House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Ninth Report

NINTH REPORT

The Culture, Media and Sport Committee has agreed to the following Report:

REPORT AND ACCOUNTS OF THE BBC FOR 1999-2000

Introduction

1. The British Broadcasting Corporation (BBC) spends over £2 billion a year and the vast majority of its income derives from a compulsory regressive levy in the form of the television licence fee. The BBC is an organisation that aspires to and sometimes attains a leading role in the United Kingdom's cultural life. It is right that it should be subject to close public scrutiny.

2. In the course of this Parliament this Committee has been concerned with how the BBC can become more accountable to the public and to Parliament in ways that do not conflict with its independence. In the Autumn of 1998 we took evidence from the BBC on its Report and Accounts for 1997-98 and subsequently produced a Report on that subject.[6] In the Autumn of 1999 we conducted a wide-ranging examination of the BBC's ambitions for the digital era in the context of a review of the future level of the licence fee.[7]

3. This year, we again took evidence from the BBC on its Annual Report and Accounts, at the BBC's suggestion. This hearing took place soon after the publication of that document. On 13 July 2000 we examined Sir Christopher Bland, the Chairman of the BBC Governors, Mr Greg Dyke, the Director-General, Dame Pauline Neville-Jones DCMG, a Governor, Mr John Smith, Director of Finance, Property and Business Affairs, and Mr Mark Thompson, Director of Television. We are grateful to the BBC for proposing that it give oral evidence to this Committee on its Report and Accounts for 2000-01.

BBC One and BBC Two

4. It is right that any consideration of the BBC's work should start with BBC One and BBC Two. These two television channels account for over half of the BBC's total expenditure.[8] When we last considered the Report of the BBC we observed:

Sir Christopher Bland quoted this earlier comment by this Committee and considered that it translated as a call for the "primacy" of BBC One: "If there is any clear correlation between one of our services and the general public support for the BBC, it is how BBC One does".[10]

5. The BBC Governors sought in the Annual Report for 1999-2000 to re-affirm BBC One as the BBC's "flagship public service network".[11] In the same document, the Governors listed what they saw as some of the successes of the BBC One schedule, but noted that "this strength was not sustained throughout the year" and then stated that "BBC One is not held in the same degree of affection by the public as it once was. Winning that affection back is vital to the future success of the whole BBC."[12] As Sir Christopher Bland expressed it in evidence: "We need to raise the overall level of the BBC's performance further in order to fulfil our overriding public service objectives".[13]

6. The BBC aims to meet this objective through improvements to programming. Sir Christopher Bland stressed the BBC's dependence upon "absolutely outstanding popular but distinctive programming on BBC One".[14] Mr Thompson referred to the need for BBC One to demonstrate greater consistency in its creative strength.[15] Mr Dyke indicated that a "disproportionate amount" of the additional income coming to the BBC from the licence fee settlement and from savings would be devoted to traditional services.[16] We welcome the renewed commitment by the BBC to its core television services—BBC One and BBC Two—and to the flagship role of BBC One in particular. We consider, however, that the weaknesses that the BBC Governors note in the recent performance of BBC One are issues for which they themselves hold the ultimate responsibility.

7. At the same time as placing renewed emphasis upon its traditional core services, the BBC has also chosen to spark a debate that has a bearing on whether the BBC itself believes that its traditional services can retain their distinctiveness in the future. This issue was brought to prominence in a speech by Mr Thompson in Banff, Canada, in early June. His main contention on that occasion was that "public service television has to change—and change radically—if it is to remain relevant and viable in the digital era".[17]

8. In the past, scheduling for public service channels has been based to some extent on the notion that an audience can be attracted for worthwhile but less popular genres of programme by placing them between more popular programmes on the basis that viewers have a loyalty to a particular channel in the course of an evening. This process has been referred to as "hammocking".[18] The main contention underpinning Mr Thompson's speech in Banff was that these habits were changing, particularly in digital households. Viewers with digital television are becoming far more willing to change channels and to avoid certain types of programming.[19] Digital electronic programme guides also encourage the tendency to select channels by genre—such as children's channels and sports channels—thus providing a new challenge for broadcasters such as the BBC whose main channels are not genre-based.[20] In addition, from this Autumn, there is expected to be an additional impact from the introduction on the British market of a new home video-storage device that enables viewers to record up to 30 hours of television on hard disk and to select programmes for viewing through an electronic programming guide, thus making "self-scheduling" easier.[21] This device is expected dramatically to change the way some people watch television.[22]

9. Mr Thompson was keen to dispel any notion that he had suggested at Banff that "BBC One should become an entertainment channel and that BBC Two should become a news and documentary channel".[23] He said that he had simply argued that it was important to look hard at the "shape" of the BBC's channels in the light of current and prospective changes.[24] Mr Dyke also sought to make clear that the consequence of the re-evaluation would not be a BBC One "that is devoid of news, current affairs [or] factual programming".[25] Mr Thompson re-affirmed that "current affairs, political debate, news, regional news all should have a place on BBC One" and considered that there was an argument for enhancing regional and current affairs programming on BBC One.[26]

10. At present, the debate initiated by Mr Thompson has not led to any firm proposals for change to either BBC One or BBC Two.[27] We were assured, for example, that there are no current plans to move Panorama, Question Time or Songs of Praise from BBC One to BBC Two.[28] Sir Christopher Bland told us that any detailed proposals would be the subject of "public debate and discussion".[29] With regard to news, Sir Christopher Bland gave the "Governors' absolute guarantee" that the BBC would only change the time of a news programme if it considered that the effect of the change would be to increase the audience for news.[30] He said that "the primacy of news and the importance of that audience to us, both to the management and the Board of Governors, cannot be overstated".[31]

11. It is undeniable that the technological environment in which the BBC operates is changing, and changing fast. The BBC's remit, however, has not changed and the BBC has not sought a change to the Royal Charter that underpins that remit prior to 2006. A generalised offer by Sir Christopher Bland for "public debate and discussion" is simply not good enough. While the BBC remains a State Corporation funded by a hypothecated tax, it has public service obligations that it must continue to meet in full. If BBC One were to become ITV without the commercials and BBC Two were to become Channel 4 without the controversy, then this would affect the justification for the BBC as at present constituted and funded.

Sport

12. The problems that the BBC faces in seeking to maintain and enhance its core services are demonstrated by the continuing dilemmas relating to sports coverage, which is for many—although by no means all—viewers, at the heart of their understanding of what the BBC should be for.[32] The BBC has recently lost the rights to show highlights of Premiership football with effect from 2001-02 because ITV put forward a bid of a value that was, according to Mr Dyke, "well beyond" what the BBC should pay for these rights.[33] Shortly thereafter, the BBC regained the rights to broadcast live FA Cup matches, including the FA Cup Final.[34] The BBC was unwilling on commercial grounds to reveal the amount paid for these latter rights, but did indicate that the cost per viewer hour of the FA Cup package would be about the same as the present cost for Premiership highlights, namely £20 million.[35]

13. In the latest Annual Report, the BBC Governors established a new objective to "develop an effective policy for sports coverage at an affordable cost".[36] When we asked the BBC how effectiveness in meeting this objective would be measured, Mr Dyke replied that "it will take some time to come back with a proposal for the Governors".[37] It is right that the BBC is seeking to develop an effective policy for sports coverage, but it is regrettable that the wording of the new objective reinforces the impression that the BBC has lacked such an effective policy in recent times. We expect the main elements of the BBC's policy for sports coverage and the criteria by which its effectiveness will be measured to be included in the BBC's Report for 2000-01.

Radio

14. According to the BBC's Annual Report and Accounts, "BBC Radio had one of its strongest ever years, increasing its weekly share to over 51 per cent of the population".[38] Sir Christopher Bland was "quite encouraged" by this performance.[39] The same document recorded, however, that Radio 3's audience reach fell from 4.7 per cent in 1998-99 to 3.6 per cent in 1999-2000, while noting that the methodologies for collecting such data were revised during the year.[40]

15. We asked the witnesses from the BBC to account for the falling reach of Radio 3 and to explain what it was doing to improve upon that performance. Although Mr Thompson, the Director of Television, did allude to the instability of the statistics on radio reach referred to in the Annual Report, neither the Chairman nor the Director-General of the BBC was able to provide any analysis of the reasons for the apparent fall.[41] In written evidence, the BBC attributed the fall entirely to the change in sampling system and said that Radio 3's audience had increased during 1999-2000.[42] We are heartened to learn of Radio 3's increased audience and encouraged by the restoration to a considerable degree of its former high quality, but we consider it a matter for regret that neither the Chairman of the BBC nor its Director-General was able to give any account in oral evidence of the performance of Radio 3. This strengthens the impression that radio is seen within the BBC as a Cinderella service.

16. This is not the first occasion where our scrutiny of the BBC's Report and Accounts has been hampered by a change in the method of collecting statistics. We learned during a previous inquiry that the method of measuring reach by genre had changed between 1996-97 and 1997-98, but that no reference to the change had been included in the relevant section of the Annual Report for 1997-98.[43] The latest change is referred to in the Annual Report for 1999-2000, but no explanation of its effects is given.[44] This makes scrutiny of the performance of the BBC over time much harder than it need be. We recommend that, when the methods of collection of statistics given in series for successive years in the Annual Report and Accounts of the BBC are changed, the likely effects of the change on the relevant statistical series be set out in the Report. Where such statistics are collected by an outside organisation, the explanation of the change and its effects should be checked and verified by that outside organisation before inclusion in the Annual Report and Accounts.

News 24

17. In previous Reports we have carefully considered whether News 24 represented value for money for the licence fee payer.[45] Upwards of £140 million has been spent on the service since its launch.[46] In 1999-2000, expenditure on News 24 amounted to £50 million.[47] The BBC stressed that this was the total cost for News 24 both as a separate channel and as a service provided on BBC One and BBC Two at certain times.[48] Mr Dyke referred to planned expenditure of around £52 million or £53 million a year, but did not expect the budget to increase beyond that level.[49] He said that the marginal cost of News 24 was around £35 million a year; the remaining expenditure represented News 24's contribution to the BBC's global news-gathering operation and would not be saved if News 24 were to be scrapped.[50]

18. In its Annual Report, the BBC describes News 24 as "the most-watched UK news channel".[51] It claims that News 24 "is now watched by more than six million people every week" compared with "3.6 million for the only other UK round-the-clock news provider"—a somewhat coy reference to Sky News.[52] However, to employ one of Sir Christopher Bland's own analogies, this is to compare an apple and an orange.[53] Sky News is only available as a channel in multi-channel households. In addition to availability as a channel, News 24 is available as a service on BBC One overnight and on BBC Two on Saturday mornings. The claim for an audience of 6.1 million is based on combining the audience for overnight news output on BBC One and morning output on BBC Two—channels that are universally available—with the audience for News 24 as a channel.[54] When we raised this point with Sir Christopher Bland, he suggested it was "a semantic matter".[55] We disagree. We consider that the BBC's attempts to conflate viewing figures from News 24 as a channel and those for News 24 as a service on other channels—namely BBC One and BBC Two—are misguided and misleading. We recommend that BBC Annual Reports distinguish clearly between the audience for News 24 as a channel in multi-channel households and the audience for News 24 services broadcast on BBC One and BBC Two and cease to combine audience figures for News 24 as a channel and News 24 as a service on other channels.

19. The BBC claimed that, in digital homes, in the four weeks to 11 June 2000, News 24 as a channel had an audience share of 0.3 per cent and a "reach" of 7 per cent, where "reach" is defined as the percentage of the digital audience which chooses to watch the channel for more than three minutes a week. According to the BBC, by way of comparison, Sky News had a 0.5 per cent share and an 11 per cent reach.[56] BSkyB have subsequently challenged these claims, suggesting that the audience shares for the four weeks ending 11 June were 0.24 per cent for News 24 and 0.53 for Sky News and that, during the longer period of 3 January to 11 June 2000, the respective shares in digital satellite homes were 0.17 per cent and 0.51 per cent. Sir Christopher Bland did not dispute that, in digital homes, News 24 continues to have a lower share and a lower reach than Sky News.[57] Subsequent figures provided by the BBC indicated that the shares for News 24 and Sky News in cable homes in May 2000 were 0.5 per cent and 0.7 per cent respectively.[58]

20. The BBC is confident that it will eventually see a return on its large investment in News 24. Mr Dyke acknowledged that "some mistakes" had been made in presentation on the channel in its early phase, although he considered that it had "improved considerably" since its "re-launch" last year so that he was now "quite happy with the quality and range of News 24".[59] He thought that News 24 reflected "the way that people are going to receive news in the future".[60] Sir Christopher Bland saw it as "a really good service" that was "getting better by the minute".[61] The channel will provide extended coverage of the next General Election and Sir Christopher Bland thought that General Election coverage "could be as powerful a driver for people to watch News 24 as the Gulf War was to CNN".[62] He considered the channel to be of "long-term strategic importance" for the BBC and an investment the wisdom of which would become self-evident.[63] On the other hand, Sir Christopher Bland appeared to be offering a static prospect for News 24 as it now exists, whereas rival news providers, including ITN and BSkyB, are already providing interactive services which offer a better service than BBC News 24. With these choices available to digital subscribers, we are therefore sceptical of the value of News 24 in relation to what the BBC says it costs.

Digital services

21. Digital services constitute a growing element in the BBC's expenditure, requiring £208 million in 1999-2000 compared with £154 million in 1998-99.[64] Last year, we concluded that the BBC had been "a follower rather than a leader in the provision of digital channels" and had failed to make the case for a much expanded role for itself in the digital era and consequently for additional external funding.[65]

22. In the BBC's Annual Report the Governors appear to concede the relative weakness of the BBC's digital performance:

In his speech at Banff Mr Thompson also suggested that BBC Choice and BBC Knowledge "were launched with rather confused objectives and as a result have had less impact than they should have done".[67] In evidence to us, Mr Thompson said that both BBC Choice and BBC Knowledge had "improved substantially since their launch" and were "strengthening in confidence".[68] He was keen to ensure that these channels offered "real quality and value to viewers now and in the immediate future" while fitting into the BBC's long-term plans for its digital services.[69]

23. We still need convincing about these long-term plans. The BBC considers that 35 per cent of the population will not adopt any form of pay television and accordingly views its own development of free-to-air digital services as crucial to the Government's strategy for analogue switch-off. By the time of analogue switch-off, the BBC expects to have five or six free-to-air channels in every home and attaches importance to developing "the right portfolio of channels".[70]

24. The BBC's case for increased external funding up to 2006 rested to a considerable extent on its claim that it would have a crucial role in digital take-up and thus in securing analogue switch-off.[71] This argument was accepted in part by the Secretary of State for Culture, Media and Sport when he reached his decision to increase the licence fee by 1.5 per cent above the retail prices index for each year from 2000-01. The Government's view was indicated in its reply to our Report on the BBC's funding:

25. We continue to view this capacity as, at best, an untested assertion. We are disappointed that none of the BBC's objectives for 2000-01 refers specifically to the role of the BBC's digital services in driving take-up of digital television, even though a number of these objectives are formulated explicitly "in the context of the licence fee settlement".[73] We recommend that, for 2001-02 and succeeding years, the BBC formulate a specific objective of seeking to ensure that its digital services drive take-up of digital television. We further recommend that the BBC identify consistent measures for monitoring progress against this objective that are open to external scrutiny.

26. In seeking to play a significant part in driving take-up of digital television in a way that it has not so far done, the BBC may seek to introduce further digital channels, although Sir Christopher Bland accepted that the BBC would need to give more consideration to the rationale for new services than it had always done in the past.[74] As matters stand, any new service will also be subject to the approval of the Secretary of State for Culture, Media and Sport, although we have previously recommended that this power should in due course pass to the new independent communications regulator.[75]

27. In announcing his decision on the future funding of the BBC in February 2000, the Secretary of State made it clear that he did not

The BBC has acknowledged that there are areas that the BBC should not seek to enter because services are being provided by the market and Mr Dyke told us that he expected any application for approval for a public service sports channel to be turned down by the Secretary of State.[77] We wholeheartedly endorse the notion that the BBC should not develop additional public service channels that duplicate those already provided by the commercial sector or that unduly threaten the development of a more diverse market in future, but we consider that the potential for a free-to-air BBC sports channel—providing distinctive services of public benefit relating, for example, to sports training and development and to minority sports and women's sport which are currently neglected by broadcasters, as well as possibly contributing to digital take-up—should be further explored by the BBC and sympathetically considered by the Secretary of State for Culture, Media and Sport rather than being prematurely ruled out.

Financial planning and efficiency savings

28. Sir Christopher Bland began his evidence by saying that 1999-2000 had been a good year for the BBC in financial terms in which "we came in on budget".[78] The BBC ended the financial year with a "healthy" cash surplus of £259 million, higher than that in the previous financial year.[79] Sir Christopher Bland considered that this balance reflected "prudent house-keeping" during a year that had begun with an expectation of a reduction in the licence fee in real terms.[80] However, the expectation of such a reduction was confounded. On 21 February 2000, the Secretary of State for Culture, Media and Sport decided to provide the BBC with an average of about £200 million additional external income between 2000-01 and 2005-06 through an increase of the general licence fee of 1.5 per cent over the retail prices index in each of those years.[81]

29. In the BBC's Annual Report, Sir Christopher Bland describes that settlement as a "satisfactory outcome".[82] In oral evidence he said that this phrase was not meant to sound "grudging". The BBC was grateful for a settlement that was "fair": it facilitated planning up to 2006 and was one "that we can absolutely live with".[83] Sir Christopher Bland also confirmed that there was no question of the BBC seeking any changes to the new licence fee settlement for the period up to 2006.[84] In view of the fact that the increases in the television licence fee in 2000-01 and 2001-02 overturn the five year settlement originally intended to cover the period up to 2002, we welcome Sir Christopher Bland's confirmation that the BBC will not seek additional increases in the level of the licence fee prior to 2006.

30. The BBC is also seeking to make the money that it does receive go further. Since Mr Dyke became Director-General, the BBC has announced a series of measures designed to achieve greater efficiency savings. These changes are expected to generate additional income of about £750 million.[85] We were told that a "major part" of these savings will be brought about by total staff cuts of between 1,100 and 1,200, 70 per cent of which will be "administrative and back office jobs".[86] Mr Dyke said that other savings would be based on "smarter" procurement policies.[87]

31. In the absence of a profit motive, Mr Dyke saw the main financial imperative for the BBC's activities as the obligation to maximise the amount of money received from the public that is spent directly on services for the public.[88] Accordingly, in the Annual Report, Mr Dyke stated an aim of increasing "the percentage spent on content from 76 per cent to 85 per cent over the next five years".[89] In oral evidence he went further, stating of the 85 per cent target that "we think we can get there in three to four years, but probably in three".[90] If the public and Parliament are to be convinced that this target will genuinely be met, it will be necessary for the BBC to be a good deal more open about its accounting procedures. We recommend that the Report and Accounts of the BBC for 2000-01 include annual targets for the percentage of total expenditure committed to programmes in each coming year in order that progress towards the objective of increasing the percentage spent on content from 76 per cent to 85 per cent can be monitored. In this context, we welcome Mr Dyke's drive to reduce management perks and his campaign to slash bureaucracy.

32. In 1998 the then Director-General of the BBC told us that independent production had been "a vital stimulus to greater efficiency" within the BBC.[91] At the same time, Sir Christopher Bland confirmed that the BBC saw the independent sector as "beneficial creatively and financially".[92] During this inquiry we sought assurances that endeavours to encourage more efficient in-house production would not be at the expense of the BBC's willingness to commission quality programming from independent producers. The BBC confirmed that it was committed to the principle of "only commissioning the best from whatever source".[93] Mr Dyke did, however, argue that the tendency for independent production companies to be acquired by broadcasters was making it more difficult to comply with requirements relating to the proportion of programming from independent producers as currently defined.[94]

BBC Worldwide and commercial income

33. In previous Reports we have expressed scepticism about the extent of the BBC's success in generating additional cash flow as a result of the activities of its commercial subsidiary, BBC Worldwide.[95] In 1999-2000, the total cash flow from BBC Worldwide to the BBC was £82 million, compared with £75 million in 1997-98 and £81 million in 1998-99.[96] The BBC was keen to dispel the notion that this slow rate of growth meant that BBC Worldwide was not on course to meet its target to generate a cash flow benefit of £200 million per year by 2006. The BBC emphasised that figures for the two previous years were boosted by one-off profits from the sale of shares in Flextech. When these profits are excluded, the cash flow from BBC Worldwide was £52 million in 1997-98 and £73 million in 1998-99.[97] According to Sir Christopher Bland and Mr Smith, BBC Worldwide had achieved a "really good result" in 1999-2000 and was "exactly on track" to meet the target set for 2006.[98]

34. The BBC continued to view the target of £200 million cash flow benefit by 2006 to be "both achievable and stretching".[99] An independent study of the BBC's financial projections commissioned by the Secretary of State for Culture, Media and Sport recommended earlier this year that "interim targets should be established, against which progress is reviewed and monitored".[100] These targets were provided to us in written evidence by the BBC and are set out in the following table:[101]

Table: Targets for BBC Worldwide cash flow to the BBC, 2000-01 to 2006-07

	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07
BBC cash flow (£ million)	92	106	122	140	161	185	212

We expect performance against these targets in each future year to be subject to close scrutiny to ascertain whether the targets for the latter part of the period are sufficiently stretching.

Licence fee collection

35. During the year under consideration, the combined cost of licence fee collection and evasion continued to fall to 10.4 per cent of total income.[102] Mr Smith was confident that progress towards the target for the combined cost of collection and evasion of 9 per cent of total income was continuing.[103] However, the target for the level of evasion to be reduced to 5.1 per cent in 1999-2000 was not met for reasons that the Annual Report chooses not to explain.[104] Mr Smith attributed this failure in part to the uncertain climate about the future nature of the licence fee as a result of the review process during the period, but was encouraged by the fact that the evasion rate was coming down in the early months of the current financial year.[105]

36. The BBC's Annual Report states that "it is critical that those who do pay are not disadvantaged by those who do not, but we are acutely conscious of the difficulties faced by some licence payers who are on low incomes".[106] The BBC seeks to promote the use of cash-based easy payment schemes such as the weekly Cash Easy Entry scheme and the Monthly Cash Plan.[107] We have previously expressed concern that one of these systems—the Quarterly Budget Scheme—attracts a £5 surcharge, supposedly because the payments are made in arrears.[108] We recommended last December that this surcharge be discontinued with effect from 1 April 2000.[109] This recommendation was not implemented and the cost of a licence fee under the Quarterly Budget Scheme now stands at £109 for a fee with a face value of £104.[110] We explored this matter further during the present inquiry, and were deeply dissatisfied with what we learnt.

37. In oral evidence, the BBC told us that the surcharge was justified because "all the payments are in arrears" whereas "the general principle of the licence is that payment is made up front, at the start of the licensing period".[111] This echoes a statement by the Government in its reply to our earlier recommendation when the Government claimed that the Quarterly Budget Scheme "involves payments which are wholly made in arrears".[112] When we queried these assertions, the BBC re-iterated in oral evidence that, "in the case of the Quarterly Budget Scheme, the licence begins on that same day, but the first payment is not due until three months after that".[113]

38. In written evidence, the BBC told a somewhat different story about the Quarterly Budget Scheme. The BBC acknowledged that "the first instalment is due on issue, and the remaining payments are made at three monthly intervals thereafter. Three of the payments are therefore in arrears."[114] The regulations which govern the scheme confirm that there is an "issue fee" in exactly the same way as there is for other schemes based on payment by instalments.[115] Under the Quarterly Budget Scheme the first payment is not made in arrears and the statements of the BBC in oral evidence and of the Government in its reply to our earlier recommendation are accordingly inaccurate.

39. In framing our earlier recommendation, we expressed particular concern that the BBC "actively solicits licence fee payers" to use this scheme which involves a quarterly surcharge of £1.25.[116] In its response, the Government expressed the hope that the BBC "will ensure that all those currently using the scheme are advised once again of the other schemes where there is no surcharge".[117] The BBC's main defence of the scheme is that it does not seek to profit from it.[118] This is no more than the minimum to be expected from a State Corporation. However, the manner in which Sir Christopher Bland chose to express this case is revealing: "there should be no element of profit to the BBC in encouraging people to pay quarterly".[119] We find the notion that the BBC is in any way "encouraging" people to pay a surcharge on their licence fee puzzling.

40. When we last examined this matter, the Secretary of State for Culture, Media and Sport expressed some sympathy with concerns about the surcharge, but said that the issue was "not strictly a matter for Government to decide on".[120] In response to our recommendation, the Government stated that "the decision whether to discontinue the quarterly budget scheme is a matter for the BBC".[121] This statement is contradicted by the BBC's written evidence. It stated that the scheme is "governed entirely" by the Wireless Telegraphy (Television Licence Fees) Regulations 1997 and that the size of the premium "is defined in [the] Regulations, not by the BBC".[122] Since the scheme is prescribed by secondary legislation initiated by the Government and regularly amended by Government, it follows that authority for the scheme lies with the Government.[123] We recommend that the Government introduce secondary legislation to amend the Wireless Telegraphy (Television Licence Fees) Regulations 1997 so as to abolish the current £5 surcharge on the licence fee under the Quarterly Budget Scheme with effect from 1 April 2001. We further recommend that a leaflet explaining all budget schemes and making clear their financial implications be made available at all Post Offices.

Governance and accountability

41. When we last considered the BBC we emphasised that any future assessment of the BBC's role was inseparable from the wider regulation of broadcasting. We argued accordingly that consideration of the BBC's future role and governance should be integral to the review of communications regulation that is expected to result in a White Paper later this year.[124] We are pleased that, in its response to our Report, the Government confirmed that the BBC's role and governance will be reviewed in this context.[125] As recently as 10 July 2000, the Secretary of State confirmed that the review was considering the role of the Board of Governors "which currently acts as both judge and jury—managers and regulators".[126]

42. In support of the self-regulatory structures of the BBC, Sir Christopher Bland referred to the example of parliamentary coverage on Radio 4. He said that the Governors had made a "mistake" in agreeing to the original proposals, but saw the reversal of some of those changes as a decision based on an understanding of responsibilities under the Charter and a willingness to look at wider public interest issues in relation to a detailed scheduling issue which could only have been made from within the BBC. Detailed control over programming and wider regulatory responsibilities were thus, in the eye's of the BBC, indivisible.[127]

43. We find this position unconvincing. We have argued more than once that the BBC's self-regulatory position is no longer sustainable and that the BBC should be regulated by a Communications Regulation Commission.[128] Having taken oral evidence from the BBC during this inquiry, we are concerned that, even with a new and potentially innovative Director-General, the views and roles of management and of the Governors appear indistinguishable. In future, it must be for the BBC's managers to manage the BBC and for an independent regulator to regulate the BBC.

44. We have found our efforts to hold the BBC to account through scrutiny of the Annual Report and Accounts akin to trying to grasp an eel. The document itself is a disappointment. As we have had cause to note during this examination, its contents are often inadequate and sometimes disingenuous. The oral evidence from BBC witnesses was too often incomplete or evasive.

45. Last year we strongly supported proposals that the National Audit Office should scrutinise both the BBC's compliance with fair-trading commitments and the transparency of the BBC's financial reporting.[129] In February 2000, the Secretary of State for Culture, Media and Sport rejected this approach, but stated that he intended to commission independent reviews of financial systems and fair trading within the BBC which "will, of course, be available for consideration and questioning by the Select Committee".[130]

46. The first such independent scrutiny of the BBC's financial reporting was announced on 27 June 2000. It is to be undertaken by Pannell Kerr Forster and "will be concluded by the end of July".[131] Needless to say, this timetable ensures that, notwithstanding the Secretary of State's words in February 2000, the study will be of no value to this Committee in its consideration of the BBC's Report and Accounts for 1999-2000. We consider it a matter for regret that the Secretary of State for Culture, Media and Sport rejected the proposals that elements of the BBC's finances be subject to scrutiny by the National Audit Office. We expect this Committee and its successor in the next Parliament to continue with annual scrutiny of the Report and Accounts of the BBC, but this does not mean that we consider current arrangements for the accountability of the BBC to be anything other than incomplete and unsatisfactory.

Summary of conclusions and recommendations

47. Our principal conclusions and recommendations are as follows:

(i) We welcome the renewed commitment by the BBC to its core television services—BBC One and BBC Two—and to the flagship role of BBC One in particular. We consider, however, that the weaknesses that the BBC Governors note in the recent performance of BBC One are issues for which they themselves hold the ultimate responsibility (paragraph 6).

(ii) It is undeniable that the technological environment in which the BBC operates is changing, and changing fast. The BBC's remit, however, has not changed and the BBC has not sought a change to the Royal Charter that underpins that remit prior to 2006. A generalised offer by Sir Christopher Bland for "public debate and discussion" is simply not good enough. While the BBC remains a State Corporation funded by a hypothecated tax, it has public service obligations that it must continue to meet in full. If BBC One were to become ITV without the commercials and BBC Two were to become Channel 4 without the controversy, then this would affect the justification for the BBC as at present constituted and funded (paragraph 11).

(iii) It is right that the BBC is seeking to develop an effective policy for sports coverage, but it is regrettable that the wording of the new objective reinforces the impression that the BBC has lacked such an effective policy in recent times. We expect the main elements of the BBC's policy for sports coverage and the criteria by which its effectiveness will be measured to be included in the BBC's Report for 2000-01 (paragraph 13).

(iv) We are heartened to learn of Radio 3's increased audience and encouraged by the restoration to a considerable degree of its former high quality, but we consider it a matter for regret that neither the Chairman of the BBC nor its Director-General was able to give any account in oral evidence of the performance of Radio 3. This strengthens the impression that radio is seen within the BBC as a Cinderella service (paragraph 15).

(v) We recommend that, when the methods of collection of statistics given in series for successive years in the Annual Report and Accounts of the BBC are changed, the likely effects of the change on the relevant statistical series be set out in the Report. Where such statistics are collected by an outside organisation, the explanation of the change and its effects should be checked and verified by that outside organisation before inclusion in the Annual Report and Accounts (paragraph 16).

(vi) We consider that the BBC's attempts to conflate viewing figures from News 24 as a channel and those for News 24 as a service on other channels—namely BBC One and BBC Two—are misguided and misleading. We recommend that BBC Annual Reports distinguish clearly between the audience for News 24 as a channel in multi-channel households and the audience for News 24 services broadcast on BBC One and BBC Two and cease to combine audience figures for News 24 as a channel and News 24 as a service on other channels (paragraph 18).

(vii) We recommend that, for 2001-02 and succeeding years, the BBC formulate a specific objective of seeking to ensure that its digital services drive take-up of digital television. We further recommend that the BBC identify consistent measures for monitoring progress against this objective that are open to external scrutiny (paragraph 25).

(viii) We wholeheartedly endorse the notion that the BBC should not develop additional public service channels that duplicate those already provided by the commercial sector or that unduly threaten the development of a more diverse market in future, but we consider that the potential for a free-to-air BBC sports channel—providing distinctive services of public benefit relating, for example, to sports training and development and to minority sports and women's sport which are currently neglected by broadcasters, as well as possibly contributing to digital take-up—should be further explored by the BBC and sympathetically considered by the Secretary of State for Culture, Media and Sport rather than being prematurely ruled out (paragraph 27).

(ix) In view of the fact that the increases in the television licence fee in 2000-01 and 2001-02 overturn the five year settlement originally intended to cover the period up to 2002, we welcome Sir Christopher Bland's confirmation that the BBC will not seek additional increases in the level of the licence fee prior to 2006 (paragraph 29).

(x) If the public and Parliament are to be convinced that the target of increasing the percentage spent on content from 76 per cent to 85 per cent will genuinely be met, it will be necessary for the BBC to be a good deal more open about its accounting procedures. We recommend that the Report and Accounts of the BBC for 2000-01 include annual targets for the percentage of total expenditure committed to programmes in each coming year in order that progress towards the objective of increasing the percentage spent on content from 76 per cent to 85 per cent can be monitored. In this context, we welcome Mr Dyke's drive to reduce management perks and his campaign to slash bureaucracy (paragraph 31).

(xi) We expect performance against these targets for cash flow from BBC Worldwide in each future year to be subject to close scrutiny to ascertain whether the targets for the latter part of the period are sufficiently stretching (paragraph 34).

(xii) Under the Quarterly Budget Scheme the first payment is not made in arrears and the statements of the BBC in oral evidence and of the Government in its reply to our earlier recommendation are accordingly inaccurate (paragraph 38).

(xiii) We recommend that the Government introduce secondary legislation to amend the Wireless Telegraphy (Television Licence Fees) Regulations 1997 so as to abolish the current £5 surcharge on the licence fee under the Quarterly Budget Scheme with effect from 1 April 2001. We further recommend that a leaflet explaining all budget schemes and making clear their financial implications be made available at all Post Offices (paragraph 40).

(xiv) Having taken oral evidence from the BBC during this inquiry, we are concerned that, even with a new and potentially innovative Director-General, the views and roles of management and of the Governors appear indistinguishable. In future, it must be for the BBC's managers to manage the BBC and for an independent regulator to regulate the BBC (paragraph 43).

(xv) We consider it a matter for regret that the Secretary of State for Culture, Media and Sport rejected the proposals that elements of the BBC's finances be subject to scrutiny by the National Audit Office. We expect this Committee and its successor in the next Parliament to continue with annual scrutiny of the Report and Accounts of the BBC, but this does not mean that we consider current arrangements for the accountability of the BBC to be anything other than incomplete and unsatisfactory (paragraph 46).

6 Eighth Report from the Culture, Media and Sport Committee, Report and Accounts of the BBC for 1997-98, HC (1997-98) 1090. Back

7 Third Report from the Culture, Media and Sport Committee, The Funding of the BBC, HC (1999-2000) 25-I. Back

8 Report and Accounts of the BBC for 1999-2000, p 6. Back

9 HC (1997-98) 1090, para 39. Back

10 Q 2. Back

11 Report and Accounts of the BBC for 1999-2000, p 15. Back

12 Ibid. Back

13 Q 1. Back

14 Q 2. Back

15 Ibid. Back

16 Q 71. Back

17 "Zapped: Why public service TV has to change", Mark Thompson, Banff, 12 June 2000, p 1. Back