with a couple of proposals we have made, in between the top of the organisation and the middle or particular one which is to put a 1% cap on future the bottom, in the business the BBC is in, in growth in pensionable pay in the defined benefit side broadcasting, these are quite tight ratios. of the scheme. I expect in the coming weeks to have reflected on what they have said and to look at Q48 Chair: But do you accept that the fact that if whether we can amend our proposals in the light of there are individuals, like Alan Yentob and Mark that. Byford and John Smith, who have these huge pension All I would say, Mr Chair, is: we are in the middle of pots it is going to make it far harder for you to get a process. I believe it is a necessary process. My this message across to your staff? ambition is that we find the right balance between Mark Thompson: What I would say is, like many affordability and justifiability on behalf of the licence organisations, in a sense we have a legacy position on payer for how much we spend on the BBC pension pensions which is complex. It is complex for rather scheme, with fairness and equity to staff. If we can good historical reasons. It is also complex because of cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 16 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel the fact that you have all sorts of people. Around the Mark Thompson:—one further reflection is that these top table at the BBC you have people who have stayed pension schemes were not unusual in our industry. In in the BBC for many years. They are now, other words, if you worked in ITV for many years or interestingly enough, in the minority. I think of our you worked at ITN or worked at Channel 4, very executive directors only one is someone who has only similar. In other words it is not as if the BBC was ever worked for the BBC. You have people who have having a different kind of pension arrangement than moved around in their careers—I have done that—and was available elsewhere in media. Again, if you have very different pension arrangements. Out on the benchmarked the BBC’s pension arrangements and ground you have people who are working together looked at the likely final pensions of people across the some of whom have long-range BBC pensions, others rest of the industry, they would have been very who are freelancers who have no pension similar. This was very much in line with what other arrangements at all. broadcasters were doing. I would be surprised if any member of this Committee Sir Michael Lyons: Without wanting to disagree with thought that we were trying to do the wrong thing my Director General what it opens up is the debate here: the objective is to try to move from our legacy about what the right benchmarks are for the BBC, position on pensions to a set of arrangements which whether they are the industry benchmarks or whether are fair, which apply evenly across the organisation they are public sector benchmarks. The truth is that and which do not mean that the public are paying too the BBC has to find its way between those two sets much for pensions inside the BBC. of norms. I think that there is a bit of a pattern whereby Chair: Jim, very quick. necessary reform, which everyone in a sense basically accepts is almost certainly necessary reform, ends up Q49 Jim Sheridan: This is the perfect opportunity to being criticised and to some extent there is even an bring in an external consultant to look at the pension. attempt to undermine it going on. We have to do this. Sir Michael Lyons: Could you give us some advice I believe the public would want us to do it. It is on who it might be? necessary. It is manifestly financially necessary. I Jim Sheridan: Follow the lead of parliamentarians in would just say to you that if you believe that pension this place and bring in an external consultant to advise reform at the BBC—the fundamental reform—is a you on how best to look at your pension scheme. good idea, support it. Sir Michael Lyons: We do take advice but we are Chair: I am not criticising your intention to try and careful not to pay too much for that advice. reform your pension arrangements in the BBC. I am criticising the fact that certain individuals have Q50 Louise Bagshawe: Just to check, for clarity, managed to accumulate sums which most people think very briefly, that your proposal is not simply to close are far and away in excess of what they should be. the final salary scheme and keep accrued rights, it is Mark Thompson: But please do not imply that they to continue it for existing employees who are in that have done anything other than pay into a very particular box— standard scheme. The historic BBC pension scheme Mark Thompson: But with some significant changes, was like that of many, many other private sector of which the 1% proposed cap on the growth of future companies, indeed some public sector organisations. pensionable pay is the most significant. The point of What these people are guilty of is paying into a this is in a context of short-term issues around the pension scheme over many years. market valuation of the assets in the scheme but Chair: They have done nothing wrong. The fault lies longer-term issues like, for example, the long-term with the BBC pension scheme, and it is the fact that issue of longevity. A BBC male employee retiring at places two, three and four in the top 10 are occupied 60 has an average life expectancy of 88.5 years, that by employees of the BBC. is 28.5 years after retirement—in the light of the risks, Sir Michael Lyons: Just one observation. I do not as it were, to the liabilities in the pension scheme, the want to get deeply into this. I am not sure it is a fault idea of the 1% cap is to reduce the risk of the of the pension scheme. If it is a fault at all, it is of liabilities of the scheme growing beyond our ability those who sought to set senior salaries within the to support the assets to meet them. That is the point. BBC, before 2007, without adequate reflection of the Louise Bagshawe: Thank you. I just wanted clarity. position of staff who had been there a long time and Chair: Paul Farrelly? enjoyed a very substantial asset in terms of the defined benefit scheme. I think it is less about the pension Q51 Paul Farrelly: We are moving to the licence fee. scheme and takes us straight back to the debate, from One of the strange things that happened after the 1989 onwards, about senior pay at the BBC where I MacTaggart, Mark, was that you then gave interviews would concede, if you look at that with the benefit of which suggested that you might not want to take the hindsight—and probably at the time—those whole of the licence fee increase this year. That was responsible should have been clearer in seeking to outside the MacTaggart. identify those posts where there needed to be an Mark Thompson: I was asked one question about the external market benchmark and those posts which 2%. The most important point I made there was that essentially would be recruited internally from people it is a matter for the BBC Trust, which I think I can who were already part of that benefit scheme. pass over to Michael. Mark Thompson: Without wishing to disagree with Paul Farrelly: What is the position? my Chair in the slightest— Sir Michael Lyons: The position is that, as part of the Sir Michael Lyons: Which we do from time to time. Trust’s responsibility, enshrined specifically within the cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 17
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Charter, the Trust is considering what the BBC needs audiences, but too strong a connection there and you and balancing that against the demands that would would have a very different sort of BBC. represent on the licence fee payer. So as part of our Mark Thompson: To me it goes very deep. reflections on the strategic review we have done some Manifestly, the BBC produces some services which detailed work on the remainder of this licence fee are very popular with the public. You could turn the period and our concern is sharpened by the position BBC into a subscription business like Home Box that we know the British public is in, facing prospects Office—HBO—in the States. But what happens is you of higher taxation, and so we are doing our job. We are running a subscription business, you focus on are reflecting on what the BBC needs, even in this those households who can pay the most and you licence fee period before we even start talking about exclude people who don’t pay a subscription from the next licence fee period. This is evidence of the seeing what you do. Millions and millions of people Trust doing what I have been very clear and on record watched BBC 1 on that Tuesday night after the as saying: the Trust is here to represent licence fee election when the new Government was being formed. payers. Its first interest is asking for no more than the The microphone comes out at No. 10; Gordon Brown BBC needs to do a good job. comes out, resigns. The camera goes to the Palace. Many millions of people are watching that and it was Q52 Paul Farrelly: Remind me: when is the licence a national moment. The Battle of Britain fee next due to go up? commemorative celebrations coming up will be in Sir Michael Lyons: In April of next year by 2%. That their way a national moment, as the World Cup was. is part of the five-year agreement. Let me underline To me the BBC is not-for-profit, where every that the five-year agreement is a very important part household is worth the same to us, every single of the constitutional surroundings of the BBC, to household. We don’t favour one household over protect its independence, but nonetheless the Trust has another because we get more money from them. a responsibility, explicit in the Charter, to consider Where there isn’t a profit motive for the controller of even within the five-year settlement what the BBC BBC 1 or the controller of Radio 4, they are actually needs from year to year. thinking about what is the best service for the public—I am not saying you can’t change that, but Q53 Paul Farrelly: So have you then proposed, and just be aware of the scale of the change you are to whom, that the licence fee be frozen? proposing if you suggest it. Sir Michael Lyons: No, not at all. We have not I’m not suggesting you are suggesting it. The Adam reached any decision. We are very carefully, in Smith Institute suggested it. conjunction with the Director General and his staff, reflecting—and it would not be without its Q56 Paul Farrelly: Just one point. Clearly all the consequences, so very carefully reflecting—whether income from the BBC is not from the licence fee. that is at all possible or what its implications would There is £293 million of grant-in-aid that comes to be and that is exactly where the matter rests at the fund the World Service. If you were the Foreign moment. Office looking at possible savings and looking at your Paul Farrelly: So it is in the pot. surplus, it might be a juicy plum for cost cutters to Sir Michael Lyons: It is in the melting pot. go for. What discussions has the BBC had about the future of Q54 Paul Farrelly: And have you had any the size of the grant-in-aid that funds the World assurances at all from the Government since the Service? election about the minimum level of the future Sir Michael Lyons: There are discussions going on licence? at the moment across Government expenditure. We Sir Michael Lyons: None at all. The Secretary of absolutely understand that. There is pressure, every State was clear with me at our very first meeting that Government Department is looking at how it can he regarded discussions about the licence fee as a accommodate the demands that are being made and matter for the future, and that seems appropriate. that has clearly led to a discussion about the BBC World Service and BBC Monitoring. Those Q55 Paul Farrelly: So everything is up for grabs. discussions are robust. The BBC is clear that this is Just covering the ground, there was a recent paper amongst the most valued parts of the BBC’s output, from the Adam Smith Institute putting forward a both in terms of its standing in this country but voluntary subscriptions model. What was your certainly across the world. We are talking about an reaction to that? Was it, “They’re away with the audience of 180 million in the last year, so very fairies” or “They would say that, wouldn’t they”? modest expenditure for the BBC and Britain to have Sir Michael Lyons: I think there is properly a debate its voice heard by that large an audience, and an area about how the BBC is funded, both the scale and the where we believe in terms of demonstrated value-for- way in which that is collected. The licence fee has money and its very considerable improvements in been a robust way of connecting use of broadcast efficiencies in recent years that there is everything to services and a contribution to something which is the be proud of. stronger in my view—very much the stronger—for The point that we have made in those discussions, and being the subject of universal funding. I think you Mark may want to say more, is that in a world where would change the nature of the BBC if you made it it is often much more cost-effective to seek to an organisation which had to basically play to, with, influence than to invest in defensive capability, the its audience if you like—obviously it does serve exercise of soft power, this is far from an area where cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 18 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel you should be spending less: it is an area where you Q59 David Cairns: Thank you. I want to ask about could get really great advantage by spending more. the BBC’s Out of London strategy and what the Mark Thompson: Going on to add to that, the grant- Annual Report calls “representing the UK, its nations in-aid to the World Service is absolutely in scope for and regions”. the comprehensive spending review and is being Obviously the biggest issue in this agenda at the considered and analysed in the ways that other parts moment is the relocation to Salford, Media City. of public expenditure are. There has been some whingeing in some quarters in the media about people not wanting to move north. I Q57 Paul Farrelly: It is £293 million in the Report was wondering what your assessment was of the and accounts for the last financial year. What scale of reality of that and whether or not you were confident cuts has been advanced? that sufficient executives and talent would be prepared Mark Thompson: The parameters of the conversation to relocate in order to make a success of this? about this part of the Foreign Office expenditure I am Mark Thompson: I am confident, actually. I am sure is the same as the rest of the FCO and the rest of confident. Amongst our executives the most senior Government, that is, the Treasury asking exactly the executives, the Director of BBC North and his number same questions and setting exactly the same two, have both made it clear that they will be buying benchmarks as every other part of Government. In the in the north and will have bought and will have moved end this of course is a matter for Government and there fully by the end of the transition. Once the rather than trying to speculate now where we might transition begins next year, they will be working fully get to, manifestly these are some of the most cost- in the north already. Of the rest of the management effective and leanly run parts of the entire BBC and team, quite a few of them already live in the north. significant cuts in grant-in-aid would have a very Many others are moving immediately. significant effect on services. At the same time, it is The nature of what we are asking people to do, very important to say that the BBC recognises that in picking up their lives, their families, children in those parts of the BBC which are funded by grant-in- schools with exams and so forth, in individual cases, aid and directly by Government but also true of the at every level of the organisation, presents some BBC more broadly, we recognise we are in a situation challenges. But what is interesting is: firstly, I believe alongside the rest of the country where there are— we are going to have a management team absolutely based in the north, living in the north. It was said Q58 Paul Farrelly: Time is running short. I just want when we first proposed BBC North that no one would to pin you down. Is it 25%, the scale of cuts that have move from the south. However, the percentage of staff been advanced, or 40%? in those departments who have chosen to move to the Mark Thompson: All I want to say is that my north, 46%, is much, much higher than most understanding is that the FCO, like every other organisations, public or private, achieve in relocation. Government Department, is having the same I think we are going to end up with a pretty much conversation, with the same parameters, with the optimal mix in Salford of a significant number of Treasury, as other Departments, and the same essential people, say 46% of those departments who are questions are being asked about every part of the moving, who bring their experience, their talent and FCO’s expenditure to include the money it spends for their skills to bear, but also plenty of opportunity to grant-in-aid. create jobs and to get new people who are already Paul Farrelly: So it could be at least 25%. based in the whole of the north of England to come Mark Thompson: What I say is that there is no and work with us in Salford. So I feel very, very difference in the way this part of central Government confident about the progress we are making. expenditure is being thought about than any other part. David Cairns: I’m glad to hear that. I appreciate the Just the point about “surplus”: the BBC’s finances—I sensitivity that you have towards your members of will pass you over to Zarin here—are run absolutely staff. My two-word reply to people whingeing about on the basis of achieving by the end of the licence fee moving north is, “boo hoo”. settlement a situation where we have no borrowings Mark Thompson: You have to remember that for and have fulfilled all of our commitments, including quite a few of our licence payers, Salford is south our commitments around the analogue-to-digital rather than north anyway. television switchover. That is going very smoothly at the moment. Do you want to talk about this as well? Q60 David Cairns: You took the words right out of Paul Farrelly: No. I think time is too short. my mouth. Sir Michael Lyons: A very quick postscript if I can, I think some of my colleagues want to talk about the Mr Farrelly, which I think you are probably well cost of all this in a minute, but if I can just move on aware of, but just so everybody is clear. The BBC is for a second and ask about the production targets for inhibited from using licence fee payers’ money for the nations’ and regions’ original production. A couple of World Service so any cut that is imposed here actually things: I have always regarded this as a target but will be a cut in the service. There is no way to avoid given what you said about targets earlier on you have that. made me a bit queasy. Can you just confirm that Paul Farrelly: We don’t have time for the these targets— implications but I am sure they will out in due course. Mark Thompson: These targets are quotas. Chair: Can we move on to the issue of relocation David Cairns: Good. I shall start using the word north. I am going to ask David Cairns to come in. “quota” now that I know there is a difference. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 19
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Mark Thompson: In other words, we made a solemn Sir Michael Lyons: You will perhaps excuse me just commitment about hitting them on a particular day jumping in at this point to underline that just as you and we will hit them and I have to say I think at the look at the history of the last four years, this moment we are running ahead of target. unequivocally is one of the achievements of the Trust. David Cairns: The date is one I was going to ask The BBC’s commitment to it is evidence of the about. In respect to production in Scotland, after a few Director General taking up issues that the Trust gave really disastrous years where we went backwards and a very strong direction on but here you have targets ended up below 3% of spend, we have seen some set by the Trust being progressed and being met and really good progress. I think we are up to 6% now. a very real and palpable outcome for licence fee Mark Thompson: Yes, it has pretty much doubled. payers in the three nations. David Cairns: Yes. It’s great and that’s very good. Mark Thompson: And some of that backward Q62 David Cairns: I applaud that. If I can move movement, if I may say so, Mr Cairns, was adopting beyond the kind of industrial strategy then to the slightly tougher, and in my view better, Ofcom representational and cultural aspects of this. target. It was a truer reflection of the real position. The King Report identified some serious flaws and problems, and incidentally it was the north west of Q61 David Cairns: Yes but I mean some of that was England, I think, which felt most under-represented by Ofcom but some of it was just the reality that once the BBC, not Scotland or Wales or Northern Ireland. “Monarch of the Glen” went, once “Balamory” went, Clearly progress has been made on the King Report. It nobody had thought to commission programmes in the is evident on the screen. Where do you think progress pipeline to take up the slack. Anyway we have seen remains to be made? What do you think the BBC is progress. That’s good. not getting right in this whole agenda where progress My beef—as you know, Director General, because I requires to be greater? have raised this with you on many occasions—is the Sir Michael Lyons: Can I just have a first bite of that? target/quota to get to the population share as a floor Because this is a very live debate of the last year and and not ceiling, in your phrase, is 2016, which is a you touched on it in some of your earlier comments. long way away. Would you not now take this It is the issue of portrayal, whether or not the lives opportunity to bring that date forward to say 2013 or and experiences of people in different parts of the country in their full diversity is reflected in the BBC’s 2014, which could send a tremendous signal? I know output. This is something that the audience councils you say you are going to hit it early but the value of have been pressing the Trust to see further progress doing this is to send a tremendous signal to the very on. There has been a very, very positive and detailed independent sector, that you mentioned earlier, which discussion with controllers and programme makers is suffering because of STV, ITV and Channel 4’s within the BBC and for me an expression of the reduction in budget; you are sending them a real commitment to seeing this issue more aggressively signal that the BBC is now going to be meeting these addressed in the future, evidenced in Jana Bennett’s— targets much earlier and at a time when they are head of Vision—speech in Cardiff just a few months struggling would be a tremendous boost for those ago, a very clear acknowledgement that the BBC has organisations. more to do and a very creative approach to how that Mark Thompson: At the slight risk of sounding like is going to be achieved in the future. Mr Davies, what I want to say is: I believe what is Mark Thompson: I would say that I think across the incredibly exciting about getting from our 3% or so UK we have more to do, in terms of on screen- to 6.1% in Scotland—and the same about Wales and portrayal in fiction of contemporary life, culture, Northern Ireland as well—is we have done it with the experiences across the whole UK. So beyond right talent and the right programmes. Alongside the historical pieces, beyond genre pieces, beyond science numbers and the kind of industrial policy, you can fiction, in the context of Wales, where we are doing a put “Wallander” and you can put a whole set of great lot of good work, and indeed some rather interesting programmes, some of the specialist factual and artful forms of contemporary portrayal are programmes we are doing for network television in creeping into all those areas, but trying to reflect to Scotland; we had that fantastic BBC 4 season about some extent simply the sense of what it feels like, Scotland as one example. what the world feels like, what experiences feel like, I’m keen to get on and if we can hit these numbers what social and political life feels like in these sooner we will. What I don’t want to do is to get to a different areas, specifically in fiction. situation where, because we drive a target artificially hard, we end up commissioning output which doesn’t Q63 David Cairns: And do you think on news and work for audiences across Scotland and across the current affairs that you have got there? UK. Now let’s see where we get to. I don’t rule out Mark Thompson: Well it is interesting. Over the the idea of being able to hit the numbers early. We are course of this year we are at the moment with the ahead of target currently and I absolutely understand Trust and the Audience Council of Scotland heavily the appetite for achieving that. I think you know this involved in this, asking the Scottish public, the is absolutely an established core piece of policy for Scottish licence payers, their view about whether or us. We are achieving success on the ground. If we can not in our news and current affairs we are reflecting move further and faster, we will do. It is a floor. It is the politics and the kind of news and the debate about absolutely a floor and there is no reason at all why the big issues of the day in Scotland, and we do potentially the numbers couldn’t be higher. similar things elsewhere in the UK as well. cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 20 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
The underlying indications, the growing success of a statement which brings other money and other Reporting Scotland in viewing figures but more economic activity. It is a good use of the licence fee, broadly public attitude, both to our news hour between as long as on air it makes a difference. 6 pm and 7 pm and more broadly to our news in other Now occasionally my colleagues somehow suggest places, is pretty positive. that if you move north of Watford gap all talent and Chair: I think we are going to have to move on creativity disappears. It’s nonsense. Granada over because we are running out of time very fast. I am decades produced some of the best programming in going to bring in Philip Davies very quickly. the world, world-class programming—“Jewel in the Crown” springs to mind; “Brideshead Revisited”— Q64 Philip Davies: Would you not accept that this from Manchester. Great live programmes; over many move north has been a bit of an expensive farce? years a great daytime programme broadcast from Despite what has been reported to be the Rolls-Royce Liverpool with, what a surprise, big guests: major of relocation packages, you still have all of these politicians turning up to be interviewed. people up in arms about it. That is to gloss over the I think that it is desperately parochial to imagine that fact that just moving a load of southerners up north the only place you can do that is the glorious environs does not make it much more representative. It doesn’t of Shepherd’s Bush in London. I believe that talent is make it more northern just to move a load of available across the UK. The BBC should be spending southerners from the south up to the north. We’ll gloss the licence fee across the UK in the nations, in the over that fact. Isn’t it the case that Chris Hollins, your rest of the UK. And do you know what? I think if BBC Breakfast sports reporter—and they appear to we produce great programmes, I think you will find be the ones leading the revolt—said, “What is most politicians, possibly even some people on this disappointing is that I don’t think the move is an Committee, may be prepared to appear on these economic decision or an editorial decision”. I know programmes. So until we get there, there will be points have been made that you won’t get the Prime naysayers, and of course I understand that for Minister popping in to your breakfast show to discuss individuals this is a disruptive process, but Salford is something. It will be a lot harder to get some of those potentially a really important thing, not just for the top people to come on to your show, but it is merely BBC, not just for the industry, but for the public as a political decision. Isn’t this the upshot of gesture well I believe. politics? Chair: The prize for patience goes to Damian Collins Sir Michael Lyons: Firstly, let’s just be very clear of who has been sitting here waiting. Damian? the BBC’s commitment to serving all audiences and a recognition, which has evolved in recent years, that Q65 Damian Collins: I just wanted to come back where you base people does influence their view of to your investment in BBC television and in creative the world which, I think, looking at a committee content, particularly given it was so much a theme which represents much of the United Kingdom, you of your MacTaggart lecture as well. Obviously your might well agree with me on. So the fact that this was accounts set out your income last year and the going to be testing, I think, was understood. I’ll leave previous two years as well. I notice in that period of the Director General to talk about the costs and time your income went up by £375 million but your management of that process but, in terms of reshaping investment in creative output only went up by £5 the BBC so that it better represents the United million, and I wondered why there wasn’t more Kingdom of today, I have no doubts at all that this is investment of your added income in creative content? an important strategic decision. Mark Thompson: I will hand over to Zarin in a Mark Thompson: Well, to me it is absolutely, first second. We are very clear about this, in putting quality and foremost, an editorial decision but something also first, the strategy we published earlier in the summer: about the relationship between the BBC and the public we are going through a period where we are spending across the United Kingdom. The point that licence money on infrastructure. Sometimes people imagine it payers in the north-west were those who perhaps felt is Salford but by far the biggest single thing that is least represented, certainly across Great Britain, happening—it is happening sufficiently smoothly, amongst our licence payers tells part of the story. We interestingly it never seems to come up in this want to get closer to licence payers across the UK. gathering—is we are playing the leading role in Economically it is going to mean many, many jobs switching this country from analogue television to and, over time, hundreds of millions of pounds spent digital television and that has involved, quite apart in the north of England for independent producers, for from a targeted help scheme and the pan-industry suppliers, for the craft industry. marketing funding, for the BBC it has also meant an Also the other thing is, remember the BBC is only in enormous bulge of expenditure. Across the BBC we a sense part of the story of what is happening in are also moving from analogue broadcasting centres, Salford. We are like an anchor tenant and many other like Television Centre, to a radically different way of parts of the creative industries, local universities, doing broadcasting and production. That is W1; it is many other bodies, are gathering around this new site, Salford; it is Pacific Quay in Glasgow; it is essentially the so-called Media City, in a way which is potentially a complete retooling of the organisation. So at the transformational for Greater Manchester, for the moment we have significant distribution and north-west and for the north of England, in terms of a infrastructure costs which are going through the large world-class critical mass of talent and system. What I was trying to make clear in the expenditure. I don’t apologise for the idea of using the MacTaggart, and it’s a centrepiece of “Putting quality licence fee as a kind of way of investing and making first” is: as quickly as we can we want to get back to cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 21
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel a position where the overwhelming majority of spend the licence fee in terms of value-for-money, of course from the licence fee is into content, distribution is kept look at it in terms of the public’s willingness and as low as it can be and, above all, the other costs of ability to pay. Absolutely legitimate. But just be running the BBC are reduced further so that we can careful about believing those people who say, “All spend more on content. you have to do is reduce the licence fee and the Zarin Patel: I have nothing to add to that. market will step forward and take their place”.
Q66 Damian Collins: I appreciate what you said but Q68 Damian Collins: Just a couple of quick I think in the MacTaggart Lecture you pointed out that questions I wanted to ask. Obviously your global “£1 out of the commissioning budget of the BBC is budget for content, BBC 1 and BBC 2, is £1.5 billion. £1 out of the UK-created economy. Once it has gone That gives you quite a lot to play with and fluctuations it has gone for ever”. But as I said over the last three to the licence fee are relatively small beer compared years you are spending £16 million less on investment to that. Do you think you can still meet your in programming from independents. Presumably you commitments to investing in the creative economy do not assume that money is gone for ever? once these big infrastructure costs are out of the way Mark Thompson: What we are trying to do and many within that budget? of the things we’re doing—I mean the digital Mark Thompson: I think there are, putting quality television switchover ultimately means we can switch first, areas where we would say still—and the public off analogue and save money, because we are certainly tell us—there are improvements they would currently broadcasting both on analogue and digital; like in these services. Let me give you a couple of ultimately there will be a saving from that. Our new examples: many people believe, and it is the Trust’s broadcast technologies that we are investing in will view as well in their review of these services, that our mean that we can spend less on some of our own daytime services on BBC 1 and BBC 2 would be productions so that the amount available in the better if they were more distinctive and there was a commissioning pot will get bigger. The costs that wider range of genre represented. More drama, for we’re going through at the moment will, all of them— example; perhaps rather fewer leisure programmes; sometimes in some areas like Salford it will take some fewer repeats—[Interruption.] I heard someone say years before we get there—in all cases they’re fewer cookery programmes. These kinds of mixed designed to leave us with a BBC which runs in a changes in daytime require extra investment. Should leaner way and where more money can go on the the BBC have fewer acquired programmes, spend less screen. on acquired programmes and Hollywood? Again, it is Zarin Patel: Our 15% efficiencies come not just from a point that has come up frequently in this Committee overheads and doing things differently, they also come over the years. I think we would agree. However from reducing the cost of production. So Pacific Quay, acquired programmes are much cheaper than original our first completely tapeless environment, is reducing British programmes. If you take an hour of an its cost base both in content and in overheads by 30% acquired drama out of the schedule and replace it with over five years. We will begin to see that impact on an hour of origination, you might be taking an hour the numbers as well. out which costs £50,000 or £30,000 and replacing it with one that costs £600,000. Now you could say: Q67 Damian Collins: I accept all that, but my why not replace it with a repeat? But again the public interpretation behind a number of the things you said are very clear, particularly on BBC 1 peak time, they in MacTaggart, particularly with a nod towards the don’t want more repeats. So what would the public licence fees, the Government has a period where it wish us to do with BBC 1 and BBC 2? They would needs to look at saving money. It is right that the like a richer mix of programmes. So I would say of licence fee is considered as part of that too when the course there are pressures on us: can you do these country is feeling the pinch. You have big television networks for less money? But I would say investments, big structural costs. The amount you much of the pressure from the public is to try and spend on programming might go up and down. The spend more money which is why in a sense one of my creative economy copes with that and you painted a emphases at Edinburgh was: how much can we save picture of this incredibly brittle flower that if you take from what the BBC does off screen and put it on a pound out of it has the direct knock-on effect for the screen to improve the quality of our daytime, for creative economy from which it may never recover. example, and to mean that there is more original In light of what you said, would you see that as a drama on BBC 2? slightly over-dramatic representation? Damian Collins: Yes. I imagine if you said to Archie Mark Thompson: Well, I think if it was £1 let’s not Norman you have £1.5 billion in the bank to cope worry about it. If it was £500 million or £1 billion with programming he would probably take it. let’s worry about it. So manifestly I’m not suggesting Mark Thompson: At some point I’d be very happy to that any adjustment at all to the BBC’s funding means do with the Committee a comparison of the “one move and the baby gets it”. It’s not that at all. expenditure and programme mix of ITV 1 and BBC But the argument I was taking on was an argument 1. It’s a very interesting topic. Increasingly BBC 1 which is a sort of crowding-out argument which says: and ITV 1 are doing very different kinds of schedule, all you have to do is reduce the BBC’s funding and they’re spending broadly similar amounts of money others will step forward immediately to put the but in very different ways, and I’d be very happy to investment in. That was the argument I was saying I take the Committee in some detail through in a sense don’t believe is the case. So I said of course look at what these mixed issues look like. cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 22 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Q69 Damian Collins: I certainly mean to take you The second issue, of course, is the absence of a up on that but obviously we haven’t the time to do coherent digital strategy—not an issue for the BBC that today. The last question I want to ask, which is alone because it immediately brings in the issue of slightly answered already, was in the Annual Report where the Government stands on DAB radio for the you talked about doing fewer things better. In your future. So where we are at the moment is the Director remarks you highlight the things the BBC does well General is now working on both of those issues, and you would like to see more of but did not say that recognising those are the big issues, the big strategic much about what you should be doing less of in terms issues, and 6 continues perhaps for ever but certainly of actual output? until both of those big issues are clear to us. Mark Thompson: Well I think that acquired point is Mark Thompson: I think Michael answered that very a good one. I think that in the end there are so many clearly. We have had, I believe, a real success with avenues for the public in finding good acquired our television portfolio, including our digital channels, programmes. Channel 4 runs a lot of acquired in helping encourage the public to move from programmes, so does 5, Sky 1, many, many channels analogue to digital television. We are not alone in that, where you can get acquired programmes. The role for Sky has done a great deal to help with that and so the BBC: BBC 1 was once dominated in peak time by have others. But we know that our digital television “The Virginian” or “Kojak” or “Dallas”. It was a big channels have made a significant difference in people part of what people expected from the BBC. It is a wanting to take digital television up. We have yet to much smaller role now. We will still occasionally buy see the same level of success with digital radio. We pieces that other broadcasters perhaps don’t want. are very committed to digital radio. We support the “Mad Men” would be a good example of a BBC Government’s and indeed the previous Government’s purchase which does, I think, add something to our ambitions around moving towards analogue-to-digital networks and which the public really take to. Perhaps switchover in radio as well. The challenge for the not vast audiences but people who really— BBC is coming up with a portfolio of services which Damian Collins: I watch it. firstly encourage people to sign up on digital radio, Mark Thompson: It is interesting: David Hare talking but in ways which support the rest of the radio market about “Mad Men” in one of the papers this morning rather than producing adverse competition. was a real treat. But no, I think acquired programmes We need to make sure that the core mainstream will be a really good example of something I think we channels, like Radio 1 and Radio 2, are sufficiently should do less of, spend less on and put the money distinctive, are really doing something different from into original British production instead. their commercial counterparts, but also that we have Chair: I am going to try and fit in two short subjects a range of attractive but also distinctive new digital very quickly. David Cairns? services. So I think this is a hard sudoku. It’s not absolutely Q70 David Cairns: It will be brief because of time, straightforward because there are a number of but it’s about radio. Clearly the 6 decision has come different things going on, and I take the BBC Trust’s and gone. Where does this leave you? There seems response on 6 Music I think in the way it is intended to be a slight divergence between the Trust and the which is there are bigger things at stake here. Go back executive on the vibrancy and distinctiveness of the and look at the broad radio strategy and that’s what offer. You wanted to close Radio 6 to make 1 and 2 we’re doing at the moment. more distinctive. Now 6 is staying open, so a couple Chair: Damian? of headlines on where we are in terms of the strategy in radio, with particular reference to 1 and 2? Q71 Damian Collins: Yes, briefly, on Worldwide, I Sir Michael Lyons: It isn’t part of the Government’s referred earlier about income growth and obviously a structure that the Trust and the Director General have good degree of that has come from Worldwide’s input. to agree on everything and indeed we’ve had some I was just interested in your views on what the future criticism for not more frequently exposing to public scope was for added revenue from BBC Worldwide scrutiny the debates which do take place, which are and in particular, as you mentioned in MacTaggart, the often challenging. I think getting the balance of that iPlayer going international and being a subscription right between how much of that discussion is open is service and what your views were on the sort of I think a matter for reflection. income that would bring in? Now let’s turn to the Strategic Review: the Trust Sir Michael Lyons: Let me make just a very first brief rejected the proposal to close BBC 6 in its current comment just to underline that this is again a very form believing that the arguments didn’t stand up as complex area. The Trust work on the commercial a result of the consultation analysis we’ve done. But review very clearly illustrated this is not just a one- what that proposal did do was to bring into really quite way avenue of growth in Worldwide, extra income for sharp relief the two big strategic issues sitting behind the BBC. There are a whole set of tensions, it. The first of those—the greater distinctiveness of competitive impacts and risks that are involved in that. Radio 1 and Radio 2—very much the subject of the You have seen this year us expose the results of that service reviews that the Trust had undertaken earlier strategic review and very specifically say there is in the year, requiring both stations to work more more to be done on the global strategy into which energetically to distinguish themselves from each Worldwide sits. So this is in part a work in progress, other and to serve a rather different audience but I’m very happy for the DG to share his thinking demographic. on that. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Culture, Media and Sport Committee: Evidence Ev 23
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Mark Thompson: I think, as we know we’ve talked Chair: No, can you make it one part? about it often here, there have been all sorts of points of controversy and tension around the edges of what Q72 Paul Farrelly: I wanted to return to the Worldwide does. What I want to say is the reason that accounts, which is why we are here, on Worldwide Worldwide now is a division of the BBC which makes and Lonely Planet. Not because I am a Lonely Planet £145 million profit rather than £30 million, which is obsessive but because the reaction by the BBC and what it did a few years ago, is to do with the fact that the Trust to the controversy about Lonely Planet, to it is effectively exploiting BBC intellectual property my mind, was a classic case of the BBC even here and increasingly around the world. The global alienating its friends. Secondly, there are issues of the appetite for great British content is growing. Our Trust still following through on pledges it made, in effectiveness in exploiting it has been growing. In terms of monitoring whether the BBC had spent its particular, the great attraction to us of On Demand is money wisely. that in many markets—take the United States—we’ve So could I just ask Ms Patel: the BBC paid £89.9 been essentially forced to wholesale our content to million for 75% of Lonely Planet, itself a large price, other broadcasters where the BBC’s brand is not very but there was a put option, exercisable up to the end visible. Often, particularly in co-production deals, it of last October, for £28.8 million of the rest. What has will not be a BBC voice, it’ll be a voice from an happened to that put option? There is no mention of indigenous broadcaster. What is exciting about On it in the accounts. Demand services—I mentioned in the MacTaggart, Zarin Patel: The put option still exists and with the the US iTunes site—is it is a direct access for mutual agreement of the holders of the put option— consumers, in America, Australia and many other they wanted to extend their holding—so the put option countries around the world, to our content, and there is now exercisable, I think it’s January 2011. is a real appetite for it. So although I recognise that we have to tread very Q73 Paul Farrelly: Okay. How much is the digital carefully here—the BBC is a very big public body investment in Lonely Planet? and it now has a very big commercial arm as well— Zarin Patel: Mark, sorry, we are sharing one set of others quite understandably in a sense want to be sure accounts for efficiency. the BBC knows what its boundaries are here, but the Sir Michael Lyons: We lent one copy to the opportunity to get great BBC and, more broadly, Committee I think is the other reason. British content in front of consumers around the world Zarin Patel: One of the major things that has has never been greater, and things like an international happened to Lonely Planet this year is a huge iPlayer are very exciting prospects. investment in its digital platforms and we are seeing Damian Collins: If you look at what HBO has done real success in that. with “John Adams”, the enormous investment in a Paul Farrelly: How much? programme beyond probably what a British Zarin Patel: I’ll just come to that in a minute if I can broadcaster could invest and its ability to exploit that find the right page, so bear with me a minute. There around the world, it is a tantalising example of what we go. It’s on page 32 if you have the Worldwide can be done. annual report. So Worldwide’s underlying Mark Thompson: Absolutely, and by the way we performance internally has grown from £43 million to have already got our own examples: programmes like £51.4 million. “Planet Earth” or “Life”. I know the numbers for Paul Farrelly: Yes, I know. I can see that. I just want “Planet Earth”—and “Life” will be similar—but for the number for the investment. “Planet Earth”, probably on BBC 1, the licence payer Zarin Patel: The investment would have been about is paying for perhaps £400,000, £350,000 an hour. £5 million. But the return from that is really The programme costs £1.2 million to make and the transforming Lonely Planet’s business from a book rest of that is coming from international co-production publishing business, which is declining, into digital and pre-sales, and yet Worldwide is making a revenues very successfully. substantial profit on programmes like that as well. I mean with “Planet Earth” we sold I think 3.5 million Q74 Paul Farrelly: Okay, final question: this is one DVD box sets in the United States alone. for the Trust to mull. For the investment that has been What is very interesting is that many of the things that put into Lonely Planet, plus the acquisition cost and work best for us internationally are very, very core to the potential liability for the rest of the acquisition the BBC and what people would most expect from the price, I would ask the Trust to reflect on whether a BBC in this country as well. It is not about bending profit—I assume it is at the operating level but I the BBC brand it is about looking at what the BBC cannot quite reconcile it going through the accounts— stands for in the UK and around the world, and using of £1.9 million on sales of just over £50 million is a that as the way of reaching global audiences. worthwhile return on investment after three years, Sir Michael Lyons: That’s absolutely the point on given that Lonely Planet before you acquired it was which the DG and the Trust are agreed, that issue of making £1.1 million after tax in the year to June not allowing the brand reputation to be risked or 2007? It is just an issue for the Trust on following stretched. through on whether the BBC has got its numbers right Chair: Paul Farrelly has one very small, quick and spends its money wisely. question. Sir Michael Lyons: Well, we will take your advice to Paul Farrelly: It is a small question, Chair, with reflect on it. It has been a matter of very considerable about three parts to it. reflection since that investment was made. The cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG01 Source: /MILES/PKU/INPUT/006041/006041_o001_Corrected transcript_08-09-10_JDH.xml
Ev 24 Culture, Media and Sport Committee: Evidence
8 September 2010 Sir Michael Lyons, Mark Thompson and Zarin Patel
Committee knows that the Trust, having completed its looking at EBITDA of 20% or 21% as their aim. My commercial review, has unequivocally said that there challenge would be: should you not be trying to will be no mergers or acquisitions of this scale in the exploit an even higher value, given the lack of future in the United Kingdom but we have equally investment that you need to make as BBC Worldwide said that this investment rests on the merits that were in its assets—the BBC is doing that for you? made at the time. We must now see—and we are Zarin Patel: One of the things we do with Worldwide watching it carefully—whether it delivers that is compare ourselves against other global media promise. But your warning is well taken. companies: in print, in publishing, in DVD and digital Mark Thompson: Two sentences from me: firstly, as well, and 14% is a really good performance for Lonely Planet will always and remains seen as a long- that. Don’t forget media businesses require constant term investment where we knew there was going to investment, so we’re not like a Nestlé where you have be a period of investment to achieve what we wanted a large production factory that you can really put to do with the brand on television and in digital media. volume through. “Dancing with the Stars”, which is I believe that’s going well; secondly, BBC Worldwide hugely successful for us, will require investment for a is manifestly a portfolio business with lots of different replacement, so the investment cycle in these businesses around the UK and the world. If you step businesses is much higher. But what we do is we back and look at this portfolio of businesses it is compare ourselves against other media. performing extremely well in the public interest, with Mark Thompson: And we can provide comparisons. both sales and profitability strongly increasing over Dr Thérèse Coffey: But you do not need to provide the years and delivering more money, therefore, the brand of the BBC, you are investing in that. straight back to the British public and for the licence Mark Thompson: Sure, and I am very happy to write fee. to the Committee, if you would like it, with the Chair: Thérèse? comparators we use—UK and global comparators— to establish the benchmarks for the EBITDA margin Q75 Dr Thérèse Coffey: My question is about the and PBIT and so forth. But we believe that against profitability of BBC Worldwide: given the strength of proper and reasonable comparators the fundamental the BBC brand, its sub-brands, the lengths BBC ratios in Worldwide are very strong. Worldwide has gone to save the Stig, to try and protect Sir Michael Lyons: I’d just like to say that in that that brand value. Zarin, or anyone really, I am just commercial review the Trust came face to face with interested to know, I think the latest EBITDA these choices and was clear that profit maximisation (Earnings Before Interest, Taxes, Depreciation and is not the simple message for BBC Worldwide. Amortization) percentage is 14%. If you look at Chair: I am going to stop it there. We could go on still someone like Nestlé, Danone and similar they are for some time, but I thank you very much for coming. cobber Pack: U PL: COE1 [SO] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 25
Wednesday 15 December 2010
Members present: Mr John Whittingdale (Chair)
Ms Louise Bagshawe Paul Farrelly Damian Collins David Cairns Dr Thérèse Coffey Philip Davies Mr Adrian Sanders ______
Examination of Witnesses
Witnesses: Sir Michael Lyons, Chairman, BBC Trust, and Mark Thompson, Director-General, BBC, gave evidence.
Q76 Chair: Good morning. This is an unscheduled advise the Trust on the implications of any settlement. meeting of the Select Committee, since it is not that Our conclusion about the settlement and my eventual long since we last saw the Chairman and Director- recommendation with the Executive Board of the General. However, it is to take account of the settlement was based on understanding it sufficiently somewhat unexpected rapidity with which a new well to be able to recommend it and secondly, on settlement for the BBC was achieved. That raises a recognising that it presents some real challenges to the number of questions that we are keen to put. I would BBC; it’s a tough settlement for the BBC and requires like to welcome Sir Michael Lyons again, the significant savings from the BBC. Chairman of the Trust, and Mark Thompson, the Nonetheless, given the length of time and certainty Director-General. Damian Collins is going to start. about the BBC’s future funding and moreover the guarantees from the Government about not adding Q77 Damian Collins: Thank you, Mr Chairman. I additional obligations either to the BBC or to the would just like to ask some questions initially about licence fee until the next Charter can be debated, these the negotiation itself of the licence fee agreement. Mr benefits were sufficiently good that we could Thompson, you have been involved, I imagine, in recommend the deal. quite a few negotiations with the Government over the years. How does this rank in terms of its importance Q78 Damian Collins: Just on the language you used and the success with which it was concluded? there; so the deal was negotiated by you and then Mark Thompson: My experience of almost all recommended by you to the Trust? negotiations with Government is that although there Sir Michael Lyons: That’s not really the full picture, may be a long preamble, the actual business of sitting in fact. Let me firstly acknowledge both the down and looking at the detail happens typically in a importance of and the skill applied by the Director- very compressed period at the end of a long process General in the face- to-face discussions, backed up by of theoretical discussion—you get down to business his own staff and indeed by Trust Unit staff on a in quite a short period before reaching a conclusion. number of occasions. This was unusual in the sense that there wasn’t a long The negotiations were essentially between the Trust preamble, but the actual detailed discussions were, in and the Secretary of State. The Trust laid down the some ways, some of the fullest I’ve been involved red lines and the Director-General reported back to in—much fuller, for example, than the last licence the Trust on the shape of the negotiations. The remit resettlement. was set by the Trust, and the agreement, in the end, The BBC had spent the previous months going was one signed off by the Trust. So it wasn’t sort of through a really very detailed look at its future “over here and then comes back to the Trust”. From editorial strategy, the running of the organisation and the very beginning of the exercise, the Trust was the finances of the organisation, and in particular we’d engaged in this and the Secretary of State was very also already been digesting an earlier proposal by the clear in approaching the Trust to kick off those BBC Trust, which was to freeze the licence fee from discussions on 11 October. next year. Our understanding of the BBC’s finances Mark Thompson: So at all times, as it were, I was and our ability to use an essentially reasonably operating with a senior member of the Trust Unit in straightforward computer model into which we could the room for the critical conversations. At all times, put assumptions—the level of licence fee and the level I was operating within a mandate and within clear of obligations that the BBC would have to meet—and parameters that had been laid down and agreed by the very quickly to understand what that would mean in BBC Trust. cash terms, meant that I felt we were in a good position to be able not only to understand the Q79 Damian Collins: Can I infer from what you negotiation but also, crucially, to advise the BBC said, just to be clear, Sir Michael, that you were Trust. involved in the face-to-face negotiations? The agreement was entered into between the Sir Michael Lyons: No; nor would I expect to be. The Government and Sir Michael on behalf of the BBC clear and absolute choice was that the right way to Trust. In some ways, my job was both as a negotiator do this was to leave—as is often the case in these on behalf of the BBC but also, in a sense, to help negotiations—the Director-General responsible for the cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 26 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson face-to-face discussions, supported, where be compromised by a presence in those discussions appropriate, by his own staff and by Trust Unit staff when, in fact, it worked to the BBC’s advantage for us and with us either in telephone contact or available to have the two-stage arrangement that we described. for face to face meetings. Mark Thompson: As it happens, I think it’s an example of a Government’s model working very well Q80 Damian Collins: You may say that is quite and having an environment—that is, having quite proper but it sounds odd to me that you, as Chairman interesting points of the day and night whereby you of the Trust, in what the Director-General referred to have a group of people who are not in the hurly-burly as the critical stage of the negotiations, weren’t of the discussion, but who can calmly and actually in the room. methodically scrutinise it, test it, debate it and then Sir Michael Lyons: I don’t know how odd it might come up with a fresh mandate. I thought that worked sound to you, but it seems to me to be the perfect out rather well. It meant that this was a very model of negotiations. In most commercial deliberate, dispassionate process rather than getting negotiations, you don’t have the principals in the room caught up in what is sometimes in the commercial conducting the discussion; you have agents of the world called “deal fever”. principals doing the negotiations, and that’s exactly the model that we followed here. Q86 Damian Collins: I hear what you say, but I still think that if it was necessary to have Trust staff there, Q81 Damian Collins: You said the agreement is or people from the Trust to represent the views of the between the Trust and the Secretary of State. Was the Trust, it is unusual for the Chairman not to be there for Secretary of State involved in those meetings? any part of the process, particularly for the concluding Sir Michael Lyons: That was his choice. You might agreements. I completely accept that there might not ask him whether that is normal. be any need for the Chairman to be there for all of the meetings and all of the negotiations, but when the Q82 Damian Collins: So the Secretary of State was final decision was made, I find it quite strange that there and you were not? you weren’t there. I hear what you say. I think we Sir Michael Lyons: That’s right. have to agree to disagree on it. What I primarily wanted to ask about was: agreement Q83 Damian Collins: You were not there for any of was reached, and quickly, but very much alongside the meetings? the Government’s conclusion of the Comprehensive Sir Michael Lyons: I wasn’t there for any of the Spending Review. Do you think there is a danger that meetings. We chose not to be and were quite the BBC effectively became part of the CSR as a comfortable with that arrangement. result of that process? Sir Michael Lyons: There is a danger; there is a Q84 Damian Collins: I do find that extraordinary, I reality that Government decided to approach this issue am sorry—not to be at any of the meetings and the in the closing stages of the Comprehensive Spending Secretary of State to be present as well. An agreement Review. Did the BBC have any real choice but to between the Secretary of State and the Trust—and the enter into discussions then? No, it didn’t. Chairman of the Trust isn’t there. Furthermore, the BBC had already gone on record; Sir Michael Lyons: Let’s be very clear about this. the Trust was very clear that it recognised the difficult What then is the argument against taking the entire national circumstances, that it understood that this Trust to those meetings, since it’s the Trust that makes would be a tough set of licence fee discussions, and the decisions and not the Chairman? understood that the Government would be basically seeking to make sure the BBC didn’t somehow enjoy Q85 Damian Collins: Again, for the Chairman of the some privileged separate position from the experience Trust not to be there at what most of us would see as of the rest of the economy. an unusual and critical set of negotiations and Are the things irrevocably coupled for the future? No, probably one of the most fundamental reviews of the I don’t think they are. I think these were extraordinary licence fee and the role of the BBC in recent years— circumstances. We responded to a challenge from and you were not there. Government. The timing of that challenge you have Sir Michael Lyons: I don’t think that in any way to take up with Ministers. disadvantaged us. The Trust was able to keep a very clear line. It was the Trust that emphasised the red Q87 Damian Collins: Do you think this is now a lines: those things that were unacceptable and those model for the future, in effect? things that would be acceptable. It was the Trust that Mark Thompson: No, on the contrary. What this took a very clear decision to withdraw from settlement means is that there will be no part of the negotiations when it looked as if they were not going BBC’s activities that are, as it were, part of the scope to be able to be resolved. It was the Trust that took of Government spending. World Service and the decision to write to the Prime Minister to make Monitoring have been paid for by the Government for clear its strength of feeling about the proposal to move many decades; World Service began with licensing funding of the over-75 licence fee remission. funding but moved very early on—I think possibly There’s no lack of leadership here by the Trust. I think just after the Second World War, but I can check it is a red herring and, indeed, a misunderstanding of that—over to direct Government funding. the process of negotiation to suggest that it would Because World Service and Monitoring have been have been in the BBC’s interest for the Chairman to paid for historically for many decades by the cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 27
15 December 2010 Sir Michael Lyons and Mark Thompson
Government, part of the BBC has always been in Q89 Paul Farrelly: Who in Government? scope for Comprehensive Spending Reviews. But in Mark Thompson: The Secretary of State for Culture, the next Comprehensive Spending Review, the BBC Media and Sport. will not be in scope at all. So one of the benefits of this settlement is that for the first time in decades—in Q90 Paul Farrelly: And how long before the 2014, or whenever the next CSR happens—the BBC settlement was reached from that overture? will be entirely separate. I think that for an Sir Michael Lyons: On Monday 11 October, officials independent public broadcaster, being entirely from DCMS rang both the Trust to speak to me, and separate is an improvement on the previous the Director-General, to say that the Government had arrangements. a shopping list and was inclined to shift the Damian Collins: Thank you. There are some specific responsibility for the over-75 licence fee. questions I would like to ask about the settlement, but I know other colleagues want to get in so I’ll come Q91 Paul Farrelly: Was the shopping list verbal or back to that later on. was it followed by something in writing? Sir Michael Lyons: I don’t think it was ever in Q88 Paul Farrelly: Usually, we spend months poring writing. over the licence fee settlement and it’s out there in the Mark Thompson: So after that Monday meeting, on press and it’s in here in the House, but this happened Tuesday 12 October1 I, with a number of colleagues, very quickly. Who first broached the prospects or an had a meeting with the Secretary of State in the Palace idea of an early settlement? of Westminster. The Secretary of State raised a Sir Michael Lyons: Firstly, let me venture to put in a number of possible obligations that the BBC might little bit of context to this; I won’t take very long over want to take on. Exactly as the Chairman has just said, it. We were clear from statements made before the I made it clear that some of the suggestions—for general election by both the major parties that we example, the Government’s ceasing to pay the BBC were going to face tough discussions in the licence in view of the over-75 free licences—would be, in my fee settlement. That is why we started the strategic view, wholly unacceptable to the BBC Trust and to review exercise, both to examine the options that were BBC management as well. available to the BBC and to reflect on changes in But there were other proposals—for example, the technology and audience behaviours. That led us, as BBC World Service coming under licence fee the Director-General said, to the conclusion that we funding—that were absolutely possible to contemplate should, recognising the difficult national and indeed might have certain advantages. But, and circumstances, seek to forgo any increase in licence this is the important thing, I did not believe that the fee over the last two years. Trust could consider taking on any obligations without So we’d done some of the preparatory work that you understanding, in full, the future funding of the BBC, would have expected in a licence fee settlement; for due to the obvious danger of taking on an obligation the BBC, this is not as compressed as the negotiations without understanding where the funding is going to were and it’s worth just underlining that. In terms of come from. The danger, if it was the World Service, where the overture came from, unequivocally the for example, is that you have to end up explaining to overture came from Government with a shopping list the British public why, in terms of the licence fee, that included transfer of responsibility for the World they pay for services themselves to the BBC that they Service, and much more significantly, as far as are having to pay for international audiences. opening discussions were concerned, the proposal for the BBC to fund the costs for over-75 licence fee Q92 Paul Farrelly: Was the initial shopping list ever remission. committed to paper by the Government? Paul Farrelly: I want to come to that. Mark Thompson: The short answer is that I do not Sir Michael Lyons: That remission is firstly very believe the Government ever produced a written expensive, secondly a welfare payment that we version; at least, we were not shown a written version. believe has no part to play in the BBC’s funding, and thirdly an uncapped liability. Q93 Paul Farrelly: Did you ask for one so that you In the discussions, recognising the already established transmit it unequivocally, in black and white with no position of the Trust, which was that the Trust was misunderstanding, to the BBC Trust Board? sensitive to the position of licence fee payers in these Mark Thompson: The next stage is after consultation difficult times, the earlier discussions took the with the Trust and indeed, there was a note that set shape—and I’ll ask the DG to say about more about out very clearly the respective roles of the Trust and this—of an indication that we might be willing to talk. the Executive in this whole process. We came back, I We certainly would reject outright the over-75 licence think, the following day with a note that was a record remission costs. We might be willing to talk about the of the meeting and a commentary from us on the transfer of responsibility to the World Service, but various proposals that had been made, making clear only in the context of a licence fee settlement which that some would be wholly unacceptable. Others would give us the time to digest that responsibility certainly were worthy of consideration, but could only and to plan rationally for its absorption. That’s exactly be considered if they were accompanied by a long- how this was. range settlement on the BBC’s funding. The debate in Mark Thompson: The overture of would the BBC these early days was, it’s fair to say, whether it would consider taking on additional obligations was from 1 The BBC subsequently informed the Committee that this the Government. meeting in fact took place on Wednesday 13 October. cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 28 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson be possible to include a multi-year licence fee to go back to the issue of the over-75 licence fee settlement in the time between these conversations remission. So this continued to be an issue throughout and the announcement of the CSR the following the discussions as a sort of back-up issue, but Wednesday. particularly because it offered a bigger quantum in terms of Exchequer relief: £560 million per annum Q94 Paul Farrelly: Mark, you have anticipated my and a growing burden rather than the costs of— next question in that answer. It is: were all these meetings minuted by the BBC and by civil servants? Q99 Paul Farrelly: I don’t want to take too much Mark Thompson: The note I sent to the Secretary of time because we’ve a lot of subject matter to cover. State was intended to be a minute of our Was it your impression that the initial shopping list understanding of that meeting and, more than that, had been signed off by the Coalition? Specifically, also a somewhat more formal, albeit interim, response there are no Liberal Democrats in the Culture, Media with Trust approval to the various things that had and Sport Department. What impression did you get been suggested. of the role played by the Liberal Democrats in the Coalition in signing off any initial shopping list? Q95 Paul Farrelly: Could you send us copies of the Sir Michael Lyons: I certainly don’t want to suggest notes and minutes of meetings or relating to meetings? that there were not any discussions around this, but Sir Michael Lyons: I don’t want to be unhelpful about the truth is that we had a Minister of the Crown this. I think we ought to just take notice of that leading for the Government. I don’t think it was for question and reflect on it. After all, these are us to assume that he was doing anything other than documents relating to detailed negotiations with the acting in good faith on agreements that represented Secretary of State that he chose to conduct personally. the Government, and I can’t imagine how we could I don’t want to be obstructive with this Committee. have thought otherwise. Mark Thompson: To be honest, as far as I was Q96 Paul Farrelly: We’ll ask the Secretary of State. concerned, it was a straightforward negotiation Sir Michael Lyons: I absolutely understand that you between Her Majesty’s Government and the British will and you will pursue the matter. If we can just Broadcasting Corporation, and over quite practical hold our position until we’ve reflected on that. matters such as money, spreadsheets, specific obligations, start times and all the rest of it. I took it Q97 Paul Farrelly: We want to be sure of our facts. in that spirit. I have to say that was absolutely the There’s been so much commentary and speculation in spirit of the conversations with the Secretary of State. the media, and very little time for parliamentary To be honest, I thought I gave all of my focus and scrutiny of something that we would have spent a lot concentration throughout this entire process on the of time looking at had things been different. matter in hand and regarded the Government as just Sir Michael Lyons: Mr Farrelly, can I be very clear: that, so that the finer points that involved the Coalition whether or not we feel that it is appropriate to release were not, as far as I was concerned, a matter for us to those documents, we’re certainly happy to give you, consider in these negotiations. in writing, our own summary of those events so there is absolutely no room for uncertainty about the events Q100 Paul Farrelly: The implications for the BBC or the way they were dealt with. of taking that burden on would have been profound. It’s quite important to establish how the initial Q98 Paul Farrelly: I’m very grateful for that. You shopping list was approved, whether it was a reflect on your position and we’ll reflect on it as well, Secretary of State acting on his own behalf or with but any information in black and white so that we base Cabinet approval. our report on the facts would be helpful. I don’t want Sir Michael Lyons: Absolutely. I think the important to monopolise too much of your time. You said that thing, Mr Farrelly, is that you should pursue that with the welfare payment for the over-75s was very much him, but let me answer your very precise question. in the Government’s initial shopping list. Could you From the moment when that proposal was put tell the Committee how you managed to fend that off? forward, the DG advised that he did not believe that Sir Michael Lyons: This continued—I don’t think the it would be acceptable. The Trust confirmed that Committee would want to, nor do I think it would be within 24 hours and maintained a consistent position appropriate, to go blow-by-blow through the events that this was unacceptable under any circumstances, over the next few days but— so in a further stage in the negotiations when this Paul Farrelly: To the contrary, actually. Quite to the came back on to the agenda, how did we fend it off? contrary. By seeking to debate an alternative, acceptable Sir Michael Lyons: Let me just say that I was being package in the context of a new licence fee settlement. optimistic in that comment. That’s essentially the heart of how that was fended off The issue of the quantum of how much money could but it did re-emerge back on the agenda. That led the be transferred from the Exchequer to the BBC was a Trust to withdraw from discussions, and after live issue throughout these discussions, which did not agreement I wrote to the Prime Minister making it follow, frankly, a simple linear path but broke off on clear that this was a matter of principle for the Trust. a number of occasions for different reasons. On one particular occasion, it was because the Trust felt that Q101 Paul Farrelly: A red line? we just were not going in the right area. On another Sir Michael Lyons: An absolute red line; one of a occasion, it was because Government took a decision number of red lines that had been defined earlier in cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 29
15 December 2010 Sir Michael Lyons and Mark Thompson our discussions by the Trust, and they are a matter of Paul Farrelly: Sir Michael is nodding. formal record. Sir Michael Lyons: It included individuals. It included individuals, and I think that’s the best that Q102 Paul Farrelly: And the effective meaning of we can say at this stage. “red line” would have been what? Paul Farrelly: Sir Michael nodded to the question Sir Michael Lyons: These were unacceptable issues and to the two names. for the Trust. Dr Coffey: I think it is fair to say Don Foster is Chair of the All-Party Group on the BBC. Q103 Paul Farrelly: Had it been crossed or was there a serious risk of its being crossed? What would Q108 Chair: I quite understand your concern that have been “red line”; what would— had you taken responsibility for funding the over-75 Sir Michael Lyons: I know where you’d like me to licences, that would have been a significantly bigger go to. Let me just say that a red line means something financial consequence to the BBC, but you were that is unacceptable. That was explicitly referred to in suggesting in your answers that that was not the main the letter, and I think we all know what that means. reason; that you regarded this as a matter of principle. Why is it acceptable for the BBC to fund the welfare Q104 Paul Farrelly: It would have been a resigning package, which is represented by the digital matter. switchover scheme or help scheme, but it is not Sir Michael Lyons: It would have been for me and, I acceptable for the BBC to fund the welfare scheme believe, for the Trust. for the over-75 free television licences? Sir Michael Lyons: It’s a bit of history, I agree, and Q105 Paul Farrelly: For other members of the Trust the former Governors did agree to a licence fee as well, collectively? settlement that included the cost of the switchover Sir Michael Lyons: I’ve said what I’ve said. I don’t scheme. That was integral to BBC activities that were need to add to that. taking place and the responsibility the BBC had for the encouragement of and the engineering issues Q106 Paul Farrelly: My final question, because behind the digital switchover. we’ve got a lot of ground to cover. Mark, you gave So I think it’s qualitatively different, but I come back an interview to the Media Guardian recently. There to the fact that I do think that the over-75 licence fee were some quite unequivocal lines of comments in remission issue is much more clearly and The Guardian and I’ll just read you two lines: “It’s unashamedly a welfare issue, and would have been clear now that even Nick Clegg, as well as David effectively a big step further to melding the licence Cameron and George Osborne, was prepared to sign fee with general taxation. And that’s the point on off the deal that would have lumped in the cost of the which the Trust, throughout its existence, has taken a free licence fees for the over 75s. Only phone calls by principled stand. the BBC to lots of Liberal Democrats managed to get Mark Thompson: A couple of other points. Firstly, Clegg to change his mind the next day”. Can you just the point about digital switchover. There are powerful shed some— reasons directly to do with the BBC’s public purposes Mark Thompson: To be honest, if I may say so, why—and also it is economic—it might be in favour there’s a slight overstatement of the view I think I of universal analogue to digital switchover, both expressed in that interview, which is that it is certainly because we can get our services to every household in true that once news that the Government was formally the land, and secondly, because once you’ve achieved minded to go with the over-75s option started digital switchover and every household can get digital breaking on the Monday—this would have been television, you can switch off analogue transmission Monday of the following week, Monday 18 and save on the costs of dual transmission. October—we, as an organisation, made a lot of phone calls to a lot of our people across the political The point about the over-75s, though, is that it goes spectrum making clear our position on this issue of to the fundamental fairness of the core licence fee the over-75s. Through the course of that afternoon, we itself. The danger—because the licence fee is a flat were making a lot of phone calls to a lot of people. and, therefore, in fiscal terms, a regressive charge—is Just so you understand, this was something that we that if you are not careful you end up with poorer thought was a very grave potential danger not to the households being asked to pay. When you ask the BBC’s funding but to its independence, and we were BBC to pay for the over-75s, you’re asking other absolutely alerting a lot of people across the political licence payers to pay for households of over-75s. The spectrum about that. And over the course of that danger in terms of the BBC’s independence is all to Monday, the mood that was around that proposal do with the legitimacy and fairness of the core licence began to shift. By the early evening, it was shifting fee. So it is not a small segment that is designed to very considerably. achieve something that is one of the BBC’s public purposes—digital switchover and universal digital Q107 Paul Farrelly: I’ll finish it here. Just so we’re delivery—but something to do with the core dealing with facts, did those phone calls, either that proposition of the licence fee. day or over the week, include calls and lobbying of Nick Clegg and Don Foster? Q109 Chair: I would only say firstly that I am glad Mark Thompson: I don’t think I want to say any more to hear that you acknowledge that the licence fee as about it. regressive and, therefore, an unfair tax— cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 30 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson
Mark Thompson: There are many charges we have specifically saying that that is wrong and that you that are flat charges. Vehicle excise duty would be were misquoted? another example. We have a fiscal system that has Mark Thompson: I don’t believe I suggested, for some flat charges that absolutely in fiscal terms have example, that we made phone calls to Nick Clegg. I a regressive quality, but it’s very important that the certainly wasn’t aware of any phone calls to Nick word “regressive” in this context is not necessarily a Clegg and didn’t speak to Nick Clegg myself. derogatory one. I mean, it may be your view that it should be, but in fact it isn’t. Q115 Ms Bagshawe: That’s a pretty serious misquote by the journalists then. It’s a complete Q110 Chair: I quite accept that it is part of the BBC’s mischaracterisation. strategy to achieve digital switchover, but this wasn’t Mark Thompson: To be fair, it may be that the part of that; this was a welfare scheme that was interviewer is wrong. It may be that I misspoke. For designed to help elderly people on low incomes. the record, let me make it quite clear: although, yes, Sir Michael Lyons: It takes us back, doesn’t it, to a we spoke to politicians of many different parties, I decision of another Government that took the view certainly didn’t speak to Nick Clegg and nor am I that this was an integral part of encouraging aware of anyone else in the BBC speaking to Nick switchover. Clegg.
Q111 Chair: Do you regret the decision of the BBC Q116 Ms Bagshawe: I do not want to harp on about to agree to it and to fund it? it too much, but the quote does seem to be, “We spoke Sir Michael Lyons: I think that it was worthy. It’s to loads of Liberal Democrats and we lobbied the always dangerous to be invited to comment on other Deputy Prime Minister”. I mean, that’s pretty black people’s decisions made in difficult negotiations. and white, isn’t it? We’ve just had our own round of negotiations and Mark Thompson: What I’m saying is that what here I am facing commentary on how we might have actually happened is we made a large number of done things differently, so it makes me particularly phone calls to politicians, I believe from all major sensitive about offering any judgment about others. I political parties. That included the Liberal Democrats, think it’s fair to say that I think it would have been but was not restricted to the Liberal Democrats. better if the principle of the BBC licence fee being Ms Bagshawe: So a fairly serious misquoting there. reserved solely for BBC services had been maintained You have suggested over and over that this settlement at that stage, but I wasn’t there to play a part in requires the BBC to achieve savings of about 16%, those discussions. but the figures that the Committee has in front of us note that you’re already two years into a five-year Q112 Chair: It was observed at the time, I think by efficiency programme and that you’ve identified this Committee among others, that it did represent various savings that the BBC is going to make anyway quite a significant shift in the use of the licence fee. before the licence fee settlement. Would you have regarded that as a red line had you The summary figure that I have here is that prior to been in charge? the settlement you were already planning efficiency Sir Michael Lyons: I think it is taking it too far to savings of £344 million. So can you tell the hypothesise a situation that I wasn’t in, but I think you Committee how confident you are that you genuinely can draw your own conclusions from what I’ve said have to deliver 16% of new savings by 2016 to 2017? this morning. What basis did you use to come up with that 16% Chair: All right, thank you. Louise Bagshawe. figure, as opposed to existing savings you’re already going to make? Q113 Ms Bagshawe: I want to ask you some Sir Michael Lyons: Can I just have first bite at that? questions about figures. But before I do, I’d just like I don’t want to challenge your figures; I’ll just accept to go back to my colleague Paul Farrelly’s last them and understand the point you’re making about question and your answer to it, Mr Thompson. You efficiency savings on efficiency savings. There’s no have just said that was not a fair characterisation of doubt at all that we’ve been through a period of the your answers in that interview, whereas you’ve just BBC being very successful in achieving its efficiency said to this Committee that when the issue of the over- target, both in this licence fee settlement and in the 75 licence fee was being pushed by the Government, years preceding that, so this has continued for a you made calls to various people across the political number of years now. spectrum. What you actually said in the interview was The Trust has been crystal-clear in agreeing the that you made calls to Liberal Democrats, so one of settlement. While we would begin the process of two things is true: either you were completely looking for what could be achieved through efficiency misquoted and you didn’t in fact say that, or you did savings—and, of course, it is down to the Director- make calls to Liberal Democrats. Which is it? General and his team to find those—and while we Mark Thompson: We spoke to politicians of all the would look for radical solutions to providing existing principal political parties, not just the Liberal services in different ways, it was impossible with this Democrats. level of reduction in resources and the new responsibilities taken on to be confident that it would Q114 Ms Bagshawe: Then why in the interview did not lead to reductions in services or indeed, even the you single out the Liberal Democrats? Are you cessation of services. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 31
15 December 2010 Sir Michael Lyons and Mark Thompson
So I don’t want to leave you with the impression that entire BBC. Under the settlement, we’re combining at any point the BBC has said, “This can all be done UK BBC News with World Service. These are all through efficiency savings”. From the moment when opportunities for productivity gains. We believe, with the settlement was announced, I was making it clear the savings, that we can achieve that 16% by a that we would, of course, start from efficiency combination of productivity gains and some further savings. We would search diligently for those and we allocated efficiencies, i.e. focusing the use of the had a good track record but, at the end of the day, licensing more effectively. A current example would we couldn’t guarantee that it wouldn’t have an impact be a proposal we’re discussing with the Trust to on audiences. reduce our spend on our website by 25%, and we believe we’ll end up with a website which is, in some Q117 Ms Bagshawe: In assessing whether this ways, more valuable, more useful and more distinctive settlement is tough but fair, as you both have but with less money spent on it. That would be an characterised it, the Committee will be interested to example of allocated efficiency. So that’s savings. see to what extent you can fund the savings that you In terms of the BBC’s funding, there are a number of have to make through your existing plans—that is, things going on. The level of the licence fee is frozen. your pre-settlement plans. In other words, how tough We expect the number of households paying a licence is this settlement really? How much would you say fee to go on growing and that obviously, to some through existing plans you can already cover some extent, increases the amount of money you get from of the additional costs that you are now being asked the licence fee. We believe that we can make further to absorb? significant strides in terms of the cost of collecting the Sir Michael Lyons: Shall I just say one thing, Mark, licence fee and in terms of further reductions in and then hand over to you for the detail? When the evasion of the licence fee. Depending on a number Trust itself decided to forgo the planned increase in of other assumptions, we would expect commercial the licence fee and to forgo any prospect of an revenue to the BBC to continue to grow fairly rapidly, increase in the final year of the settlement, it was after as it has been growing in recent years. very detailed discussions with the Director-General, We also have a specific objective that is to take the his finance director and indeed, detailed work cost of running the BBC, which is currently 12% of undertaken showing the steps that would have to be licence fee revenue, to 9%—so that’s 3% of the taken for that to be achieved. So already, there is licence fee that we hope to repurpose away from limited room for manoeuvre. Let me give you a overheads into services. chance to come in, Mark. So in terms of the overall economy of the BBC, we Mark Thompson: I will deal, first of all, with the issue have a number of levers for both dealing with rising of savings and then with the issue of the BBC’s prices and also taking on these new obligations. Part income, because they’re not exactly the same thing. of that story is this fairly tough but, in our view, On savings, exactly as the Chairman said, our achievable set of efficiency targets. expectation under all scenarios was that we currently have an efficiency programme with the BBC Q118 Ms Bagshawe: That’s interesting as to how delivering 3% cash-releasing efficiencies each year. you’re going to do it but, in terms of public and That programme of efficiencies that we report on, with parliamentary scrutiny of the deal that you’ve just KPMG independently auditing them in each annual achieved, what this set of questions is driving at is to report to demonstrate they’ve been achieved, say you’ve characterised this as a further 16% cut that continues to the end of March 2013 and the earlier the BBC has to absorb. In a recent newspaper licence fee settlement. interview you, Mr Thompson, identified £300 million Under all scenarios, we assume that the BBC would savings that would have to be made. expect—the BBC Trust would definitely expect and How much of that is new money and new cut the Government would definitely expect—that in any dependent upon this settlement, and how much was future licensing settlement there would be a further set already there in your efficiency plans and budgeted by of efficiency targets. What we’ve done in the current you as savings that you were already doing before this settlement and what we would expect to do in any settlement? How confident can the public be that this future settlement, as is true across the whole public 16% figure is a result of the settlement you’ve just realm, is to divide that between productivity achieved with the Government? efficiencies—i.e. delivering the same programme or Sir Michael Lyons: The 16% figure appears in the same service at the same or higher quality for less Secretary of State’s letter. It is the joint assessment of resource—and then allocated efficiencies, for more the impact of the agreement. It is not affected by, and effective use of the licence fee. That can sometimes doesn’t take into account, the track record in earlier mean reducing services and transferring money from efficiency savings—the efficiency savings and other one thing to another. measures required by the BBC Trust to live within a In terms of agreeing to the target of 16% efficiencies fixed licence fee for the last two years of this over the last four years of the Charter, i.e. beyond settlement. March 2013, we believe that with a combination of So our collective view is that this is a tough settlement these two things and productivity gain, we will have for the BBC that will require changes in the way we major new digital broadcast and production centres do business. We begin by looking for efficiencies. The opening in West One and Salford. Director-General will encourage more radical options In particular, we have a new digital television in the way that services are provided, but we can’t production solution that we’re rolling out across the rule out the possibility that it will have some impact cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 32 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson on the scale of those services, and we’ve never can, increase quality—by the way, the public hidden that. measures for quality of the BBC are high and higher Mark Thompson: I would like to have one more go than they were three years ago and some of them are at this to say that the last licence fee settlement was at historic highs despite efficiencies—it means four struck at a very different moment in the British more years of hard graft and difficult choices. national economy and in the context of public Although I say that there may well have been a expenditure and public efficiency. It was set with the moment of relief from my side of the BBC that we’d Government requiring 3% cash-releasing efficiencies arrived at this point rather than a very different and per year during the settlement. unacceptable point, I myself didn’t whoop and I didn’t So I think one way of looking at this question is: hear anyone else whooping either. If I’ve been quoted imagine we’d had a set piece, traditional licence fee whooping, it’s bad journalism. negotiation or discussion with the Government in 2011. What level of efficiencies would a Government Q121 Mr Sanders: Do you accept that you have in 2011 be looking for from the BBC? What would now, in effect, agreed to top-slicing of the licence fee have been the benchmarks across the public sector? by allowing it to be used for a range of non-BBC It’s probably a slightly bogus concept, but what would activities and services? have been the going rate of efficiencies for other Sir Michael Lyons: No, I don’t and indeed, I’m clear public bodies and cultural bodies? We certainly that if I thought that, we wouldn’t have reached thought that any Government, irrespective of political agreement. All the proposals—and they’re all in the colour, would have been looking for deeper savings public realm; there are no hidden parts of this—are given the broadest sense of funding for the public consistent with the BBC’s public purposes and the sector. BBC Trust oversight of the money is maintained. In this debate over this licence fee settlement, we There is some ring-fencing. There are some detailed thought that 4% firstly was achievable and secondly schemes to be worked out for some components of was reasonable, given the targets and obligations that this and negotiations continue, but against the would have been set more broadly across the public backdrop of the fact that the BBC Trust will insist sector. on oversights of the expenditures and then remaining consistent with BBC’s public purposes. Q119 Ms Bagshawe: You’ve just described the settlement again, Sir Michael, just now, as a tough Q122 Mr Sanders: But how can you say that in light settlement and you’ve told us about your red lines as of the S4C responsibilities you’ve taken on, such as to the over-75 licence fee. There’s some feeling out broadband and other non-BBC local television there that, on reflection, the settlement in fact isn’t services? Surely that is a clear top-slicing of the that tough for the BBC after all and that the licence fee. Government need not necessarily have accepted your Sir Michael Lyons: No, it’s not and you look to the red lines of the over-75s. I have heard it said that there Secretary of State’s letter where there’s a very clear were “whoops of joy” in the BBC Trust when the settlement was agreed. Do you recognise that acknowledgement in the case of broadband being characterisation? consistent with the BBC’s public purposes. If you look at the situation for S4C, a very clear clause included— Sir Michael Lyons: No, I don’t, not at all. This was a tough set of discussions. I’m certainly not aware of admittedly in the sort of provisional sense of what the any celebrations. There’s a tough job to be done and I agreement might look like—that the BBC Trust will think, like many of the other reductions that are being have an oversight role here while protecting the implemented across the entire nation, we’ve yet to see creative independence of S4C. It was the same, the real consequences of those. I don’t want to give frankly, with the very modest contribution to local you any sense of complacency or comfort about the television: a very clear recognition that this will position of the BBC today. essentially be a continuation of BBC partnership- type working. Q120 Ms Bagshawe: What about you, Mr Thompson? Like journalists, politicians sometimes Q123 Mr Sanders: What about the welfare element have to protect their sources but I’m satisfied that I of broadband? heard it from a reasonably informed source. Did you Sir Michael Lyons: I don’t, at the moment, foresee a recognise any sense of celebration when these welfare element of broadband. All of the reasoning negotiations were completed? behind this, following on from the publication of Mark Thompson: No, it’s not true. I think if you ask “Digital Britain”, is essentially about how you enrich whether there was a sense of relief that we’d ended the national economy with the achievement of high up with a tough but workable settlement rather than speed broadband roll-out across the country. being in a situation of some crisis—of having something that we collectively regarded as a wholly Q124 Mr Sanders: You’re not leaving it to the unacceptable imposition i.e. the over-75s on the market. Clearly, you’re intervening— BBC—and if you’re asking whether after this process Sir Michael Lyons: But that doesn’t make it a welfare we were relieved to have what we thought was a tough issue, because there’s a public intervention. I don’t but fair outcome, then I think there was relief. regard the BBC as a welfare intervention. It’s reflected But for the BBC, after many years of stretching in the public purposes of the BBC that it’s about the efficiency targets, trying to maintain and, where we enrichment of society. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 33
15 December 2010 Sir Michael Lyons and Mark Thompson
Q125 Mr Sanders: But the purpose behind the programmes on S4C are BBC programmes such as broadband roll-out is to reach those groups who Pobol y Cwm, our soap opera, and our sports coverage wouldn’t otherwise have been reached if it had been and so forth, and we have a very strong interest in a left to the market. continued thriving Welsh language television channel Sir Michael Lyons: It is those areas that wouldn’t available to licence payers across Wales. otherwise have been reached; it is not individually— Although it’s absolutely the Government’s initiative of course, we’re both speculating here because we to ask for a stake on this funding, I want to be quite don’t have the details of how this is going to be clear that our interest is absolutely working as a implemented. So I probably ought to stop at this point. partner to ensure a flourishing, creatively successful My understanding is that the momentum here is and creatively independent S4C in the future. essentially one of national economic importance. I’ve Sir Michael Lyons: None of my earlier comments in certainly detected no indication that it will favour any way are at odds with that at all. households in terms of their ability to pay. It will essentially be for those areas that might not otherwise Q127 Philip Davies: You’re rather dancing on a pin be served by the market, for which you know it’s here, aren’t you? You’re absolutely desperate not to been designed. accept that it’s top-slicing, but in any kind of public Mark Thompson: It will mean that all these perception of the meaning of top-slicing, which is households can receive BBC public services—our money taken from the BBC and given to something website, iPlayer and so forth. that isn’t a core BBC activity, this is, to all intents and purposes, top-slicing. Q126 Mr Sanders: The amount of money that you’re I’ve no idea why you’re so determined to dance on a going to be putting into S4C will be far in excess of pin pretending that it isn’t. You said that this was the the money you’ll been putting into any other region part of the deal that you were most wary of; the reason of the United Kingdom. How do you justify that, if why you were most wary of it is that you know that that’s not a top-slicing of the licence fee? if it looks like top-slicing and it sounds like top- Sir Michael Lyons: Let’s be very clear. It’s not a top- slicing, it is top-slicing. Why won’t you just admit slicing, because top-slicing would only be the case if what everybody else in the room knows and it was inconsistent with the public purposes and there everybody else in the country knows—that this is was no oversight by the BBC Trust. top-slicing? Let me just come back to the point and say I do Sir Michael Lyons: By your own definition, Mr understand the mission that you’re on to understand Davies—and thank you for putting it in more the settlement, but it’s very important that the BBC accessible language—the key issue is: is the money doesn’t leave you with the impression that we went taken away from the BBC and given to somebody looking to fund S4C. We didn’t. It was part of an else? No, it isn’t. It remains with the BBC. agreement; it was indeed a component of the initial negotiations, which we were most wary of for two Q128 Philip Davies: So you said that S4C of course reasons: firstly, that there might be a danger of top- maintains its operational independence and so has, slicing, and we think we’ve found a way round that. therefore, been taken off the BBC and given to Also, we know that in Wales, the issue of the somebody else who has operational independence. independence of S4C is felt very strongly and the Sir Michael Lyons: No, with oversight from the BBC BBC did not want to leave any suggestion that it was Trust. Let’s be very clear about that. I didn’t use the somehow the pioneer of this proposition. term “operational independence”; what I said was When you enter into negotiations, and you know this “creative independence”—the exact terms of how we well, you sometimes end up accepting things which ensure that the creative independence is protected, so you might have chosen not to. That’s part of the that choice over programme scheduling remains with discussions. S4C, but there is oversight for the BBC Trust to Mr Sanders: Tell me about it. ensure the licence fee payers’ money has been spent Sir Michael Lyons: Sorry, that wasn’t meant to be as wisely. That is the challenge to which the discussions pointed as it no doubt appeared but I just want to be currently taking place have to find a solution. very clear that as we’re sitting here, we’re not somehow sort of sucked into something that leaves the Q129 Philip Davies: You said that local TV was a impression that this was a piece of pioneering work by traditional BBC partnership. In what way is it a the BBC; far from it. traditional BBC partnership and what control is the Mark Thompson: If I might just add about S4C, it’s BBC going to exercise over the local television quite important to realise that as a broadcaster, the services? BBC has a profound interest in the Welsh language. Sir Michael Lyons: In as much as in the debate about We’re the most significant broadcaster in the Welsh local news provision—indeed, local provision has language in radio and indeed, on the web. We’ve been been an active debate over recent years—the BBC making, producing and broadcasting Welsh language itself is clear that audiences would like more local television programmes for more than half a century, coverage and so there is unsatisfied need there. There many decades before S4C arrived. were indeed proposals by the BBC, which you know Although S4C is absolutely an independently branded in the last licence fee settlement were turned down, channel, its core news and current affairs spine is BBC for a local TV service provided by the BBC, and there branded i.e. BBC Newyddion and the other news and has subsequently been a discussion about whether the current affairs programmes. Many of the most popular BBC should be clear about the limits of its local cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 34 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson ambitions to leave room for existing newspapers, There’s a very clear distinction as to why you radios and so on, in a difficult market. would’ve been quite right not to resign if the top- That’s the context and the background of why the slicing on digital switchover was put to you, but this BBC is interested in this and, of course, when under is absolutely—a moron in a hurry could see that this the previous Government there were discussions about is top-slicing. a local news service, the BBC was very clear about Sir Michael Lyons: I would encourage anybody in a its commitment to plurality there and put proposals on hurry just to slow down and look at the detail very the table for a partnership working with ITV to retain carefully. Mr Cairns, I don’t know what you knew those local services. about the last Government’s intentions, and maybe it So that’s the background against which we view this. is more than I knew. The only proposal that I was This was added into the discussions at the suggestion aware of was that money, already planned to be of the Secretary of State, in two parts: a very modest collected from the licence fee as part of the existing settlement but unspent because the digital switchover contribution to the capital start-up costs, which we scheme was not as costly as was originally regard as being in the spirit of the partnership anticipated, would be transferred. working—and indeed, of a much lower value—that the BBC’s offered in the past. The second component Q131 David Cairns: Sorry, but this is very is £5 million a year for the purchase of content, again important. I am not talking about the IFNC in a spirited partnership, but with a clear benefit to the (Independently Funded News Consortia) proposal; I BBC in terms of that content. am talking way back to the previous licence fee Mark Thompson: Could I just briefly—Nicholas settlement under Tessa Jowell, when not only did the Shott published a report this week— BBC get a generous increase in licence fee but an Chair: We are going to come back to S4C and local additional percentage, solely for the purpose of digital television in more detail in a little while, so— switchover, was added to the licence fee which would Mark Thompson: Will you allow me one brief otherwise not have been there. So it was interjection, Chairman? hypothecated, not top-sliced. The BBC had to and Chair: One interjection. agreed to administer it, but that was not money that Mark Thompson: This is Nick Shott this week on the would have come from a penny piece of the BBC’s topic of the BBC in local news, “The involvement of core budget. So there is a very significant distinction. the BBC should help ensure higher quality, Sir Michael Lyons: Let me firstly agree with you that particularly if the use of BBC facilities and training is that settlement provided money for the digital included in a partnership model. The BBC already has switchover scheme. I absolutely agree with that. That precedence in news partnerships with other agencies. was agreed at the time, that’s very clear, and indeed it Training and accreditation of local TV operators will was made clear to the public that the licence fee contribute to the long-term sustainability of the included that element and that it was being collected service.” Later, “The BBC is positively engaging in appropriately. I absolutely agree. the debate and continuing to investigate ways in The difference comes, I think, when we start talking which it can facilitate local TV”, and so on. So I think about money being taken from the BBC and spent what Nicholas Shott is seeing is that a partnership by another party for purposes that are not the public model with significant BBC engagement has purposes of the BBC. I am satisfied—we can argue potentially powerful benefits to it. That doesn’t sound until the cows come home about whether you are like simple top-slicing. satisfied, but I am satisfied—that we have not yet Chair: No. We may explore that further shortly. agreed anything that represents top-slicing. I acknowledge that, if it were the case that the funding David Cairns. for either S4C or local TV left the oversight of the BBC Trust or was deployed in a way which was not Q130 David Cairns: Thank you. Can I join the jig consistent with the BBC’s public purposes, that would on the head of the pin, if there’s room for a small one, be a different matter. on top-slicing? There is a real distinction of principle here which was slightly blocked earlier, to my Q132 David Cairns: My view is that you caricatured consternation. What the previous Government something that wasn’t top-slicing as top-slicing, and proposed was to put an additional supplement on to something that is blatantly top-slicing, you’re saying, an already generous licence fee increase, solely for isn’t top-slicing. the purpose of digital switchover and the help scheme. Sir Michael Lyons: No, sorry, if you think I Far from funding that, what the BBC was asked to do caricatured anything. I was referring to the IFNC. was administer a scheme, but it was not money that was otherwise available to the BBC. It wasn’t a penny Q133 David Cairns: But that was money coming piece from the budget of the BBC that was being from an under-spend of a pot of money that wasn’t asked to be spent on digital switchover, whereas what available to the BBC in any case, so it wasn’t money we have here—call it top-slicing or not—is money not that was being top-sliced from the BBC’s budget at from an increased budget but from a decreased all. budget, taking on all sorts of additional Sir Michael Lyons: The most important thing is that responsibilities from money that the BBC would it was raised from the public under a clear intention otherwise be spending on BBC programmes and that it would be used for the BBC’s public purposes. BBC purposes. There is no getting away from that, and the IFNC cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 35
15 December 2010 Sir Michael Lyons and Mark Thompson proposal was not consistent with the BBC’s public Q136 David Cairns: Just on the local TV question, purposes. which we will take at this point. As the Secretary of David Cairns: I think we’ve got “Riverdance” on the State—and I will call him by his title rather than his head of this pin. name—stands over the equine corpse of his plan for Sir Michael Lyons: There are plenty of us there. local TV, flogging it one last time, he says, “This isn’t Paul Farrelly: It is a Mr Kipling question. going to work without public subsidy—oops, I’ve said there wouldn’t be public subsidy. I know: those sops Q134 David Cairns: Isn’t the truth of the matter that at the BBC, they’ll agree anything. I’ll go and get £25 the Government threatened to shoot you in the head million from them.” I fail to see the distinction or shoot you in the foot? And you chose to be shot in between why you agreed this, and yet it was such the foot, which is a perfectly rational choice, but that an incredible point of principle that the IFNC’s were is what you chose to do with this licence fee completely different. Where is the distinction here? settlement. Mark Thompson: You’ll recall, though, that in the Sir Michael Lyons: Look, did the Government come conversation about the sustainability of Channel 3 looking to take the pressure off them at a time when regional news, the BBC made it very clear that, in they were trying to make very substantial reductions terms very close to the ones set out by Nicholas Shott in Exchequer costs? Of course they did. So there is in his report this week, it was prepared to look at ways no doubt that was the momentum. The BBC then in which, through training, facilities, and the sharing agreed an honourable deal that, in these difficult of rushes, it could help with the sustainability of national circumstances—I can’t say that enough— plurality in regional television programmes. took on some of those expenses, but only where they Our underlying posture on the city-based new services were consistent with the public purposes of the BBC, that are being proposed by the present Government is maintaining the independence of the BBC and with a very similar to our approach to the concerns by the new settlement that provides time to digest those last Government, which in that case was a Channel 3 changes. You can characterise the deal differently. regional news question rather than a city-based That’s the way that I characterise it and I think it’s a question. But the proposition that there are a number fair way to characterise it. of ways in which the BBC, as an effective partner, could help because of the public value we’ve Mark Thompson: If I can just add in terms of the identified in more choice and plurality—in the case of chronologies that I felt convinced by the final the city, the idea of an entire new layer of local knockings of this conversation—we’re talking about services—is there. The BBC is not—and nobody, I late on Monday the 18th and Tuesday the 19th—that believe, thinks that it is—a complete solution to this the over-75s was coming off the table, and the issue, but we believe, as I think Mr Shott believes, that counterfactual for the BBC to consider was not it could potentially be a valuable partner in opening up accepting this deal or facing the over-75s but, in the a new area of broadcasting. final stages of the conversation, either accepting this The debate about whether it’s necessary and deal on its merits or accepting the alternative that was sustainable, and whether there’s a long-term a separate licence fee negotiation with Government on commercial model, is all to come. I think if you were the original plan in 2011–2012. That was the choice standing back, you’d say that there’s been a period of in front of us finally. There were many chops and public policy development in the area of regional local changes before we got there, but that was the choice, broadcasting that is still ongoing and, in a sense, that’s in a sense, facing the BBC Trust. where the music hasn’t stopped yet. But what’s consistent about the BBC’s approach is recognising Q135 David Cairns: I don’t want to reopen the that there is value in plurality and in making sure that discussion we had earlier with Mr Farrelly, but did it people have a good and broad selection of different never occur to you that this was a bluff, and that they local and regional services to turn to, and that the went in with something so big, so ridiculous, so BBC may have a role as a partner and as one of the completely unacceptable that you would be so necessary but not sufficient means by which it might relieved when they took it off the table that you’d be brought about. I think we have been fairly have agreed to any old nonsense that they suggested consistent in our approach to this question across the in its wake? two Governments and across the two different Sir Michael Lyons: I’m eager, and I know it would proposals. be of interest to you, not to go further than I think is appropriate in terms of the detail of these negotiations. Q137 Paul Farrelly: I think it’s very important, But I will go so far as to say that I am satisfied from given what’s happened, not to leave things hanging in all of the discussions I had with the Secretary of State the air. Can I just ask you briefly: we’ve concentrated that he regarded this as a real prospect and that he on the over-75s, but was there anything else so himself wanted to, if it were possible, reach agreement unpalatable on the Government’s initial shopping list with the BBC Trust throughout these negotiations. that it would have crossed a red line? If so, what? There was a point where the negotiations fell down Sir Michael Lyons: Yes, there were. Do you want to and the Government resumed its intention to press for say any more about that, Mark? the funding of the over-75s and, indeed, I believe the Mark Thompson: Certainly there was a suggestion record will show that it went so far as to draft the put to us that the BBC might be a vehicle for showing necessary proposals for that. You will be able to a large amount of information produced by the Central explore that more fully than I will. Office of Information—Government messaging—to cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 36 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson the public. I thought again it would have been a very Q143 Paul Farrelly: That is a serious revelation in serious breach of the BBC’s editorial independence. itself. The consequences for editorial independence at the BBC of being shunted down the road of being a Q138 Paul Farrelly: At your own cost? Government mouthpiece are quite clear. But just very Mark Thompson: We were sufficiently crisp about the briefly, what would have been the consequence of the unacceptability about this. We never really got into BBC’s having to take over that over-75 licence too much detail about what it would mean. I rather component? You mentioned, Mark, that there could assumed it would be using the interstices between have been a sense of crisis. programmes where you often hear information about Mark Thompson: What I meant by that, to explain it other BBC programmes, for example—using that to simply, was because of what the Chairman said broadcast a large quantity of Government information, earlier. It would have been the imposition of an and I said this again— obligation that absolutely both the BBC Trust and the BBC management felt was wholly unacceptable. Q139 Paul Farrelly: Over which you would have Sir Michael Lyons: The implications here: a bigger had no editorial control? quantum—£560 million—growing over time, but Mark Thompson: One assumes not, and as I said, that most of all an expenditure completely inconsistent was another really good example of something that in with the BBC’s public purposes, and as the Director- my view neither the BBC Trust nor the BBC would General said, leaving us presiding over a situation be able to countenance. Historically we have, and we where licence fee payers might in many cases be do occasionally still. On matters of firework safety, funding the better-off for their service. for example, you will occasionally find public Paul Farrelly: Very finally, anybody can go through information films on the BBC, but the idea of the BBC the BBC Council reports, look at all the headings and becoming a significant repository of Government expenditures, and draw conclusions for themselves information content, I thought, would be wholly about what might suffer as a consequence and whether unacceptable to us. the consequences are either intentional, reckless or Meanwhile, commercial broadcasters, for whom this cavalier. has been historically a significantly valuable source of The final thing is a muddying of the waters. We income, would also, quite reasonably, have talked shouldn’t leave any assertion that respected journalists about the commercial market impact of such a move. and media editors have misquoted anybody. Sir But the principal reason was that the BBC is an Michael, did you speak to Nick Clegg in his office? editorially fully independent broadcaster that makes Sir Michael Lyons: No, I didn’t and indeed my line its own decisions and therefore stands accountable for throughout this was that, having decided the its own content. negotiating arrangements that we were going to Paul Farrelly: It would have compromised the follow, we followed them methodically. independence. Q144 Paul Farrelly: Did anyone on the BBC Trust Q140 Chair: When was this proposition made? or the BBC Board speak to Nick Clegg directly, or Mark Thompson: It was raised several times through was it just simply left to other Liberal Democrats to the conversations. use that influence? Sir Michael Lyons: I don’t know the detail of this. I Q141 Chair: During the four-day period? am aware, from what was reported to me, of Mark Thompson: In total, it was an eight-day period discussions across parties so I can confirm what the and it was raised several times. Director-General said there from what was reported to Sir Michael Lyons: And it came back again towards me, and I understood that messages were conveyed by the end. the most effective means.
Q142 Chair: By the Secretary of State? Q145 Paul Farrelly: Are there any notes of Mark Thompson: Yes. I think, to be fair, he was conversations, results of conversations, a ring-around representing the interests of other parts of list with the responsibilities and results within the Government, but yes. BBC? Sir Michael Lyons: Just one other component. I Mark Thompson: I don’t believe so. We were making would like you to see the fullest picture. It isn’t quite phone calls rather than making notes. another proposal, but it is in response to the BBC’s suggestion that we would only be able to contemplate Q146 Paul Farrelly: If we asked for one, would you an agreement in the context of a new settlement. look at providing us with one? There was, throughout these discussions, an attempt Sir Michael Lyons: I don’t think it could be—I don’t to condition that agreement by leaving the scope for think we could guarantee that it would be a further examination of the scale and scope of the comprehensive because it would be reconstructed BBC to be conducted by the Secretary of State from memory. So I am not sure how useful that will himself, and that was another component of the be to you, but you must reflect on it. negotiations where we were clear that that was out of Mark Thompson: I don’t believe there were any the question. There either was a settlement or there contemporaneous notes made on that particular wasn’t, and indeed at one stage the discussions afternoon; as I say, we were using the phone rather faltered over that very issue. than notes. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 37
15 December 2010 Sir Michael Lyons and Mark Thompson
Q147 Chair: We now need to move on to look to the I think we have the direction of travel. We now have future. Yesterday, you published the strategy review the fairly considerable task of turning these broad which states right in the opening sentence that it is a themes and directions into practical plans for genre wide-ranging review of all aspects of the future and services and platforms. strategy of the BBC. It goes on, “We have now completed that work and published the final strategy Q148 Chair: But in terms of the areas you have for the BBC.” In the next paragraph, you say, “We mentioned as where you can seek to achieve the have since had the licence fee settlement, that is likely necessary savings, you’ve talked about cutting to require a more fundamental review of the cost base overheads, about reducing the number of acquisitions and the shape of BBC services than was done in the and about concentrating sport spend on events of course of the strategy review.” So does that essentially national significance. These are proposals which you suggest that you are now going to have to go back to have been talking about in every session when you’ve the starting block and start again? come before this Committee in the course of the last Sir Michael Lyons: No, not at all, but I think if I was five years. Are you saying that you think you can live able to reel the wheel back I probably would not use within the settlement by continuing that kind of the word “review” twice in such short succession. I programme or does it not require a much more had the joy of explaining to the press yesterday the fundamental rethink of what the BBC does? difference between these two exercises. I am very Mark Thompson: What’s interesting is that in the part clear that the review exercise, which this is the final of the conversation with the public through “Putting chapter of—and I think all members of the Committee Quality First”, it has been very clear the public do not will see that you need to read this with the provisional want any diminution of the services offered by the conclusions published in July, the Director-General’s BBC. Indeed, the experience is that even proposals to response to the Trust in terms of “Putting Quality withdraw what, on the face of them, are not relatively, First” and, indeed, the trust’s original challenge. or were not relatively, widely used digital radio Those go together to make a single volume in terms services meet with—and we absolutely understand of the output from the review exercise. It charts a clear this—really quite strong opposition from the public. way forward with clear conclusions, including in this So our challenge is that the public want a broad range latest piece of work some proposals for how the BBC of services from the BBC; there isn’t a single service deals with the increasing array of platform challenges from the BBC that has not got a powerful constituency in the future and continues to get to its audience. What out there. They want a broad range of high quality we are saying, nonetheless, is that there is detailed content from the BBC, and our challenge, if you like, work to be done and done quickly on the is can you meet that public expectation in the context consequences of the 16% reduction in budget. This of the reality of the funding the BBC will have over provides the framework in which that will take place, this period? but it doesn’t by itself prescribe exactly how that’s My answer would be, in broad measure—we need to achieved. do the detailed work; we absolutely, of course, need Mark Thompson: Could I just add one thing, which to have the detailed dialogue about this—you look at is that the themes and priorities laid out in “Putting what we’ve been doing most recently. Two examples. Quality First” are a useful roadmap as we think about First, that reduction in the website; I believe it will how to make sense of the new licensing settlement? leave us with a more valuable website, not a less For example, saying that there are particular editorial valuable one, but we’re taking a significant amount of priorities for the BBC—we mentioned five of them: funding out of it. Look at what we’ve done with delivering the best journalism in the world, factual programmes on television, where, the number outstanding programmes which illuminate the world of hours of factual programming having expanded, of knowledge, music, arts, culture, outstanding we’ve reduced the number of hours, but we have original British comedy and drama, outstanding increased the investment in some of those hours to services to children and a commitment to invest in increase the quality. The public tell us they believe events which in different ways bring communities and we’re doing a better job with factual programmes now the nation together. Those five priority areas, I think, than three or four years ago. are examples of exactly what you want to have in your So there are ways in which you can work the way you mind as you’re making difficult choices about trade- use the licence fee. If you’ve got clear priorities and offs and about where you concentrate your mind. clear values, and put quality first as the strategy So as we reduce the amount we spend on our website suggests, we believe we can deliver a service which and try and make sure we come up with a website is going to be more valuable to the public, but is still which is high quality, distinctive and valuable to the broad. This is still going to be, in my view anyway, public, focusing on what matters most to licence when you get to the middle of this decade, a BBC payers and what they most want the BBC to produce which plays a very big part in people’s lives and offers is going to help us. So I think it is not as if you have a very broad range of services. a strategy that is “that was then, this is now”, and you Sir Michael Lyons: Can I just make one short addition have to start from scratch again. to that because I think the Director-General has clearly The most valuable part of this whole dialogue captured the main issue around public support for all between the Trust and the BBC, and absolutely a BBC services? dialogue with the public, has been about what the Clearly this is a challenge, a 16% reduction. I said public most want from the BBC. As we think about earlier on about the way that both Trust and executive the BBC of 2015, 2016, what’s the direction of travel? are clear that we should go about this by looking for cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 38 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson efficiency gains first. But all that is against the reduce the services that we offer to the public; backdrop that there can be no question of diminution everybody will win and we know the public will of quality, so this is not just going to be achieved by celebrate that. spreading it and generally reducing the quality of the weave across the whole organisation. That will be the Q151 Chair: But I would hope that you would issue of tension in discussions between Trust and approach this not by looking to see whether or not Executive, and where the challenge is for the Director- you can continue to finance everything within the General to bring forward proposals that are settlement you’ve achieved, but rather whether or not acceptable. you need to go on providing all those. The Director- General has talked about doing less and doing it Q149 Chair: The Strategy Review originally better. Is there not a case for putting more investment proposed essentially that—the headlines were—a into fewer channels? reduction in the amount of BBC online provision and Mark Thompson: As I say, when you come to the the closure of two rather small radio stations, one of phrase “fewer channels”, that’s one possible way of which you then decided not to close after all. This doing less better, but there are a few points to make. new— To state the obvious, as we approach digital Mark Thompson: But, if I may say so, Chairman, switchover and more and more households have that’s only true if you ignore, as it were, the most digital television, the value—the audience value and important part of the strategy, which is the broad public value—of the digital channels increases and direction of travel for the BBC’s content. their cost per viewer hour, their efficiency as it were, Chair: I accept that. improves. Mark Thompson: There’s a terrible danger in this; it So as we approach a fully digital UK, the underlying becomes a rather silly business of just counting value of the digital channels increases; it does not different BBC services rather than thinking about the decrease. There is a different argument which says, total value that the BBC offers, which is more to do “Will there come a point in the future when with what you provide within the services than with asynchronous non-linear viewing of television or trying to nominate individual services for—it’s partly listening to radio will be so far established that the because of the lens that’s applied. If I may say so, logic for having a broad portfolio of channels will there’s a slightly pygmy quality to the debate about diminish?”. iPlayer, Sky Plus and many other this. The most important thing is what quality of technical means will mean that you need fewer services, what quality of programmes does the BBC channels. Of course that is possible. That is not a deliver. How you play them out, of course, is transformation. We are already at 90% digital and, as important, but actually it is a second-order issue. I say, our digital channels are performing better and better in that environment and are proving more and Q150 Chair: Nevertheless, it is an important issue more valuable to the public. It is possible that at some and you didn’t in the Strategy Review really address point in the future—though if you listen to media whether or not you needed to have as many television technical analysis, we are talking about many years in channels on as you currently have. Now, in this new the future—the logic for any broadcaster having a document you state that it’s going to be, as I said, a broad portfolio of channels will reduce. more fundamental review and it is likely that it will But the BBC, as you know, are part owners of UKTV, also need to incorporate the reassessment of the which is a set of channels driven by opportunities, television portfolio that we had imagined would take essentially, to show BBC television content again. place around switchover. So you are now going to There are 10 UKTV channels and it is an consider whether or not you need— extraordinarily profitable business because of the Sir Michael Lyons: Well, can I talk about the Strategy appetite for the public to see BBC content after it has Review rather than the Director-General’s proposals? already been through the BBC’s public service The Strategy Review did look at the issue of the channels. I don’t know of a major broadcaster in the current portfolio of television channels, and world that’s thinking of reducing its channel portfolio determined, and made quite explicit, that it was at the moment. premature to consider any changes in that, not least Nothing the BBC does should be beyond the bounds because the public’s viewing patterns, as we know, of debate or conversation as you think about how to have not significantly yet moved away from adherence deliver the best possible service to the public given to linear schedules. So this was firmly put in the future constrained funding. But I’ve given you the example after switchover, believing then we would be clearer of factual programmes. We are delivering a factual about the effectiveness of three and four in winning strategy which gives you a year of science on the BBC audience in a fully digital future and to see whether this year, which gives you next year a year of public behaviours have changed in the meantime. literature programmes on the BBC—or our opera In the context of a 16% budget reduction, the Trust is season, or, this autumn, “The Classical World” on clear that we don’t have the luxury of that; it has to BBC2 and BBC4. be looked at, as indeed does all BBC activity, to make Having ambitious, outstanding content is the key sure that we are confident we can live within this issue. How to make sure the licence is going into the reduced budget. Again, I come back to the fact that best possible content—of course, there are some costs the Director-General can find—and one can only be in having an extra digital channel, the last marginal enthusiastic about the search for it—radical ways of digital channel. But they are very small economic doing business that avoid reduction and any need to questions when you compare them to the underlying cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 39
15 December 2010 Sir Michael Lyons and Mark Thompson point, which is making content. That’s where the Mark Thompson: Yes. The answer is that it may well money goes, is the making of content. It’s what make sense. I want to say, though, that I wouldn’t content you make. You want to get it most necessarily jump to the conclusion that the right conveniently and usefully to the public—that’s what answer for orchestras in the UK is to have one— your channel strategy and services like iPlayer are because once you’ve got one, as it were, you’ve got about—but, if I may say so, it’s only a small part of one and you don’t need to have any more. I think the the picture. fact that some of our great cities have more than one I know it’s convenient for newspapers and others to orchestra is possibly a source of pride and is also of say, “Oh, it’s all about are they going to shut Channel use to the public at large. Clearly, in a moment when X or are they going to have this number of channels public funding is constrained, looking at the ways— or that number of channels”. In terms of getting the like BBC strategy—in which, without losing quality right strategies for the BBC, it is a second order issue. or plurality, you can get more effective use of public money, is a conversation that I’m sure you would find Q152 Chair: Can I just ask you about one very the BBC Trust and the BBC willing to enter into. specific area of BBC activity? This Committee is Sir Michael Lyons: Although I would say that almost coming to the end of an inquiry into funding of arts all of those—well, in fact, all of the orchestras are and heritage. The Arts Council is going to have to take independent bodies, for which Arts Council funding some very difficult decisions about how it allocates its is only a proportion of revenue. The discussions money. One of the areas on which it spends quite a would need to take place with the orchestras, rather lot of money is that of orchestras. The BBC, equally, than with the Arts Council. supports a large number of orchestras. Has there ever Chair: Perhaps we would encourage you at least to been a conversation between you and the Arts Council talk. about the national need for orchestras and whether or Sir Michael Lyons: I hear your encouragement, Chair. not you both need to be supporting as many as you are? Are you looking at the funding of orchestras as Q154 David Cairns: A few questions on S4C. I part of this? spent last Friday in Cardiff with BBC Wales, as part Mark Thompson: Firstly, if I can talk about the BBC of my Industry and Parliament Trust Fellowship, and and the five orchestras that we support, either in part thank you very much for hosting me. BBC Wales is or fully. We’re incredibly proud of our performing really confident; it is going from strength to strength. groups and the point about the BBC, to state the They’re doing fantastic work down there. By contrast obvious, is that we have a very powerful broadcast to an outsider, S4C appears to be a complete basket reason for having our orchestras and for having them case with everybody resigning or being sacked, or available—not just to delight audiences around the they’re at employment tribunals. Did this not strike UK, but also to provide content for radio through our you as another hospital pass from the Secretary of classical music channel, and for BBC television, and State—punting this basket case, particularly in the to be the spine of the orchestral coverage of the light of how well BBC Wales is doing? Proms, which is the world’s biggest classical music Sir Michael Lyons: One never takes pleasure in other festival. people’s discomfort, or at least tries not to. S4C have As the Editor-in-Chief of the BBC, I am intensely had their problems, there is no doubt about that, but proud of our role in music making in this country and their existence—and their continued existence and our support for and relationship with the orchestras health—is a matter of real significance in Wales. The that are part of the BBC. Of course, if it makes sense Secretary of State, in putting the proposal to us—and for all of the funders of orchestras in the UK to come indeed in the agreement—was clear that the current together and look at the future of the UK’s orchestras, arrangements are not sustainable in their present form, I’m sure the BBC would be very happy to take part and so a solution is needed. in such a conversation. I wouldn’t want you to think So I think we start from a common point, that the that that means that we think our orchestras are a current arrangements are not sustainable into the burden; they are a jewel in the crown of the BBC, and future, and that is the context in which the agreement that is how we would enter any conversation. is shaped. The BBC will fund, if we can reach In constrained times, and given the economics of agreement which simultaneously ensures that there is supporting large musical groups, if it is appropriate to a strong organisation here, capable of providing local, have a pan-UK—or, indeed, across-England— creative leadership for Welsh language broadcasting conversation and some work done about the future of and able to satisfy the Trust that public money is being orchestral provision across the country, either across used well. the UK or across England, I am sure you would find So you can put your finger on the challenge. I don’t the BBC very happy to take part in such a think that is beyond us. The BBC sees, given its conversation. commitment, which the Director-General underlined earlier on, to Welsh language broadcasting and its Q153 Chair: You say, “If it is sensible.” I think most existing contribution to S4C output, that it’s not people would think that if you have two publicly inappropriate for us, in the spirit of partnership, to try financed bodies, both giving public money to support and find a solution. orchestras, many of which are in the same place, it would be sensible for you to get together and discuss Q155 David Cairns: Do you understand the feeling between the two of you whether or not you couldn’t in Wales, which is similar to the feeling that you get find some savings. a lot throughout the rest of the UK, that, wonderful cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 40 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson though the BBC is—and I am an enormous fan— that we have in our back pocket the way this is going getting into bed with the BBC is like getting into bed to be done. We do not. We’re entering into these with an elephant. Little old S4C isn’t going to be an discussions with an open mind. It doesn’t rule out— equal partner in this arrangement because the BBC is clearly, we want to be clear that the governing body just a behemoth. That’s what they feel at the moment. of S4C, in whichever form it continues into the future, How can you respond to that sensitivity? has proper responsibilities and that those are clear, and Sir Michael Lyons: Well, with sensitivity, and that is is accountable for those responsibilities. So all of this why absolutely from the moment this became public is being mapped out, but will the Trust be insistent— we have been clear that this was not an initiative putting the detail to one side—that it can see and inspired by the BBC. The BBC sees itself as a part of account for the value of the public expenditure the solution rather than the cause of the crisis, with involved? That is non-negotiable. good work by BBC Wales—and indeed the new BBC Mark Thompson: It must be said, in the BBC we have trustee for Wales, Elan Closs Stephens—and working one of the most brilliant research and development very carefully with local partners, as was envisaged departments in world broadcasting; we have when we agreed to this being part of the settlement. distribution experts and technology experts; we have So you are right to draw attention to the sensitivity, outstanding training capability; and we have the but we do understand that, and that is why we initially largest international sales and distribution house had some reservations about whether this should be outside the Hollywood majors. part of the settlement. In the end, we felt that we could There are lots and lots of ways in which the BBC’s agree—on the clear understanding the BBC was not scale and facilities could potentially help S4C, in a making a land grab for S4C’s activity, but did have a sense, reach some of the confidence and success that requirement to have line of sight on the expenditures I think you are seeing. I very strongly agree that BBC on behalf of licence fee payers. Wales, over the last 10 years under the leadership of Mark Thompson: It is worth saying that the Menna Richards, has gone through a transformation circumstances and the funding are very different, but in terms of its ability to create outstanding and world- I believe that we are making a real success of our beating programming. So the issue is about looking at partnership with MG ALBA to deliver BBC ALBA’s ways in which the BBC can—absolutely in Gaelic television service in Scotland. The BBC— partnership—support, strengthen and help S4C get not BBC Scotland in this case—is in partnership with MG just stability but success and remain absolutely ALBA, an independent body, and between them they independent as a channel. That is our challenge. are delivering what has turned out to be a really successful service. Q158 Philip Davies: To try and put it into accessible I think that, historically, the BBC probably wasn’t terms again, because I think many people will still be always a good partner, but I think we have a longer rather confused by this, either S4C is independent or and longer list now of partnerships we can point to: the BBC Trust has oversight of S4C. I don’t see how Freeview, Freesat, HD, YouView now would all be many people can see that those two things are examples, as would the partnership with the British compatible with each other. It must either be one or Museum, which produced The History of the World in the other; it surely cannot be both. 100 Objects. We now have a long list of partnerships. Sir Michael Lyons: Perhaps I can draw an analogy If you talk to the partners, they’ll say that whatever with the position the BBC enjoys, its independence. It their fears about getting into bed, it turned out not to is independent, but it is independent within a be an elephant. democratic system where everything is subject to the overview of Parliament, and we have clear, Q156 Chair: To return to Philip Davies’s question constitutional arrangements to protect the editorial earlier, about operational and editorial independence. independence of the BBC from time to time, but Sir Michael, you referred to “creative independence”. actually to ensure oversight of the public monies There is a difference between the two? involved. So we live in a world in which you can have Sir Michael Lyons: What we have to get to in the end both things at the same time. This is just a very special is something where there is no question but that S4C model of it. is a separate service—there is no question of its being branded as a BBC service; that is not the intention. It Q159 Philip Davies: So how are you going to ensure is a separate service with its own editorial voice and that the money is spent wisely, and how do you do control, but done in a way that doesn’t breach the that without cramping their style? Trust’s responsibilities for oversight of the licence fee Sir Michael Lyons: The way that the Trust does it payers’ money involved. Otherwise it would become with the Executive, where you have a model that may top-slicing, so it is a very important issue for us to be possibly be relevant, is by the Trust laying down the careful about. strategy advised by the Director-General, but the day- to-day decisions, and the running of that, all of those Q157 Chair: So the suggestion that, for instance, the matters, rest entirely with the Director-General and accountability and the assessment of whether or not his staff. S4C is fulfilling its public purpose—that is something you think must remain a responsibility of the Trust? Q160 Philip Davies: Indeed, so in effect S4C is Sir Michael Lyons: Yes. Let me approach this as going to have the relationship with the BBC Trust that pragmatically as possible, so as not to leave the the BBC has with the BBC Trust—that is, it’s not impression—in an already febrile situation in Wales— going to be independent as S4C; in effect, it’s going cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 41
15 December 2010 Sir Michael Lyons and Mark Thompson to have exactly the same relationship as the BBC has Sir Michael Lyons: Just let me underline that whilst with you. That seems to be more like a takeover than the BBC would like to ameliorate the impact of this independence. very concentrated reduction, in time, we can’t avoid Sir Michael Lyons: In a takeover—and we both know the scale of reductions that the Director-General is this—the motive becomes a critical issue. There is no talking about. There are discussions going on with the motive here for the BBC to take this over. It is Foreign Secretary about whether or not there are other basically an initiative of the Secretary of State with ways that Government could help to make it possible the BBC contributing, in the spirit of partnership, to for these changes to be spread over a longer period, see if it can find a solution for Welsh language which is certainly the BBC’s strongly preferred broadcasting. strategy.
Q161 Damian Collins: I would like to ask a couple Q164 Damian Collins: Have you reached an of questions about the World Service. The Foreign agreement with the Government—or as part of the Secretary has stated that the BBC will provide funding negotiations, was there an agreement reached as to for the World Service at the anticipated level—if you what the level of licence fee funding would be for the do—in 2014–2015. The overall reduction in World World Service by the time you took over full Service funding will be 16% in real terms over four responsibility for that? years. I just wonder whether those figures are your Mark Thompson: There isn’t a formal ring-fence or expectation that you will fund the World Service at a anything like that, but there is an indication in the level that you have agreed with the Government. agreement of the funding level. The interesting thing Mark Thompson: The situation is for the next three is that for a variety of reasons, we believe it is the years, from April 2011 onwards, the World Service right thing to do if we can in year four—that is will be funded—as it has been historically—by Her essentially year four and, in our terms, year five—to Majesty’s Government, FCO, and there is a profile of slightly increase the funding for the World Service. savings over those three years. Under the agreement, the BBC has some flexibility about how it funds the Q165 Damian Collins: I just want to ask finally World Service in year four, but our intention—and about what discussions you had about the nature of this, in the end, must be subject to a formal the relationship you will have with the Foreign Office ratification—will be, if we can, to slightly increase the once you are responsible for funding the World funding for the World Service in year four. Service, because you are signing the cheques, but the But it is worth saying that the particular character of Foreign Office still has a role in deciding what the World Service, the fact that its baseline this year services should be offered—where in the world, what was reduced significantly, in a sense before the CSR languages. If the Foreign Office comes to you and began, mean that the actual savings the World Service says, “We’d like you to offer a new service” in a part is going to have to make over the next three years are of the world that’s not covered, and you say, “We can’t significantly deeper than the headline numbers would afford to”, how do you resolve the situation? suggest. While it is still being paid for under the CSR, Sir Michael Lyons: This was pretty well the final there will, I am afraid, have to be significant stage in discussions, which then led to the settlement reductions in the World Service. letter, which you have seen, from the Secretary of State. Of course, in the context of pressing time, there Q162 Damian Collins: At what sort of level? is some difference of opinion about how we enshrine Mark Thompson: I think a headline number would be this future if the service came to the BBC for that over the next three years, to achieve the savings funding—but a clear national interest, and the Foreign that will be required and to live within its means, we Secretary having a view and an interest in where the are looking at savings of around 19%. BBC was broadcasting overseas. In the end, that was resolved by us agreeing that the Q163 Damian Collins: So more than the— settlement, the exact wording of the agreement Mark Thompson: Slightly more than the headline entered into in 2006—which defined essentially a twin number. This is partly because of some other key operation; the Foreign Secretary would be inevitable rises in costs. And it is also true that the consulted on the direction of the service, but would BBC World Service has a significantly lower capital hold a key which was required to be turned before the budget and is not funded for some of the restructuring opening or closure of any overseas service— costs which will be needed to make the other essentially should just be taken in its entirety and savings—in other words, to pay for the redundancies carried forward. that are an inevitable part of the savings. That was just a pragmatic decision based on what had We are looking at the agreement that we have with worked in recent years, when the funding came in a the Government—although it has not yet been finally different direction and there was therefore no reason laid into the Charter and agreement—which says that to be anxious that it would not work in the future. So the BBC will be allowed over this period to use some in short, it protects the BBC’s independence and the licence fee funds, if it chooses, to support the World decisions made by the BBC Trust, which is explicitly Service in the three years before we get full funding referred to, but it does limit the BBC and it can’t open of the World Service. And we are looking very hard or close a service without the agreement of the at the ways in which we can potentially help the Foreign Secretary. World Service to mitigate the scale of the reductions Mark Thompson: It is worth saying, though, just to that would otherwise be required. restate, that the current conversations about the World cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 42 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson
Service are happening, as it were, with the old form the context of having to make those reductions, so I of funding and under the old constitutional do not want you to regard this as somehow banked arrangement. So in a sense, what we are doing now is and sacrosanct; that would not be true. exactly what we would have been doing if the World Service had simply remained part of the CSR and had Q168 Chairman: We have a few other areas, which not been revamped. The licence fee settlement makes we will just cover relatively quickly. You may be no difference to the present conversation whatsoever. aware that the Committee, a few weeks ago, visited Media City in Salford, and I think it is fair to say we Q166 Damian Collins: And finally, just one thing I were extremely impressed by what we saw. The BBC want to ask. So would it be fair to say that the Foreign has made a fairly substantial commitment to moving Office has a view and a lock on the breadth of the to Salford, but you will be aware that there is a lot services offered—where in the world, what language, more space available at Salford. Do you think you what types of services? You have responsibility for will move further services to the north-west? the funding. If you decide that we could fund those Mark Thompson: I have to say, it has come as a services at lower cost than is being funded at the surprise to some people in the BBC, but the direction moment, as long as the breadth of coverage remains of travel over the last years has been to add services the same, you are free to do that? to the scope in Salford, rather than to subtract. The Mark Thompson: Just to repeat, our intention is to do position, sometimes, of regional moves at the BBC, the opposite. One of the things that will happen over was to start off with a long list and end up with a the next few years is that we are going to look hard— rather small minibus, as it were. But I have been, and the World Service faces some, for reasons that I the Trust is, 100% behind the idea of making this a haven’t got time to go into, tougher efficiency targets very big and substantive base for the BBC. than are implied by the main settlement, partly I believe that for the launch phase of Salford—we are because of the nature of the cost base and the nature now in the process of beginning to get to detailed of the very deep savings we have made in the World mobilisation plans for physically getting the people, Service over the last decade. So it’s one of the hardest the services and the technology in place—we have, as parts of the BBC in which to find savings easily. it were, enough to be going on with, to get that centre There is a big opportunity potentially, in much more up and running smoothly and effectively through closely combining—there’s some dangers and risks as 2011. well—the World Service with BBC News, our However, I certainly would not want to rule out, in domestic news operation, in the new Broadcasting the future, looking at whether there are other parts of House and around the world. Now if that yields, as I the organisation which also might benefit from what hope it will, significant savings by reducing are going to be some of the best facilities any duplications in back office, by enabling us to use broadcaster has anywhere in the world. I would also teams on the ground more effectively across our news look at whether there were partners, whether services, my expectation is that we will use those independent producers or other parts of the creative savings to make sure that the damage to international industries, that wanted to join us, as it were, in Media services is as little as it can be. City to build the broad critical mass of Media City. Moreover, if there are opportunities there, But I certainly do not rule out other parts of the BBC reinvestment to improve international services in the being involved in the move to Salford. BBC. The spirit is not, in a sense, to wind them down and concentrate on domestic services. The international services of the BBC are very important Q169 Chairman: Part of the reason for the move and when we tested with the public the idea of the was to break the impression that the BBC was very licence fee funding the World Service, which we did much London and south-east-centric, and to in the summer because we’ve been interested in the demonstrate that it was a national broadcaster with a idea for some time, it turned out that an awful lot of strong commitment in the north. Would not the most licence payers already believed it was being funded effective signal of that be if you decide that, of your by the licence payer and that broad support for the two main terrestrial channels, one should be based in World Service is very high amongst the British public. the south and one should be based in the north? The public would want to make sure the BBC was a Mark Thompson: Those channels again. We have, as really good custodian of its international services as you know, a number of UK networks. The children’s well as of its home services. channels and 5Live are already to be based in Salford. We have no immediate plans to move other UK Q167 Damian Collins: But as you say, there is no networks, but like everything else, I would not rule ring-fencing of the budget and the budget can go up that out. or down? The challenge with both television and radio Sir Michael Lyons: Absolutely. Can I just underline networks, obviously, is that one of the things you are that, because there is just a danger that indications trying to do as you are running a television portfolio sound like promises. The Director-General and the is to get the closest possible collaboration between Trust have had a discussion about this. We do different networks, and the physical proximity, as it recognise the importance of the World Service. We were, between the networks, has some advantages as are inclined to increase its funding once we take it well. But the reason why we moved the children’s over. We do have a short-term problem to be sorted channels and 5Live, or announced we were going to out, which is urgent and pressing. But all of this is in do that, was precisely that we wanted to make sure cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 43
15 December 2010 Sir Michael Lyons and Mark Thompson this was a centre which had significant broadcasting to offer a view on that? It might be, as long as the clout as well as production clout. So I don’t rule it out. impression is not given that the real issue is competition with the BBC, which is of no relevance. Q170 Chairman: And all the services that you have The issue here is competition with other companies in announced are definitely going to go to Salford? the media sector. So I do not want to go any further Mark Thompson: Yes. than that today. This is all a matter of public record. We will sort it out in terms of the future, and we leave Q171 Dr Coffey: I need to declare an interest, in that it at that. I used to work for the BBC and I am still on a retainer—a financial thing—after an administration Q175 Dr Coffey: Has the BBC Trust made a further error. The BSkyB takeover is under review at the submission to Ofcom or Dr Cable? moment, and I would like to ask the Director-General, Sir Michael Lyons: No, although we were consulted why did you sign the letter opposing News on a subsequent letter to Ofcom by the Executive, Corporation’s takeover of BSkyB without discussing which is exactly the model that we have used in the it with the Trust first? past. Indeed, the Trust is very clear that it is the job Mark Thompson: I did not. The letter does not of the executive to respond to consultation invitations, oppose the takeover. but that is generally done in consultation.
Q172 Dr Coffey: Okay. Sorry, I will rephrase that. Q176 Paul Farrelly: Just very briefly, while we’re The letter that was sent about the News Corporation’s on Sky, I just wanted to raise another issue that is of attempted takeover, with a number of other media burning interest to many households without satellite organisations? dishes. While these exchanges were going on, you lost Mark Thompson: Which suggested there were Mad Men to Sky. In the context of these exchanges, sufficient grounds for it to be a good idea for it to was that just a normal, any-old-contract negotiation, be referred to the competent competition authorities, or do you feel it might have assumed a bit more which is precisely as far as I have ever gone. Indeed, significance for the BBC or for Sky while these it is precisely as far as I go. exchanges were going on? In my view, it is for others—these are complex Mark Thompson: It seems as though we have enough technical issues. Ofcom is considering them currently, mad men in the BBC to be going on with, without and they need to be considered by specialists. I would having to buy more in. The position of the BBC on abide with any decision, of course, that the authorities acquisition, in today’s BBC, is where we can buy reach. The issue is simply about whether or not interesting pieces that we think our audiences will referral was appropriate, and whether there were love, and characteristically, when they are adding sufficient reasonable grounds for referral to be a something particular and of quality to our schedules, good idea. we still think there’s a role. The BBC executive has frequently, as part of our work We think it is much smaller than it has been just in the industry, taken part in debates about, and historically. The BBC I grew up with had a movie or indeed has written numerous letters about, an acquisition pretty much every night, in the middle competition issues. That has been done historically of BBC1. That was the core of BBC entertainment. and there is always a broad briefing to the Trust about It’s a different world nowMad Men is a really good what is going on. Matters which are novel, example of a piece that no other UK player wanted to exceptional and significant, I would normally expect buy. We have had Mad Men for a number of years; to discuss in advance with the BBC Trust. I did not in another broadcaster has believed it is of significant this case—I should have done, I think. I should have economic value for them to pay much, much more discussed it with them. I expressed my regret to the money to take it. My view is, in the case of Mad Men, Trust for not doing so. let them take it—let’s use our money on something else, or let’s use our money on an original British Q173 Dr Coffey: Sir Michael, if the Director- piece. General had been able to discuss it in advance, would I absolutely accept there is the kind of welfare loss, you have advised him not to sign the letter? which is that some people who love that programme Sir Michael Lyons: That is a hypothetical situation, who do not have satellite will lose it. But against that isn’t it? you have to ask yourself a question. Another good example in recent years was Neighbours, which was Q174 Dr Coffey: Do you regret the fact that he a very bright, enjoyable piece, which the BBC had for signed the letter? That is not hypothetical. many years on daytime, and where it was part of our Sir Michael Lyons: The only issue that I really want offering. You wouldn’t have said it was in the absolute to comment on is: should he have discussed it with vanguard of the public service, Reithian tradition, but the Trust? He acknowledges that he should have done; a perfectly good piece. There comes a moment when, we would have been in a better position if he had. This in this case, Channel Five wanted to purchase it, and is the only time we have had this sort of difference of we are suddenly looking at a sum which is about £100 opinion in four years of covering many controversial million, and you think, “You know what, if they need issues. it that much, let them have it”. What I will go so far as to say is this, and this is on a With acquisitions and with other things like top stars, personal basis. It is clear to me there is a competition it is just making sure you are using the licence fee as issue here of some significance. Is it right for the BBC effectively as possible, not damaging. For other cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 44 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson broadcasters, acquisitions are really important. I think Q180 Paul Farrelly: Not just speculation because, there is a separate issue, which is, for some of the Mark, you gave an interview, again to Media public service broadcasters, notably Channels Four Guardian, some time ago, where it was quite clear and Five, acquisitions have been a very important part that bringing in an outside investor might very well of a model which has funded programmes like be an option on the table. Channel Four News. What is interesting is the Mark Thompson: But that is not a new position. Both concentration of firepower and purchasing by Sky, I the Chairman and I have said over some years now, think, is going to make it harder for some of the other that ultimately looking at the capital structure of BBC PSBs to compete for acquisitions. That is a separate Worldwide is not ruled out, and one can see issue, but it is definitely happening in the market. advantages in that, potentially. One can also see risks and dangers. A couple of obvious points. Worldwide Q177 Paul Farrelly: Just a final supplementary on carries the BBC brand on channels and services this. I do not know whether in the context of your around the world. The good name of the BBC is exchanges at the moment, Sky’s targeting of Mad Men incredibly valuable, not least because our World was in any way provocative at all, or in any way Service also carries the brand and the last thing in the putting the BBC in a situation? world you would want is loss of control of the brand. Mark Thompson: At almost the same time, Sky also Secondly, at the heart of the Worldwide model is the announced a very, very big output deal, an archival exploitation and commercialisation of intellectual deal, with HBO. This is part of what feels to me like property developed by the public service in the UK. a broader strategy, which is trying to take as big a Again, another big question mark about any change in position in high-quality acquired programmes as they the status of Worldwide is, how do you protect that? can. I would say broadly, that if that is their strategy Which is why, in a sense, we took the view we did and they have the money to fund it, then so be it. when it was, at least for a while, being discussed— the possibility of some sort of merger between Q178 Paul Farrelly: So there was no feeling in the Worldwide and Channel Four, a couple of years ago. BBC—it has attracted a lot of comment—either from the negotiation team or at the higher levels, that the Q181 Paul Farrelly: Did BBC Worldwide figure in massive bid by Sky for Mad Men was not so much a any shape or form in the Government’s— bear trap as a rather large hole illuminated by a light Mark Thompson: No. saying “Trap”? Mark Thompson: We have had experiences like the Q182 Paul Farrelly: Finally, the licence fee Mad Men experience over more than a decade with settlement does say that the BBC will maintain its Sky, and it is part of their model, which is taking present borrowing limits, not only for the BBC group, programmes which have been discovered and made but also for the BBC commercial holdings. Why into hits by other broadcasters and then, in a sense, should that figure in the licence fee settlement? paying a premium to take them behind a pay wall, Sir Michael Lyons: I think it is because they were so they offer an improved, greater attractiveness for conducted in the context of, essentially, the subscribers to continue to subscribe or to start Comprehensive Spending Review and the subscribing to Sky. This is a tactic, if you like, used Government wanting to be clear about the scale of by pay operators around the world. their obligations in the future, and the scale of all Sir Michael Lyons: I would just say something about public expenditure. That is why that is included in the policy outlined by the Director-General of being the letter, rather than signalling any discussions about willing to give up, whether it is on talent, Worldwide or anything else. programmes, format, acquisitions or sports rights. If Mark Thompson: One of the technical debates was: something that the BBC has cherished and developed could the BBC take on the obligations, some of which becomes too expensive, it was publicly declared more are frontloaded and which are going to be paid for than two years ago, and very clearly by the Trust, that by efficiencies which build up over the course of the that was the route we wanted to go down, to safeguard settlement? Was there going to be a cash issue, where value for the licence fee payer and to underline the the BBC might have to borrow beyond its current distinctiveness of the BBC. statutory limit to fund the settlement? The most important part of the modelling we were Q179 Paul Farrelly: Very briefly, what does the doing was not about the underlying revenue and future hold for BBC Worldwide? savings; it was about the cash profiling of the Sir Michael Lyons: We can help you with drawing settlement. We were satisfied that we could achieve the meeting to a close on that one: not changed. BBC the settlement within the current statutory limits and Worldwide is doing very well; it has had four good we were keen to get that in the agreement. It is no years under the stewardship of the Trust—indeed, change from the present, though. probably the best four years that it has ever had. We Sir Michael Lyons: My advice prompts me to say, have no plans to dispose of that, but we do clearly and I think this is helpful, that borrowing limits are reserve the right, in the interests of the licence fee always a feature of licence fee settlements, so this is payers and the eventual aims of Worldwide, to rethink to some extent just following the model of previous that if ever it seems appropriate in the future. There settlements. is always speculation about it and there always will Mark Thompson: Critically, there is no change on the be, I suspect. current level of it. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 45
15 December 2010 Sir Michael Lyons and Mark Thompson
Q183 Damian Collins: Has the settlement affected Q186 Damian Collins: But as far as you are the amount of support you can give to digital radio concerned, your commitment is the same? switchover and the build-out of digital radio in local Mark Thompson: It is exactly the same. services within the regions? Sir Michael Lyons: What you see in yesterday’s Q187 Damian Collins: In the document put to us announcement is a clear message that the BBC yesterday, you talk about preparing for any potential remains committed to DAB and will continue to build radio switchover. That does not sound like it is going out up to FM equivalents. That is clear. It is involved to happen within the next five years. in discussions with the commercial radio industry and Sir Michael Lyons: That is not a judgment for the Government about local build-out, for which it is not BBC; that is a judgment for Government. The BBC responsible and for which there are not funds is very clear that it is doing its bit in these national currently identified. They were expected to be investments. There remain unresolved issues about undertaken by the commercial operators of those where the investment comes from at a local level. Mux licences. That is not the BBC’s responsibility, but we are part I don’t think I should add very much to that, other of those discussions. Only then, very critically, as the than that, clearly, the Government has determined on Government has conceded, switchover can take a switchover date. Whether that can be achieved is, in place—I do take your point that audience our view, whether the audience is ready for it to be. preparedness will to some extent depend on coverage, but it also depends on choices made about Q184 Damian Collins: I suppose whether it can be replacement television sets, investment in cars and a achieved ought to be linked to the level of coverage whole series of other things, which are not in our gift. as well. The Government has been clear about that, too. In those negotiations you are having with Q188 Dr Coffey: Sir Michael, you announced that Government and the commercial stations, is the you are not seeking a new term as Chair of the Trust. amount of money you have on the table a smaller Clearly, it will be your successor who is in the seat amount, as a result of the settlement, than it was for the next five years and running up to the time of before? the next Royal Charter. Would you like to see any Mark Thompson: No. changes in the governance structure? Sir Michael Lyons: It is clearly another one of the Sir Michael Lyons: I did not design this governance pressures that we have to balance in a tighter structure. My job has been to try to bring it to life and envelope; that is the important thing. I can see that lying behind it is a real challenge for Mark Thompson: I think it is fair to say that the any—which I think was confronted back in 2006: how underlying commitment that we have made and the do you simultaneously strengthen the challenge on the focus we have on the building out of our own national BBC on behalf of licence fee payers in areas like multiplex, is unchanged by the settlement. value for money, serving all audiences with the BBC Sir Michael Lyons: Absolutely. It is a reference to sticking to its public service mission and local, I think, that I was— distinguishing itself from what other broadcasters are Mark Thompson: Quite. But the BBC’s focus has able to do? All of those issues the Trust has articulated always been—the issue about local is that we only and continues to articulate. How do you have in England, and only intend to have, a single simultaneously energise that challenge and protect the BBC local radio station per region. With each local independence of the BBC? And that is the challenge multiplex that has been opened so far, we have taken for any alternative model. a place on that multiplex; we decided that we should We are looking at ways in which you might refine the do that. arrangements; one of the things that are under I have no reason to believe we would not continue to discussion at the moment is the complaints do that as they are built out. But whereas the national arrangement whereby, quite properly, complaints are multiplex, obviously, is a way of getting additional initially considered very close to the people who made BBC services to the public—the digital services— the programme. Subsequently, there is a sort of second there is no such increase in BBC services that we can evaluation if somebody is not satisfied with the offer if you are taking a single station which is response they have had—and over 90% are satisfied analogue and putting it on digital as well. So our focus with the answer they get from the programme is on national build-out, and the broad policy and the makers—by the Executive, looking again at whether commitment over time to absolutely keeping pace or not the editorial guidelines were satisfied. The Trust with the audience, building out nationally, is only comes in on appeal, looking again with them and unchanged by the settlement. Parliament to see whether we can make this any more streamlined, and continuing debate with Mark and his Q185 Damian Collins: Your commitment is clear, colleagues about how we can improve the working and you made that again today, but is it going to take relationships. So there are a number of things going longer to get there now, as a consequence of finding on at that front. some other issues you have to deal with? But this is a perfectly workable way of governing the Mark Thompson: I don’t think so. If you say BBC—indeed, it has got many merits. I’m pleased something slightly different, which is, “Would some that all parties now, and the Government in particular, people have liked some level of additional seem to have accepted that it’s not right to change commitment in the settlement?”, perhaps they would, these arrangements until the Charter renewal comes but it is not there. up in 2017. I would like that to have been conceded cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 46 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson much earlier because I think some of the controversy comfortable in their dealings with the Trust. Equally, about the Government’s arrangements have made it I think there is a problem with that because it tends a bit more difficult to do the job, but we’ve got on to reinforce for BBC staff that the Trust is somehow with it. separate rather than being the governing body of the BBC, which it is. So there are pros and cons. Q189 Dr Coffey: Do you have any advice for your We were temporarily housed in pretty inappropriate successor? accommodation in Marylebone High Street with a Sir Michael Lyons: They firstly have to have a sense completely inappropriate entrance for visitors. What of humour and look forward to the undoubted delights is more, it was a short term let only in as much as the of coming to Select Committee meetings. It’s a BBC wanted to dispose of its interest in that site. We demanding job but most of all I think the job does had no choice but to move. In that context, we took require placing yourself firmly—whatever your views advantage of the very bottom of the commercial about individual programmes or indeed any matter— property market, struck an exceedingly good deal and in the position of chairing the Trust’s oversight of the have now very good and effective working space. I BBC on behalf of the public. I think people have to don’t regret the decision in the context in which it feel absolutely sure that that’s the basis on which they was taken. are coming to the job. No side deals or prior arrangements—you are coming to do this job under this Government’s arrangement. Q192 Dr Coffey: I understand, as you say, the cost Mark Thompson: It’s quite interesting, one of the per square foot was considerably low for central things we ask the public often is how accountable is London. the BBC to licence fee payers? It’s worth saying that Sir Michael Lyons: Yes, absolutely. the number is not only, frankly, dramatically higher Dr Coffey: It’s still an ongoing—and this is part of than it was 10 years ago; it’s the highest since we’ve the challenge the BBC and Government face—that ever asked this question. Although, I know, there’s a you build in cost into buildings, real estate, service wonderful sort of accountability weekly discussion charges and refurbishment of things, when perhaps about the Government to the BBC, the public at large there was existing utilisation of other parts of the seem to believe the BBC is more accountable today BBC, and I don’t see Government— than it has ever been. Interesting. Sir Michael Lyons: Let me say again we did not even begin the search for a new home until we had Q190 Dr Coffey: I was going to ask a little bit there completely exhausted the discussions. Indeed, the about governance. One of the aspects of leadership is original proposition was that the Trust would move to leading by example. How will the Trust be a property which the BBC held on lease and it was contributing to helping the cost savings of the BBC? only when it became clear that the owner of that Sir Michael Lyons: We have that exercise underway property did not have the wherewithal to refurbish the at this very moment. From the very beginning, and of property to any reasonable timescale—recognising course when you set something new up, it’s always this was holding up release of the Marylebone High quite a challenge very soon thereafter to look at how Street property—that we then started to look you might reduce the size of it. We started by a sort elsewhere. of self-denying ordinance of saying, “The Trust will Our first preference would have been to find not grow in terms of a proportion of the BBC’s somewhere within the estate. We believe we struck a income.” We’ve now gone one step further and as very good deal, but let me reassure you on this. The very substantial savings are going to be required of lease only continues until the end of the Charter the BBC, the Trust has already begun work on that. period. Were there to be reconsideration at that time, We’ll have fewer staff; we’ll work to a smaller budget then it’s possible to make different arrangements. This in the future. is a good practical value-for-money solution to the circumstances we found ourselves in. Q191 Dr Coffey: Do you think in hindsight it was unnecessary to take on the new lease at Great Portland Street rather than relocate yourself within the existing Q193 Dr Coffey: Do you think the Trust still needs BBC estate? a new Vice-Chairman in terms of perhaps a bit of Sir Michael Lyons: The decision was taken, before I saving your money—doing more for less, as we’re all arrived, to separate the Trust physically from the being called on to do rationally? BBC. I can see pros and cons in that, if I’m really Sir Michael Lyons: There’s no question of saving honest. It has been remarked on, on a number of money here. The Trust has 12 members, one of whom occasions. For instance, when we, as part of the is the Vice-Chairman, and let me say that I would Strategic Review, invited representatives of the wider have welcomed the existence of a Vice-Chairman over communications industry to come and talk to us, the the last couple of months, both for personal and fact that they did not come through the door of business reasons. That was a pragmatic decision of Broadcasting House I think contributed to some open the Secretary of State which I absolutely understood and very frank discussions which are to the benefit of and did not seek to object to, but it has been a heavier the BBC as a whole. burden in a period, frankly, when we really needed all Indeed, there have been a number of occasions when hands to the tiller. That has been a complication over people very specifically commented on the fact that that period—what is more, there were good and the physical separation has made them feel more positive candidates. cobber Pack: U PL: COE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Culture, Media and Sport Committee: Evidence Ev 47
15 December 2010 Sir Michael Lyons and Mark Thompson
Q194 Dr Coffey: Mark, would you have any advice Q198 Chair: One final matter before we finish. You for Sir Michael’s successor? have defended the Panorama programme about FIFA Mark Thompson: I think that on my side of the fence, and the World Cup, on the basis that this was it’s probably best to say that I think that the clarity investigative journalism clearly in the public interest. and independence of the Trust, and the Trust’s direct Do you think, though, that the timing was right? Do lines of communication with the British public, have you not think it might have been better not to schedule been one of its real strengths. That’s one of the it quite so close to the decision? reasons why I think that the public do feel the BBC Mark Thompson: In my view, this investigative is more accountable. I’d say that’s something which programme depended on information, a piece of has been established under Sir Michael’s leadership documentary evidence, which came into Panorama’s and it’s something to build on. possession only a few weeks before the transmission. They took time to verify the details in the document and also gave some of the individuals about whom the Q195 Paul Farrelly: Sir Michael, it’s clearly, as you programme made allegations a number of say, a challenging position and the picture you’ve opportunities, and a very definite period of time, in painted of eight days of meltdown might provide a which to respond to the allegations. subject for Panorama or a BBC drama from this I’m satisfied this Monday was the first occasion on morning, but that would be remiss because you made which we could have broadcast the programme, and I that major announcement just after you last appeared thought it entirely appropriate to broadcast it in the here. It would be remiss of us not to ask the basic week when the very individuals and the organisation question: what made you change your mind about the programme was about were going to make the reappointment? decision. I believe that not just the content of the Sir Michael Lyons: Well— programme, but the timing, were fully justified. Chair: I think we did cover that the last time you appeared. Q199 Chair: You don’t accept that, broadcasting it a Sir Michael Lyons: Then I don’t need to add to it, do week later, you would have still been putting serious I, Chairman? Look, it’s— issues in the public domain, but you could not have Chair: I’m sorry; we covered it with the Secretary of then been accused of jeopardising a successful bid? State, not with you. Mark Thompson: If I may say so, my duty, as Editor- Sir Michael Lyons: Oh, he knew why? in-Chief of the BBC, or the BBC’s duty, is around Paul Farrelly: I’m being heckled by the Chairman. reporting the truth, and reporting it essentially when Sir Michael Lyons: Why don’t I rely on his answer? we’re able to broadcast it. To delay, suppress or not It might be more precise. No, no, less of the banter. to put it into the public domain—there are A combination of factors. The most important one: circumstances, but you would need to have my wife and I went on holiday this year and I realised overwhelmingly powerful arguments for not doing so. that I need to spend a little less time in London and a There are circumstances— bit more time with her and with other interests that I have. I made it clear when I applied for the job that it Q200 Chair: The Panorama programme on Lord was only on the basis of the Trust role fitting into a Ashcroft for instance? portfolio of other activities. Those have to some extent Mark Thompson: It’s an entirely different situation in continued, but they haven’t had as much of my time the case of that Panorama. Information came to light as they deserve. on the proposed day of transmission that meant we I have other ambitions that I would like to fulfil before wanted to reconsider the content of the programme in I decide to retire. That all pointed towards, at the very the light of the new information. A programme which most, a renewal for a year or two and what became we thought was ready for transmission was no longer very clear to me was that wasn’t really a very ready for transmission because of new information attractive proposition either for the Trust or for the we received. Secretary of State. In that context—and knowing that The kind of circumstances I am talking about are we had some pretty controversial decisions to when, for example, the police are dealing with a announce, not the least of them the Trust’s own kidnap situation and ask for a temporary news decision to seek a standstill in the licence fee for the blackout. On those occasions, you might, if it comes last two years of this settlement—there should be no to attention that broadcasting operational information question in my motivation in that, and so I should about military activities in a war zone might again make it public that I wasn’t seeking a further term. lead to increased risk for British forces on the ground. But you would need to believe, in my view, that there were overwhelming interests. The basic bond of trust Q196 Paul Farrelly: It was an entirely personal the BBC has with the public is that when we find out decision? important things about the world, we broadcast them. Sir Michael Lyons: Absolutely personal. We don’t duck and dive; we don’t wait a week or artificially change it. We broadcast it; that’s what we Q197 Paul Farrelly: It was never intimated to you at do. any stage by the Secretary of State that if you sought reappointment you— Q201 Chair: When you heard members of FIFA Sir Michael Lyons: No, absolutely, there were no saying, “Well it’s all the BBC’s fault”, that didn’t such discussions. cause you any anxiety? cobber Pack: U PL: COE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG02 Source: /MILES/PKU/INPUT/006041/006041_o002_michelle_HC 454-ii corrected transcript.xml
Ev 48 Culture, Media and Sport Committee: Evidence
15 December 2010 Sir Michael Lyons and Mark Thompson
Mark Thompson: If I may say so, what FIFA does, Sir Michael Lyons: Thank you very much. Can I, what it says and how it votes, is entirely a matter for Chairman, thank you once again for the courteous them. My job is to make sure the BBC has got strong, nature of today’s proceedings? That’s greatly independent, impartial and accurate journalism. appreciated. It hasn’t always been marked in the past, Chair: Thank you for what has been a marathon but our last two meetings have been of a significantly session. Can I wish you both happy Christmas? more interesting nature for us. Sir Michael Lyons: Thank you. Chair: Good, thank you. Chair: I might have said this last time, Sir Michael, but if we don’t see you before the Committee again, can I wish you every success in the future? cobber Pack: U PL: CWE1 [SO] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 49
Written evidence
BBC Response to CMS Select Committee Questions, November 2010 Willingness to Pay/Value for Money 1. The Committee would be grateful for information on any research conducted since the 2008–09 Annual Report on the public’s view about the appropriateness of the licence fee as a funding mechanism, its willingness to pay and value for money perceptions.
Response from BBC Management Appropriateness of the licence fee as a funding mechanism In August 2009 TNS repeated a question for the BBC asking about replacing the licence fee with advertising that had been first posed to the public as part of research conducted for the Peacock Review in 1985. This was to ascertain whether, given the vastly greater media choice today, public attitudes towards the licence fee were different now compared with a generation ago. The results were as follows: — In 1985 62% of the public thought it would be a good idea “if the licence fee was replaced entirely by revenue from advertising on the BBC” (31% thought this would be a bad idea; 8% don’t know).1 — Asked exactly the same question in August 2009, a much lower proportion of the population thought replacing the licence fee with advertising would be a good idea—44% (51% thought this would be a bad idea; 5% don’t know).2 Other surveys conducted by ICM and ComRes since the 2008–09 Annual Report was published suggest that the licence fee has more support than any one of the alternative means of funding the BBC. — A poll by ICM for the Guardian in September 2009 found that when asked what they would like to see as the main source of BBC funding, 43% of the public backed a licence fee paid for by everyone with a TV; 30% indicated a subscription-only service paid by those who want to receive BBC programmes; and 24% selected advertising (4% don’t know).3 — In November 2009, ComRes asked a similar question to the public for Newsnight about the preferred method of BBC funding, and this also showed the licence fee to have the highest degree of support at 38%, with advertising on 30%; subscription on 21%; money raised from taxes on 7% (3% don’t know).4 One survey (by YouGov for Deloitte) in July 2009 returned a different result. Asking respondents “Would you prefer to receive adverts across all channels instead of paying a licence fee”, 57% in the survey said yes and 36% said no (8% don’t know).5 However, the question asked did not relate the licence fee to the BBC and was not specifically about how the BBC should be funded. As the findings from the other surveys above show, the licence fee has greater support when respondents consider it in terms of what it is paying for and in terms of how they would prefer to see the BBC financed. In summary, therefore, the results from three national surveys that have asked the public how the BBC should be funded conducted since the publication of the 2008–09 Annual Report (TNS2, ICM3 and ComRes4) suggest that the licence fee, whilst not universally popular, is viewed as the most appropriate means of funding the BBC.
Value for money of the licence fee Research from 2009 shows that the majority of the public—around six out of 10—believe the BBC offers good value for money through the licence fee. — Most recent published figures from autumn 2009/spring 2010 on the value for money of the licence fee from an annual survey by Kantar Media for the BBC Trust show that 58% of the public think the licence fee is value for money (38% think it is not value for money; 4% don’t know).6 — In an ICM poll for the Guardian in September 2009, 63% said the BBC was good value for money (35% disagreed; 2% don’t know).7 1 NOP for the Committee on Financing the BBC (Chairman: Professor Alan Peacock) for the Home Department, 2,047 adults, October 1985 2 TNS for the BBC, 2,163 UK adults 16+, August 2009 3 ICM for the Guardian, 1,001 GB adults 18+, September 2009 4 ComRes for Newsnight, 1,000 GB adults 18+, November 2009 5 YouGov for Deloitte, 2,071 adults 18+, July 2009 6 Kantar Media for the BBC Trust, 2,251 UK adults 15+, autumn 2009 / spring 2010. Respondents answer on a four-point scale: 58 per cent = value for money is the net of 15% saying “£very good value” and 43% saying “fairly good value”. 39% = not value for money is the net of 15% saying “not at all good value” and 23% saying “not very good value” 7 ICM for the Guardian, 1,001 GB adults 18+, September 2009 cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 50 Culture, Media and Sport Committee: Evidence
— And in a ComRes poll for Newsnight in November 2009, 56% said the BBC was good value for money (42% disagreed; 2% don’t know).8
Willingness to pay the licence fee In August 2009, TNS asked the public on behalf of the BBC how much they were willing to pay for the BBC from the point of view of their household and from the point of view of society as a whole. — Almost nine out of ten people were willing to pay something for the BBC (87% thinking about their household and 86% thinking about society as whole). — The average amount respondents were prepared to pay was £19.42 per month (from the perspective of the individual) and £18.32 per month (societal perspective), both higher than the current level of the licence fee.9 The average amount respondents were prepared to pay in this 2009 survey was slightly down on a similar exercise conducted by Ipsos MORI for the BBC in 2008 where the average amount respondents had been willing to pay was £20.43 per month.10 The average willingness to pay figures from August 2009 of £19.42 per month (household perspective) and £18.32 per month (societal perspective) appear higher than willingness to pay figures published by Ofcom in 2008.11 (In the study for Ofcom, the average amount respondents had been willing to pay for the BBC had been £11.56 (personal perspective) and £13.87 (citizen perspective).) However, these figures are not directly comparable because of differences in the methodology used. 2. Why did you not make clear in this year’s Annual Report that the figure “82% of the public would miss the BBC if it wasn’t there” was a 3% decrease on the previous year’s figure of 85% as reported by the Trust Chairman in the 2008–09 Annual Report?
Response from BBC Trust Over the last four years there has been a substantial trend increase in the percentage of those agreeing that they would miss the BBC if it didn’t exist, with only 70% agreeing with this statement in 2007. Figures are likely to very from year to year and the decline to 82% is therefore not necessarily significant. Next year’s survey will show us whether this is the beginning of a downward trend or whether it merely reflects an annual variation
Audience Reach, Share and Viewing 3. In 2009–10, what was the 15 minute reach among 16–34 year olds for (i) each of the BBC’s television services and (ii) the television portfolio in aggregate?
Response From BBC Management (i) The table sets out the 15-minute average weekly reach for each of the BBC television services and the BBC television portfolio overall among 16–34 year-olds in financial year 2009–10. The figures for financial year 2008–09 are also given to match the presentation of the reach figures for all individuals in the Annual Report. With the exception of BBC Two and the BBC News Channel, average weekly reach among 16–34 year-olds of individual BBC television services in 2009–10 is equal to or higher than in 2008–09. (ii) As the table also shows, in 2009–10 the BBC television portfolio reached 76% of 16–34 year-olds in a week on average, slightly up on 2008–09. In addition, across a month, 91% of 16–34 year-olds on average watch BBC television. Across a three-month period, 97% of 16–34 year-olds on average watch BBC television. And across a year, we would expect the figure to be even higher. Source: BARB, 15 mins consecutive average weekly reach, average monthly reach based on BARB months, and average quarterly reach among 16–34 year-olds, financial year 2009–10 (30 March 2009–28 March 2010 minus week 53 owing to BARB panel change).
8 ComRes for Newsnight, 1,000 GB adults 18+, November 2009 9 TNS for the BBC, 1,094 UK adults 16+ (household perspective), 1,069 UK adults 16+ (societal perspective), August 2009 10 Ipsos MORI for the BBC, 4,577 UK adults 16+, May 2008 11 Holden Pearmain for Ofcom, 1,217 UK adults 18+ (personal perspective), 1,257 UK adults 18+ (citizen perspective), June 2008 cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 51
AVERAGE WEEKLY REACH (15-MINUTE CONSECUTIVE) OF EACH BBC TV SERVICE AND THE BBC TV PORTFOLIO OVERALL AMONG 16–34 YEAR-OLDS IN FINANCIAL YEAR 2009–10 (AND FINANCIAL YEAR 2008–09) 16–34 year-olds 16–34 year-olds FY 2009–10 FY 2008–09 Average Average Average Average weekly weekly weekly weekly reach reach reach reach 000s % 000s %
BBC One 9,557 66.3% 9,488 66.2% BBC Two 6,055 42.0% 6,393 44.6% BBC Three 3,937 27.3% 3,725 26.0% BBC Four 709 4.9% 667 4.7% BBC HD Channel 216 1.5% 69 0.5% CBeebies 1,599 11.1% 1,543 10.8% CBBC 466 3.2% 403 2.8% BBC News Channel 671 4.7% 730 5.1% BBC Parliament 15 0.1% 17 0.1% BBC TV portfolio overall 10,944 75.9% 10,783 75.2% Source: BARB, 15 mins consecutive average weekly reach among 16–34 year-olds, financial year 2009–10 (30 March 2009–28 March 2010 minus week 53 owing to BARB panel change) and financial year 2008–09 (31 March 2008–29 March 2009). 4. In its Fifth Report of Session 2009–10, BBC Annual Report 2008–09, our predecessor Committee concluded that the BBC should be more transparent in setting out its reach targets (recommendation 4) In its July 2010 response, the Trust stated that “in line with the Committee’s recommendation we will review the information we provide and consider whether additional measures of reach would give a better indication of performance”. We would appreciate an update on progress.
Response from BBC Trust The relevant recommendation in the Committee’s Fifth Report of Session 2009–10, BBC Annual Report 2008–09 is set out below: The BBC should be more transparent in setting out its reach targets, including the figures for minimum level of reach considered necessary to serve its target audiences. It should also consider publishing additional measures of reach likely to provide a better indicator of the proportion of the public watching entire BBC television programmes, and the time licence fee payers spend on individual services each week, rather than just 15-minute reach figures. (Paragraph 34) This recommendation has two parts. The first sentence refers to reach targets and the second sentence to performance data reporting. The Trust’s response also had two parts. Regarding reach targets we stated that, “The Trust shares the Committee’s objective of transparency but does not set reach targets for individual services. We set an overall target that BBC services as a whole should reach 90% of the population but it is a matter for BBC management to determine how each service should contribute to this target”. Regarding performance reporting we stated that, “The Trust regularly monitors the reach of individual BBC services and publishes its assessment of performance in the BBC annual report. In line with the Committee’s recommendation we will review the information we provide and consider whether additional measures of reach would give a better indication of performance”. The Trust did not therefore undertake to review the use of reach targets. However, it is in the process of reviewing the BBC’s performance reporting framework and the level and quantity of data that is published as part of the BBC strategy review. This review will conclude before the end of this year. 5. According to the Trust’s service review for younger audiences, the average amount of BBC Television viewing for teenagers was 24 minutes a day in 2008, compared with 75 minutes for all individuals. What are the comparative figures for 2009–10?
Response from BBC Management The figures for the average amount of viewing for BBC television in 2008 reported in the BBC Trust’s service review for young people include the following services: BBC One, BBC Two, BBC Three, BBC Four, CBeebies, CBBC, BBC News Channel, BBC Parliament. The BBC HD Channel was not included. The average amount of BBC television viewing (excluding the BBC HD Channel) for 2009–10 are as follows: 23 minutes a day for teenagers (13–19 year-olds) and 74 minutes per day for all individuals. Source: BARB, average minutes viewed per day of BBC television by 13–19 year-olds and all individuals 4+, financial year 2009–10 (30 March 2009–28 March 2010 minus week 53 owing to BARB panel change) and cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 52 Culture, Media and Sport Committee: Evidence
2008 (31 December 2007–28 December 2008). BBC television includes: BBC One, BBC Two, BBC Three, BBC Four, CBeebies, CBBC, BBC News Channel, BBC Parliament and, where described above, BBC HD Channel. 6. In the interests of transparency, will the BBC publish details of its audience share figures in the next year’s Annual report?
Response from BBC Management Audience share figures for BBC services are already made public and are published for television by BARB (http://www.barb.co.uk/report/index) and for radio by RAJAR (http://www.rajar.co.uk/listening/quarterly_ listening.php). The BBC is currently actively exploring new ways in which it can more regularly and consistently share in the public domain data on the performance of its services. The BBC is scoping the nature of the data to be made available and how frequently it will be published. We expect to begin publication next year.
BBC Three 7. What was the cost per user hour figure for BBC Three in 2009–10 excluding the hours viewed of acquired programming and transfers from BBC One and Two?
Response from BBC Management BBC3 COST PER USER HOUR (CPUH) ADJUSTED FOR ACQUISITIONS, REPEATS & IPLAYER 2009–10 2008–09 2007–08
Content Spend (£m) 87.5 87.3 96.5 CpUH as in ARA (pence) 8.6 10.6 13.0 CpUH without acquisitions & other channels’ 16.5 19.1 21.0 output (repeats) (pence) CpUH adjusted to include costs and viewer hours 15.2 17.0 19.2 of BBC Three output on other channels (pence) CpUH adjusted to include viewer hours of BBC 14.0 N/A N/A Three output on iPlayer (pence)
8. In 2009–10, what were the 15-minute and 30-minute weekly reach figures for BBC Three among (i) 16 to 34 year olds and (ii) its overall audience, when acquired programmes and programmes transferred from BBC One and Two are excluded?
Response from BBC Management When acquisitions and transfers from BBC One/BBC Two are removed, 69.9% of the channel’s programming remains (in terms of programme minutes broadcast). This is programming originated for the channel. 15-minute (consecutive) average weekly reach to programming excluding the acquisitions and transfers stands at 2.2 million 16–34 year-olds (that is 57.3% of BBC Three’s average weekly reach to 16–34 year olds before the exclusions) and 6.1 million individuals overall (that is 52.7% of BBC’s Three average weekly reach to all individuals before the exclusions). Unfortunately we are unable to provide the 30 minute consecutive average weekly reach figure as requested. This is because the industry software we use for this kind of analysis would automatically exclude any programme of under 30 minutes when calculating 30 minute consecutive average weekly reach. This would mean that the reach figure generated would exclude not only acquired programming and that transferred from BBC One and Two but also all BBC Three originations of under 30 minutes in length. We would be happy to explain the technical issues in detail to officials. Source: BARB, 15 mins consecutive average weekly reach among all individuals 4+ and 16–34 year-olds, financial year 2009–10 (30 March 2009–28 March 2010 minus week 53 owing to BARB panel change). Reach of BBC Three calculated excluding acquisitions (= films and programmes acquired by the BBC) and programmes transferred from BBC One and BBC Two (= narrative repeats and repeats of programmes on BBC Three previously shown on BBC One and BBC Two and first showings on BBC Three of Spooks as this is primarily a drama associated with BBC One). NB: The definition of 15-minute consecutive reach used for this analysis differs slightly from the channel reach figures provided in answer to question 3. This is because this is a more complex analysis only possible using a different application which bases channel reach on an individual watching the specified minutes consecutively of one programme and automatically excludes programmes of less than the specified reach minutes. This is different from the industry standard application for calculating channel reach which bases reach on an individual watching the specified number of minutes consecutively of the channel—be that of one programme cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 53
or split over more than one programme as long as it is consecutive. This application does not allow analysis at an individual programme level.
Spending in Nations and Regions 9. The 2008–09 BBC Annual Report included a figure (£948 million) for the amount of licence fee spend in the nations and regions outside of London in 2008–09. Why did this year’s BBC Annual Report not include an equivalent figure for 2009–10?
Response from BBC Management In 2008 the BBC Trust required BBC Management to adopt the Ofcom definition of out of London production. In line with the approach taken by Ofcom in its own reporting, the BBC has chosen to report content spend in the nations and regions as a percentage of eligible network output. This is reported in table 2–9 on page—39 of the BBC Annual Report and Accounts 2009–10. — The 2008–09 BBC Annual Report also included a table showing BBC spend on BBC television programmes made in the nations and regions (table 9 page 42 Part Two). The Committee would be grateful for the table updated for 2009–10. The updated version of table 9 (as featured on page 42 of the 2008–09 Annual Report and Accounts) is shown below: Nation 2009–10 2008–09
England £325m £329m NI £41m £36m Scotland £110m £98m Wales £67m £53m Total £543m £516m
10. In absolute terms, the amount spent on output in the nations and regions outside London has decreased over the past three years (from £984 million to £903 million). How has this decrease affected the annual volume of content produced in the nations and regions outside London?
Response from BBC Management The previously advised figure of £903 million was extracted from the accounting records before these were finalised and should in fact have been £960 million. The correct figure of £960 million represents a year-on- year increase when compared to 2008–09, although slightly down on 2007–08. The decrease over the two year period is substantially for the reasons set out on page 6 of BBC Annual Report 2008–09: BBC Trust’s response to the Committee’s Fifth Report of Session 2009–10, namely, changes in the level of overhead allocation, efficiency savings, the move of some Radio 2 operations out of Birmingham and a reduction in expenditure on radio sports rights. The total TV hours produced in the nations and regions increased over the last three years from 8,382 in 2007–08 to 8,890 in 2009–10 Over the same period the total of radio hours produced in the nations and regions decreased from 294,570 in 2007–08 to 282,794 in 2009–10.
Pensions 11. What proportion of licence fee income is it reasonable to contribute towards staff pensions?
Response from BBC Management In line with an increasing number of organisations, the BBC intends to reform its pension provision. It does so within the context of the BBC Trust having set stretching efficiency targets and a requirement to maximise value for money in all BBC activities. Without pension reform, the BBC’s pension costs could rise from current levels of around 3.5% to as much as c10% of the licence fee. The BBC believes that this would be unsustainable and inappropriate for the licence fee payer. The BBC believes that its proposals will reduce the cost to between 5% and 7% of the licence fee and will achieve the right balance between providing affordable, competitive pension benefits, whilst reducing risk and providing value for money to the licence fee payer. In the long-term, once the deficit has been eliminated, the BBC expects the proportion of the licence fee spent on pensions to return to around current levels.
Staff Costs 12. In next year’s Annual Report, will you include a breakdown of headcount by salary band for all BBC employees? cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 54 Culture, Media and Sport Committee: Evidence
Response from BBC Management The BBC is committed to increasing the levels of transparency regarding pay. We already publish the names and actual salaries of the top c100 managers in the BBC as well as details of all senior management pay in salary bands We do not intend to publish a full breakdown of headcount by salary band for all BBC employees in next year’s annual report. However, salary ranges for staff grades are published on our internal web site and we provide information on average salaries annually to the recognised unions. We continue to work towards greater levels of transparency in our pay data and over the next 12 months expect to publish further salary information.
BBC Charities 13. What is the rationale for maintaining no more or less than four BBC charities?
Response from BBC Management The BBC engages in a wide range of charitable activity including its own charities, charity partners and access appeals. The BBC’s family of charities are Children In Need, the World Service Trust, Restoration Fund, Performing Arts Fund and the Wildlife Fund. In general, these charities raise funds from the general public via BBC programming. The exception is the World Service Trust: whilst this charity partners with the World Service it is funded by external grants, mainly from the Department For International Development, the European Union, UN agencies and charitable foundations. There is a strong historical and heritage element to some of our charities. For example, Children In Need was established as a registered charity in 1989 but the BBC has been running televised appeals for children since 1955 and radio appeals for children since 1927. However, some of our other charities such as Restoration Fund, the Performing Arts Fund and the Wildlife Fund have been established more recently in conjunction with specific editorial propositions. These charities were established following advice from the BBC’s independent Appeals Advisory Committee to ensure impartiality and to minimise reputational risk to the BBC. The purpose in setting up a new BBC charity is to ensure that all monies raised are distributed equitably to a basket of charities based on need. There is a clear understanding that some of these charities will raise monies, distribute them and then cease to exist. For example, the Restoration Fund is likely to close down in the next couple of years. Also the BBC is currently in discussions with the Wildlife Fund about whether it can continue to support it with a broadcast appeal. As the Director-General made clear to the CMS Select Committee in September, the BBC does not intend to continue setting up new charities every few years. As the World Service will be funded directly by the licence fee from 2014 the BBC must now consider how the World Service Trust should operate more directly within the BBC’s family of charities. This might also be an appropriate opportunity to look at all our current charitable activity to ensure that the BBC’s direct involvement is proportionate and fully justifiable. We would undertake such a review reporting to the BBC Trust.
Staff Survey 14. The Committee would be grateful for a copy of the results of the staff survey referred to in Q10 of the evidence session. The survey is attached as a separate document.12
External Consultants 15. How much has the BBC spent on external consultants over each of the past five years?
Response from BBC Trust and BBC Management The amount the BBC—both Trust and Management—spent on external consultants over each of the past five years is as follows, excluding secondments, project management and external audit is as follows: Year Total
2005–06 £9,223,310 2006–07 £9,055,154 2007–08 £9,403,821 2008–09 £9,660,972 2009–10 £8,914,211
12 Unprinted paper cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 55
Digital Switchover 16. The BBC Director-General told the Committee that the BBC’s digital television channels “have made a significant difference to people wanting to take digital television up”. What research does the BBC have to support this? — How many homes have taken up digital TV, which otherwise would not have done do, due to the BBC’s digital channels?
Response from BBC Management It is not possible to estimate the number of homes that have taken up digital TV thanks to the BBC’s digital channels. However, the value of digital television content in general—and that of the BBC in particular—in encouraging take-up of digital television has been well-documented, as far back as a viewer’s panel report for the DCMS in 2001: http://www.digitaltelevision.gov.uk/pdf_documents/publications/DCMS_digital_tv_e.pdf Ofcom’s analysis of the impact of the BBC’s new digital services on digital take-up from 2004 concluded that—in the context of Freeview becoming the fastest-growing digital platform—“Overall, it is our view that, although the precise impact is hard to quantify, the BBC can take a substantial amount of the credit for DTT’s success since its relaunch. The BBC’s new services have certainly pushed DTT take up much faster than if they were not there (in both radio and TV).” This report cited evidence from a BBC / TNS survey which showed that “the new digital BBC services were a significant factor in the purchasing decisions of many new Freeview customers”. A DTI report from 2004 into attitudes to digital switchover showed that BBC channels (News 24, BBC Three, BBC Four) were in the top 10 of channels that people in non-digital households would like to receive / try out: http://www.digitaltelevision.gov.uk/pdf_documents/publications/AttitudestoSwitchover_300304.pdf The digital switchover trial conducted in 2005 at Ferryside and Llansteffan, concluded that “The key driver for digital television and for acceptance of the ending of analogue transmissions is the Content, not the Technology. Trial households liked the additional services from ‘trusted’ brands (BBC3, BBC4, News 24, ITV2, ITV3 etc). Digital radio services through the television set top box were also well received”. http://www.digitaltelevision.gov.uk/pdf_documents/publications/Digital_SwitchoverTrial_Report.pdf
Operational Costs 17. Why is it that infrastructure and other non-content costs for BBC television services account for around 22% of operating costs, nearly double the 12% figure for the BBC overall?
Response from BBC Management The basis of calculation of these two figures is different. The 12% represents the proportion of overheads within the total BBC cost base, excluding digital switchover (£406.3 million / £3,475.4 million). The 12% overhead figure forms a part of total Infrastructure and Support cost, and it is this wider category from which the 22% quoted here is derived. Overheads are the key element within infrastructure and support costs, forming approximately half these costs. The infrastructure and support category also include the costs of marketing, press and publicity, libraries, learning support and community events, and of central functions such as the BBC Trust. These central costs are apportioned across the range of BBC services. The allocation to television services for infrastructure and support costs equates to 22% of overall spend allocated to television for 2009–10. A full breakdown of this is shown in note 2b on page 2–101 of the BBC’s Annual Report and Accounts.
Efficiency Savings 18. Are the efficiency savings which the BBC has reported in its financial statements consistent with the NAO checklist for reported efficiency savings within government? — If not, why not?
Response from BBC Trust Under the Agreement the NAO works with the BBC Trust on a programme of value for money studies each year. In this respect the NAO reports its findings to the BBC Trust. As the BBC is not a government department there is no requirement for the BBC to report directly to Government on the efficiency savings it has achieved and have these audited by the NAO. However, the BBC Trust has itself sought to ensure that the efficiency savings reported under the BBC’s current efficiency programme follow recommended NAO best practice. To this end, in 2009, the BBC Trust asked the NAO to review the metrics and systems used by the BBC to monitor the performance impact of the BBC’s Continuous Improvement efficiency programme. These systems had been designed by the BBC cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 56 Culture, Media and Sport Committee: Evidence
Executive taking account of the NAO’s published criteria for assessing efficiencies as set out under the CSR2007 “Value for money” programme. When reporting on their review of the design of the BBC’s efficiency measurement systems, the NAO raised no major issues with BBC systems and metrics, but did offer some recommendations for improvement, as a result of which the BBC responded by making minor changes to the way that performance is reported to the Executive Board and Trust.
Cost Per User Hour 19. Is the cost per user hour figure for each BBC service presented in the Annual Report based on content costs alone, or does it also include distribution and overheads? — If the cost per hour figure is base on content costs alone, why are other costs excluded?
Response from BBC Management The CpUH calculation includes only content costs. This methodology is used to demonstrate more clearly the incremental impact of spending on each service. The distribution and infrastructure and support costs are almost all cost neutral with regard to the prioritisation of expenditure by service.
Audience Perceptions 20. The 2009–10 Annual Report states that in 2009–10, 37% of viewers surveyed agreed strongly that BBC television programmes are “original and different”. What proportion disagreed that BBC television programmes are “original and different”?
Response from BBC Management The full results rating BBC programmes as “original and different” are as follows: — 37.3% agree strongly (the figure quoted in the 2009–10 Annual Report). — 38.4% agree slightly. — 9.6% disagree slightly. — 3.4% disagree strongly. — 11.3% no strong views. Therefore, in 2009–10 the net agree that BBC programmes are “original and different” is 76% and the net disagree is 13%. Source: GfK NOP for the BBC from the Pulse panel of c.20,000 UK adults 16+, financial year 2009–10. Owing to rounding, figures may not sum to 100.
Project Canvas 21. What actions are the BBC taking to facilitate access to Project Canvas for other platforms?
Response from BBC Management Project Canvas has now been incorporated as a joint venture (YouView) in which the BBC is a shareholder with a seat on the board. YouView is a platform in itself and, as such, facilitation of access for other platforms may not be the most technically efficient solution or consistent with the aims of the venture. However, competition is promoted by the platform through consumer electronics equipment manufacturers (set-top box and television set manufacturers can licence the technical specification and brand in order to incorporate YouView into their products) and content providers (who make their offerings available on YouView). The BBC continues to publish its own linear channels and the BBC iPlayer product to a wide range of platforms. 22. How is the BBC addressing concerns that Project Canvas will distort the nascent market for internet- enabled television platforms, and that the marketing budget is disproportionate and tough for rivals to match?
Response from BBC Trust and BBC Management The BBC’s involvement in Project Canvas was subject to a rigorous and broad-ranging approval process conducted by the BBC Trust. This process included both an assessment of the Public Value likely to be created by the propostion and also a Market Impact Assessment. The Trust concluded that the adverse impact of Project Canvas would be more than offset by the public value created by the BBC’s participation. At the conclusion of its approval process the Trust set out conditions designed to ensure the proposition constituted an open standard with the full engagement of the wider industry and minimal entry controls for content providers. Ofcom looked at the market effects of YouView (as a whole, including the BBC’s participation) and chose not to investigate further at this stage. The OFT also concluded that Canvas did not qualify for investigation under the merger provisions of the Enterprise Act 2002. cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 57
Whilst the marketing activity of YouView is a matter for the venture, the BBC is satisfied that the budget set aside for marketing is realistic and consistent with a product such as this. Should the marketing effort become disproportionate, the BBC will use its influence as a board member to ensure the best outcome for licence fee payers. The BBC will follow its existing guidelines for cross-promotion to dictate how YouView will be referred to on the BBC’s own services. 23. What parental control mechanisms will Project Canvas deploy to restrict under-age access to post- watershed materials?
Response from BBC Management Trust approval of BBC participation was conditional on the joint venture providing appropriate information and signposting to enable users to make informed choices about the suitability of content wherever possible. PIN-based access control will be implemented with the user able to change the default PIN during the installation process. For video on demand content, it is up to content providers to flag their own content as inappropriate. YouView will require the PIN to be entered prior to playing any content containing this flag. Content delivered by linear broadcast is subject to compliance with Ofcom’s Broadcast Guidelines whilst video on demand content comes under the remit of ATVOD, which is in the process of creating its own content labelling guidelines. The BBC will continue to monitor the way in which features are implemented and be prepared to exert its influence at board level should any issues arise. It is worth noting that the iPlayer application is already using a warning and opt-in password system to indicate material that might not be suitable for all audiences. We expect that this system will continue to operate within the iPlayer domain on YouView.
BBC Online 24. As far back as 2004 a Government review (the Graf review) concluded that the BBC should redefine the remit and objectives for its online services. The BBC Trust conducted its own service review of BBC online in 2008, concluding that BBC Online required firmer editorial control and clarity of purpose. In July 2010, in its BBC Strategy Review Interim Conclusions, the Trust again reached the same conclusions. Why has it taken so long for the BBC to devise and implement an online strategy with a clear editorial rationale?
Response from BBC Management We have always had a clear editorial rationale for the component parts of BBC Online, which have become key to the delivery of the BBC’s public purposes alongside Television & Radio. Output in areas such as News Online, Sport Online and the children’s sites) have helped to establish BBC Online as one of the UK’s most widely used websites and the only UK website in the UK top 10. The Trust’s review (published 2008) acknowledged the overall success of the service but required changes to its governance to ensure more effective editorial direction and control. In response to the review, management implemented a new system of management controls, including the appointment of a Controller BBC Online who assumed overall accountability for the service and much stronger central management. This included a system of review to ensure that each area of activity was distinctive in relation to the rest of the market. Since the Trust’s review the nature and usage of the internet in the UK has continued to evolve and given this the Trust challenged management to further clarify the scope and remit of its online presence when undertaking the strategic review. Putting Quality First has further strengthened these management controls and sets out a single strategy for BBC Online with three headline commitments: — Halving the number of top-level domains. — Reducing spend against the service licence by 25%. — Doubling the traffic the site sends to others. The Trust is currently considering management’s proposed approach to this strategy, which includes distilling the current range of propositions into fewer, better products and setting demonstrable boundaries for the service, with clarity on those areas of activity which it will not undertake. 25. BBC Online expenditure rose by some 12% from £178 million to £199 million in 2009–10. Why did the BBC Trust allow increased expenditure on the service, given the deficiencies in Editorial rationale and clarity of purpose?
Response from BBC Trust The Trust’s review of BBC Online, which was published in May 2008, found significant weaknesses in management’s financial, strategic and editorial oversight of the service. When the Trust approved increased cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 58 Culture, Media and Sport Committee: Evidence
investment in March 2009 the Chairman said, in a published letter to the Director General, that this approval was subject to a new system of management controls being implemented effectively. It was also made clear that should this new system of controls either appear or prove to be inadequate it would regard this as a serious breach of BBC Online’s service licence requiring an appropriate sanction, which might include withholding authorisation to spend in any particular area of concern. No such breach has as yet occurred but the Trust will be carrying out a review of the new system of governance in 2011 which will include consultation with stakeholders.
Acquisitions 26. How much did the BBC spend on acquired overseas television programming in 2009–10 and what does it expect to spend in the current year?
Response from BBC Management In 2009–10 the BBC spent £93 million on acquired television programming (as in the ARA chart 2–2). Of this £80 million was acquired non UK programming. In 2010–11 the BBC expects to spend between £75–85 million on acquired television programming (it is difficult to be more precise at this stage due to scheduling plans for the remainder of the year and due to some deals yet to be completed). Of this approximately 87% (or £65 million to £74 million) is expected to be on acquired non UK programming. As part of the recent Strategy Review announcements, from 2013 onwards, spend on imported programmes and films will be capped at no more than 2.5p in every licence fee pound.
Complaints 27. The Committee has received correspondence alleging that the BBC complaints process is lengthy and bureaucratic, and places an inordinate amount of obstacles in the way of complainants. How do you respond?
Response from BBC Trust and Management At the first stage of the service, complainants are regularly surveyed independently by IPSOS-MORI (eg Oct–Dec 2009, sample 750). Almost three quarters (72%) say that getting in touch with the BBC to complain is very or fairly easy and this continues to be consistent, suggesting that the first stage of the BBC complaints service is accessible for most people. Between April 2009 and March 2010, 94% of these complaints were answered within 10 working days. A turnaround of 100% within 10 working days is unachievable because of the complexity of some complaints and the need to investigate them. If complainants write back to say they are unhappy with their response, they are told how to take the matter further. Escalation remains low at 0.1%, suggesting the complaints process is working for most people. Complainants who do not consider their complaints to have been satisfactorily resolved at Stage 1 can complain to the Editorial Complaints Unit (ECU) within 20 working days of the final Stage 1 response, though later complaints will be accepted if there is good reason why they could not have been submitted within that period. This is consistent with Ofcom’s practice. The ECU is expected to complete 80% of its investigations within the relevant target time (20 working days in most cases, and 35 working days for a small minority of particularly complex or difficult cases). Inevitably, some investigations take longer to complete than the time provided by the applicable target, but the ECU has consistently achieved or exceeded the 80% figure in recent years. No obstacle is placed in the way of complainants beyond stating their complaints and sending them to the ECU by email or post. However, complaints erroneously sent to the ECU in the first instance are referred to other areas of the BBC for appropriate Stage 1 responses. Having completed an investigation, the ECU writes to the complainant setting out its findings and the basis on which they were reached. It is then open to the complainant to correspond further with the ECU or to appeal to the Editorial Standards Committee of the BBC Trust. In either event, the complainant has an opportunity to address any new points. Editorial management is required to take appropriate action in the light of ECU findings, and a note of the action is published along with a summary of the finding at http://www.bbc.co.uk/complaints/ecu/. The action will include broadcasting a correction where this is appropriate and proportionate. Complainants who regard the action as insufficient are able to appeal to the Trust’s Editorial Standards Committee on that ground. Under Article 24(g) of the Charter the Trust is responsible for setting the framework in which the BBC handles complaints. The complaints framework applies to complaints about editorial issues, fair trading, TV licensing, party election broadcasts, the BBC Trust, the Digital Switchover Help Scheme and general complaints. The Trust reviewed the complaints process in 2008 and keeps complaint handling under review through its oversight role. It is currently reviewing the framework in light of two years experience and cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 59
complaints handling best practice. This review will consider, amongst other things, whether the handling of editorial complaints is timely and whether any simplification of the process is necessary 28. Last year, the Trust’s Editorial Standards Committee answered less than half of the appeals it received within 16 weeks. The Trust’s General Appeals Panel accepted 28 appeals, but only completed two within 60 days. How do you account for this poor performance, and what are you doing to improve it?
Response from BBC Trust The Trust acknowledged in this year’s Annual Report and Accounts that while the ESC had made improvements in handling within its target timeframe, (up from 9% to 48% of appeals handled in time) the figure was still low and that it would be making greater efforts to improve this next year. The Trust is the final arbiter in the complaints process and therefore typically considers complaints that raise complex issues and may require lengthy and sensitive investigation. So far, this year we have seen further significant improvements the ESC has considered 48 appeals, of which 83% (40) were handled within the target 16 week period. In terms of the General Appeal’s Panel the Trust acknowledged that the handling figures were disappointing but that significant progress would be expected this year. This year the GAP has accepted two appeals, both of which were handled within the set timeframe. The Trust Unit has also considered 10 other appeals which it recommended did not proceed to the Panel, of which five received their decision within the 20 working day time frame. The five others all received their decision within 25 working days. The review of the Complaints Protocol will address how the Trust can improve performance against complaints handling KPIs.
Licence Fee Collections 29. Is the BBC monitoring, and seeking to enforce licensing of, those without a TV licence who watch its live streamed output online? — If so, how is it doing so, and has it brought any prosecutions of any unlicensed viewers?
Response from BBC Management A TV Licence is required to watch or record any television programmes which are shown online at the same time as they are being broadcast on television. TV licensing enforces all requirements for a licence including those who watch or record live television online without being covered by a licence. Enforcement in this area is part of the normal routine for Enquiry Officers and they are briefed as to the circumstances that require a TV Licence when someone is watching online. There have been successful prosecutions of people watching online without a licence. The vast majority of people (97%) own a television. Those who are licensed for the main TV at their home address will also be licensed to watch TV at home on a PC. The number of people who only use a PC to watch TV is very small. 30. What changes, if any, would the BBC like to see in TV licensing in light of online and mobile television viewing?
Response from BBC Trust The question of whether such viewing should result in a licence being levied on devices other than TV sets is a matter for the government. However, as noted above in answer to question 29, in terms of online and mobile viewing, as long as a household already holds a licence, then that household will also be covered for viewing online, or on their mobile phone. Given that only 0.3% of people consume TV only via the internet in a week, and across a year that number is virtually zero, we think it unlikely that online and mobile television viewing is a significant threat to the licence fee at present. However, we will continue to monitor trends in this area.
Fair Trading 31. With regard to fair trading, in the Annual Report the Trust criticise the BBC for a lack of properly documented competitive impact assessments. What measures are the BBC taking to address this issue? — What sanctions are imposed on BBC employees who fail to follow fair trading procedures? cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 60 Culture, Media and Sport Committee: Evidence
Response from BBC Trust and Management
The BBC has taken a number of steps to address this issue. These include: — updating its Fair Trading training programme to create greater awareness of the need (and processes) for ensuring that the potential competitive impact of proposed public service activities is properly considered; — updated internal guidance to inform on the approach and appropriate level of documentation required in relation to Competitive Impact assessments; and — enhanced procedures for undertaking Competitive Impact assessments in relation to specific types of activity including the acquisition of sports rights, the BBC’s online activities and syndication activities.
Furthermore, as noted in the Report and Accounts, the Trust’s independent auditor has provided reassurance to the Trust that appropriate improvements have been made.
The BBC takes a proportionate approach when considering its response to a failure to follow Fair Trading procedures, based on the facts of each case. If the breach was considered sufficiently serious, disciplinary action could be instituted. To date no sanctions have been imposed as a result of Fair Trading complaints/appeals.
Letter from Sir Michael Lyons, Chairman of the BBC Trust, 4 February 2011
I refer to your Committee’s evidence session with the BBC on Wednesday 15 December 2010 and Andrew Griffiths’ subsequent letter of 10 January 2011 seeking further information about the BBC’s negotiations over the licence fee settlement with Ministers and Departmental officials.
As you are aware the negotiations over the licence fee settlement took place in unusual circumstances over a very short period of time between Monday 11 October and Thursday 21 October 2010. I undertook to provide a written summary of those events from the BBC’s point of view and it is enclosed with this letter. An exchange of letters between myself and the Secretary of State on 21 October formally documented the terms of the settlement.
During the Evidence session there was discussion about the extent to which meetings between the BBC and civil servants were minuted. I undertook to reflect on the Committee’s request for copies of notes and minutes relating to negotiations over the licence fee settlement with Ministers and Departmental officials which were conducted by the Director General and his team and the Director of the BBC Trust and his colleagues. We checked our records and found no formal minutes of meetings with officials. This reflects the speed and nature of the discussions and the fact that key conclusions were reflected in the final settlement correspondence.
However, I have reflected on what I believe might be helpful to the Committee in understanding the process by which the settlement was reached and the role the Trustees played in approving the settlement agreement. I enclose five documents which are listed in the attached table. I have also provided a brief commentary to assist with cross referencing against the summary of events.
SUMMARY OF EVENTS DURING LICENCE FEE SETTLEMENT NEGOTIATIONS BETWEEN THE BBC AND THE GOVERNMENT IN OCTOBER 2010
Prepared in February 2011 by the BBC Trust at the request of the Culture Media and Sport Select Committee Date Summary of events
Monday 11 1. The BBC was advised (both Trust and Executive) that as part of the Comprehensive October 2010 Spending Review (CSR) the Government was actively considering the funding of free television licences for the over-75s and the funding of the World Service, and was considering transferring funding responsibility for both from the Government to the licence fee. Tuesday 12 2. The Director-General had an exploratory telephone conversation with the Secretary of October 2010 State. 3. There were internal discussions between the BBC Trust and the BBC Executive about the implications of the CSR and about how best to protect the BBC’s independence. Wednesday 13 4. The Director-General and the Secretary of State met to discuss the CSR implications October 2010 for the BBC. With the Chairman’s agreement, the Director-General expressed outright opposition to the over-75s proposal but signalled the BBC might be willing to agree to absorb World Service costs if that could be part of a full licence fee settlement running to the end of the Charter period. cobber Pack: U PL: CWE1 [O] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Culture, Media and Sport Committee: Evidence Ev 61
Date Summary of events
Thursday 14 5. The Chairman called the Secretary of State and reiterated the BBC’s outright October 2010 opposition to free licences for the over-75s being funded by the licence fee. He identified the important principles that he thought the Trustees would expect to underpin any settlement negotiations. 6. The Trustees were updated via a conference call and agreed principles upon which discussions with the Government would continue. 7. Discussions with the Government continued. Friday 15 October 8. Discussions with the Government continued. 2010 Weekend 9. Talks with the Government continued over the weekend and the BBC continued to Saturday 16 and assert the principles agreed by the Trustees on 14 October as well as presenting Sunday 17 indicative proposals to illustrate the financial implications of any settlement. October 2010 10. Concerned that no progress was being made, the Chairman wrote to the Prime Minister and stated the BBC’s objections to the over 75s proposal and the BBC’s intention to oppose it, while reiterating the BBC’s willingness to consider a full settlement including consideration of the proposal that the licence fee payer fund the World Service. [Letter to Prime Minister attached as Document 1]. Monday 18 11. The Secretary of State met the Chairman and then the Director-General. He informed October 2010 them that the Government still had in mind to impose the full cost of the over-75s’ licences on the licence fee. The Chairman and the Director General both made clear the BBC would oppose this, and talks were suspended. 12. At the Secretary of State’s initiative, talks were resumed and continued through the night between the BBC and the Government. A set of draft proposals was prepared for review by the Executive Board and the Trustees. Tuesday 19 13. The Executive Board met and agreed that it would be possible to implement the October 2010 settlement. 14. The Trustees held a teleconference. They noted that the Executive Board had advised that implementation of the settlement was possible. Therefore on the basis that the proposals were consistent with the principles the Trustees had agreed on 14 October, they agreed to the settlement and delegated authority to the Chairman to conclude discussions with the Government. [Trust Minutes for teleconference meeting on 19 October attached as Document 2] 15. Details of the impact of the CSR on the BBC came into the public domain. Wednesday 20 16. The Chairman, the Director-General, and the Director of the World Service met the October 2010 Foreign Secretary to discuss the implications of the settlement for the World Service. 17. The Government announced the results of the CSR. Thursday 21 18. An exchange of letters between the Secretary of State and the Chairman formally October 2010 recorded the licence fee settlement reached. [Exchange of letters documenting settlement attached as Documents 3 and 4] 19. The Secretary of State announced full details of the licence fee settlement in Parliament as part of the Culture Media and Sport spending review statement. [Hansard Column 64WS refers] 20. In a side letter the Chairman addressed the Secretary of State’s particular concerns relating to BBC Worldwide’s magazines, the extent of the BBC’s local news services and the scale of BBC Online by explaining what the BBC was already doing in all of these areas. [Letter from the Chairman to the Secretary of State attached as Document 5] cobber Pack: U PL: CWE1 [E] Processed: [16-05-2011 10:52] Job: 006041 Unit: PG03
Ev 62 Culture, Media and Sport Committee: Evidence other aspects of the settlement meeting on 19/10/10 settlement the BBC. FOIA. to the Prime Ministerthe BBC Chairman on the over 75’s licence and Secretary of StateSecretary of State State recording licence fee letter from Secretary of State relating to scale and scope of has already been disclosed under SETTLEMENT DISCUSSIONS IN OCTOBER 2010 DOCUMENTS PROVIDED TO THE CULTURE MEDIA AND SPORT SELECT COMMITTEE BY THE BBC IN FEBRUARY 2011 RELATING TO LICENCE FEE DocumentNumber Date Document12 17/10/103 Type 19/10/104 21/10/105 21/10/10 Letter 21/10/10 Document Name Trust minutes Letter Letter Description of Document Letter Letter from Minutes the of BBC meeting Chairman Letter outlining BBC’s Comment position Has been disclosed Letter under from FOIA. Secretary of State to Summarises discussion at Formal Trust letter from Letter Secretary from of Published BBC on Chairman Trust to website Published on Letter Trust from website BBC Formal Chairman response to to settlement Addresses separate issues Published on Trust website Not published on website but Culture, Media and Sport Committee: Evidence Ev 63
Supplementary written evidence submitted by the BBC BBC Follow-up to Oral Evidence Session At the end of the 7 September oral evidence session, Mark Thompson offered to write to the Committee with the list of the comparators the BBC uses to benchmark BBC Worldwide for Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Profit Before Interest and Taxes (PBIT). Below are the figures detailing our operating margin, EBITDA and EBITDA margin for 2009/10 alongside those of a number of other broadly comparable media companies. Therese Coffey MP referred to BBC Worldwide as having an “EBITDA margin of 14%”. We assume she was referring to the figure given on page 2–86 of the BBC Annual Report and Accounts 2009–10 which is actually BBC Worldwide’s operating margin pre-exceptionals [rounded up from 13.5%]. We cite this measure publicly, rather than EBITDA, as we view it as a better indicator of financial performance. The figures show BBC Worldwide is performing strongly in its sector (above the mean) and delivering healthy margins. 2009–10 % op profit before exceptionals
Comcast 20.2% Axel Springer AG 16.1% Vivendi 14.1% BBC Worldwide 13.5% Pearson 13.4% News Corp 11.3% Bertelsman 10.3% BskyB 9.2% RTL 8.9% ITV 7.6%
% EBITDA EBITDA Margin
Comcast 13,714 38.4% Vivendi 7,683 28.3% Pearson 1,264 22.5% BskyB 1,192 20.2% BBC Worldwide 191 17.8% News Corp 5,228 15.9% Bertelsman 2,003 13.0% Axel Springer AG 334 12.8% ITV 240 12.8% RTL 564 10.4%
7 October 2010
Letter to the Chairman from Rt Hon Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport Dear John, Thank you for your letter of 17 February. I am grateful to you for providing the opportunity for me to contribute evidence to the Committee’s report on the BBC Annual Report 2009–10 and the licence fee settlement. I will respond under your two headings.
Negotiations The discussions with the BBC on the licence fee arose from discussions undertaken by Government in the context of the Comprehensive Spending Review. Officials in my department informed the BBC on 11 October that the Government was assessing the scope for the BBC to take financial responsibility for some areas of spending currently covered by the Exchequer. Transferring the funding of TV licences for those aged 75 and over and the World Service from the Government to the BBC were two of the options under consideration. These options arose from Ministerial discussions and, in line with the Coalition’s approach to policy making, both Liberal Democrat and Conservative Ministers were involved. Ev 64 Culture, Media and Sport Committee: Evidence
I attended four meetings with the BBC in the course of securing the licence fee settlement and met the Chair of the Trust in one of these meetings. The Chair did not personally attend all the meetings but I was satisfied that those with whom I was dealing had the full authority of the BBC and were in close contact with him. From the initial discussions with the BBC on the BBC’s contribution to reducing the fiscal deficit, it quickly became clear that it was in the interests of both parties and of licence fee payers to finalise a new licence fee settlement. During the course of discussions, we discussed several issues including the scale and scope of the BBC’s commercial activities and the future carriage of public information broadcasts. Given the scale and pace of the spending review and licence fee agreement discussions, it was not practical to have in-depth discussions with all interested parties or undertake an indepth impact assessment. However, during four years as a frontbench spokesman for media issues I have publicly set out my views on the BBC and direction of travel in relation to the licence fee and had thought long and hard about these issues. My priorities were to secure a contribution to reducing the fiscal deficit and to ensure that the deal represented excellent value for money for licence fee payers in line with the principles I had previously articulated. I am delighted that the settlement achieved all of those objectives.
Outcome The outcome of these discussions is reflected in the settlement letter that I sent to the Chair of the Trust on 21 October.13 This letter covers both the policies agreed and the additional funding responsibilities. The calculation of a 16% saving over the four years is expected to be achieved through the BBC absorbing these additional responsibilities coupled with a freeze in the level of the licence fee until 2016–17. The BBC Trust set out its view on issues relating to the future scale and scope of the BBC, in light of the BBC’s strategy review completed last year. The BBC’s position was confirmed in a letter to me of 21 October from the Chair of the Trust.14 I do not believe I have changed the parameters for future negotiations between the BBC and Government or restricted in any way the Government’s ability to negotiate in future. The deal represents excellent value for money for licence fee payers who will pay less in real terms for their TV licences between now and 2016–17. In particular, licence fee payers will benefit from the transfer of the World Service to licence fee funding as this will increase the BBC’s ability to maximise scope for sensible efficiencies and economies across the whole of the BBC family. Licence fee payers will continue to have access to the World Service. From 2014–15, the Government will relinquish control over the funding of the World Service but, as now, the written approval of the Foreign Secretary will be necessary for the opening or closure of any foreign language service. In response to your question about supporting non-BBC services, the settlement means that the licence fee will be used to support non-BBC services to a far greater extent than at present. Some of the provisions in the BBC Agreement need to be amended to give effect to the changes arising from the licence fee settlement. On 14 February, I laid in Parliament an amendment to the BBC Agreement that ensured the BBC Trust can decide to use licence fee money to contribute to the cost of restructuring the World Service ahead of it transferring to the licence fee in 2014–15. The BBC was keen for this amendment to be made as soon as possible in order to give them as much time as possible to plan for the changes. My officials are working closely with those at the BBC on amending the text of the existing Agreement, where it is necessary to do so, to give effect to the other changes and I expect to make an announcement on the amended Agreement as soon as possible. This will cover the arrangements in relation to local television and the roll-out of superfast broadband, as well as implementing the other changes set out in the letter of 21 October. The Agreement is an agreement between the Secretary of State and the BBC and, therefore, changes have to be made by mutual consent. I do not intend to consult on the amendments to the Agreement, in that the amendments are formalising what has already been agreed with the BBC in the licence fee settlement. The one exception to this is in relation to the new partnership arrangement with S4C. I proposed the new arrangements in relation to S4C because the existing funding model is unsustainable in its current form and it was in the best interests of the future of Welsh language broadcasting, to which I am fully committed. In taking forward the work to implement the new partnership that is described in the settlement letter, my officials are in discussion with the BBC and S4C and have sought views from other parties, including independent producers in Wales and officials from the Welsh Assembly Government. Rt Hon Jeremy Hunt MP Secretary of State for Culture, Olympics, Media and Sport 9 March 2011
13 http://www.bbc.co.uk/bbctrust/assets/files/pdf/news/2010/sos_letter.pdf 14 http://www.bbc.co.uk/bbctrust/assets/files/pdf/news/2010/jh_letter.pdf Culture, Media and Sport Committee: Evidence Ev 65
Letter to the Chairman from Amyas Morse, Comptroller and Auditor General, National Audit Office, 22 October 2010
NEW ARRANGEMENTS FOR NATIONAL AUDIT OFFICE ACCESS TO THE BBC’S ACCOUNTS
Thank you for your letter of 7 October asking for my assessment of the recently announced agreement between the Government and the BBC on National Audit Office access to the BBC’s accounts.
I thought the most helpful way of responding to the points you raised would be to let you see the letter I have sent to the Secretary of State today (see attached). I should also like to take this opportunity to acknowledge the valuable work you and your Committee have been doing to strengthen scrutiny of the BBC’s finances.
If there any matters you would like to discuss I would, of course, be happy to do so.
Letter to the Rt Hon Jeremy Hunt MP, Secretary of State, Department for Culture, Media and Sport from Amyas Morse, Comptroller and Auditor General, National Audit Office, 22 October 2010
Thank for your letter of 22 September about National Audit Office access to the BBC. I wanted to take a little time to reflect before responding.
I should start by registering my concern that we were only informed of the Government’s planned announcement a few days before it was made. These are matters that directly concern the work of the National Audit Office, and I must therefore ask that we are involved from the outset in the discussions about the wording of the relevant parts of the formal Agreement between the Government and the BBC. As an Officer of the House of Commons, I will be looking for an outcome which is consistent with the Comptroller and Auditor General’s ability to support Parliament by providing independent and unfettered scrutiny of the BBC.
I am grateful for confirmation that you have agreed in principle with the BBC that the Comptroller and Auditor General will be able to decide which areas of BBC spending will be examined by the National Audit Office. This is a positive step, although “spending” does not capture the full scope of our interest, which is in the use of all BBC resources and includes revenue generating activities, as they both exploit BBC resources and contribute to them.
I also welcome your assurance that we will have the right of access to any information required to carry out our programme of work, and this right should extend to the information we need to identify the areas to be examined. I should add, however, that without a statutory right of access, we will continue to have no right of access to information covered by the Data Protection Act.
I agree with you that the position on editorial matters needs to be clear. Just as we do not question the merits of government policy objectives, we do not and should not question the BBC’s editorial judgements. I have previously made clear to the BBC that I am happy to work with them to come to a working definition of editorial policy which is not so broad as to inhibit or prevent proper audit scrutiny of the way BBC resources are used.
You envisage a “requirement” that we inform the BBC Trust before deciding our programme of work. In a public statement on 22 September the BBC Trust went further and referred to the National Audit Office choosing its programme “on an annual basis”. As your letter is silent on who will decide the timing of value for money work, it might be helpful to clarify what I have in mind. The Comptroller and Auditor General’s ability to decide what to do and when to do it go hand in hand. The former is worth little without the latter. We would expect to discuss our plans with the BBC Trust and the BBC Executive so we could take account of their views, as we do with other organisations, but I would be unwilling to commit to annual plans. We must have flexibility to react to changing circumstances and issues of the day.
I am disappointed that it remains your view that my reports should reach Parliament via the BBC Trust and the Secretary of State. This means that the Comptroller and Auditor General will not control the timing of publication. It raises the possibility that the BBC Trust or the Secretary of State could redact material or indeed not publish the report, and, under current arrangements, it means that the BBC, uniquely, responds to the issues raised by our reports before they have been considered in Parliament.
I have shared with you previously my view that the Comptroller and Auditor should be the external auditor of the BBC’s accounts, an appointment which the BBC Trust can make only with the approval of the Secretary of State. This is more than a point of principle, as we will not be as well placed to identify and deliver a fully informed programme of value for money work as we would be were we the BBC’s external auditors.
I understand that there are difficult issues at play here and welcome your commitment to monitoring the effectiveness of the arrangements proposed in your letter. I am concerned, however, that audit access which depends on continuing agreement between Government and the BBC rather than on statute leaves important matters unresolved and may mean that in practice the Coalition’s proposals may not take things much further forward in terms of independent scrutiny of the BBC. Ev 66 Culture, Media and Sport Committee: Evidence
Finally, I should tell you that John Whittingdale, Chair of the Culture, Media and Sport Committee, has written to seek my views on the Government’s proposed changes. I thought the most straightforward way of dealing with his request would be to let him see this letter to you and so I am sending him a copy. I am also copying the letter to Jonathan Stephens.
Letter to the Chairman of the Culture, Media and Sport Committee from BBC Director General Mark Thompson, 5 April 2011 Thank you for your letter of 24 March, in which you express disappointment that banded information on BBC talent salaries is not yet in the public domain. Please accept my apologies for the delay in replying. While Sir Michael Lyons committed the BBC to greater transparency over talent salaries in July 2010, he also identified a number of legal and contractual issues to be overcome before the information could be released. Our legal and business affairs teams have been working to address these and we reported back on our progress to the BBC Trust in January. At that point a decision was made to publish the CMS Select Committee’s bands in the forthcoming Annual Report. At that time we will publish the data for two full years to demonstrate the continued downward pressure we are applying to talent fees. We were unable to release this any earlier as we only reached the end of our financial year 2010–11 last week. The 2010–11 spend will now be audited alongside the rest of the BBC’s financial statements and will be completed by June, ahead of publication in early July. I hope this reassures you that we are making good progress with the Chairman’s request.
Printed in the United Kingdom by The Stationery Office Limited 05/2011 006041 19585