Accountability
190. This Committee is primarily concerned with how
the BBC demonstrates its efficiency, effectiveness and economy
in fulfilling its public service remit. The BBC is, rightly, keen
to preserve its independence and in this aim it has few antagonists.
However, independence does not by any means absolve the BBC from
ex post accountability for its performance and its use
of a substantial amount of the public's money; 24.5 million licence
fee payers providing £2,798 million in 2003-04. The DCMS
describes the BBC's accountability as "reflected primarily
through the Royal Charter
and Agreement".[161]
The DCMS's Independent Advisory Panel on Charter Review, chaired
by Lord Burns, reported the suggestion that "it was only
the process of Charter Review that concentrated the BBC's mind"[162]
and there is no doubt that the most recent process, among other
factors, has galvanised the BBC to produce the proposals set out
in Building public value - Renewing the BBC for the digital
world. The process of Charter review has always also been
a tool for external bodies to hold the BBC to account, providing
the opportunity for all interested parties to make a more or less
detailed examination of key strategic issues such as what the
BBC is for, how it is governed and run, what resources it needs
and how these might be delivered.
191. Of course, in line with other public bodies,
the BBC also publishes its annual report and accounts, required
under the Charter to be made to the Secretary of State and laid
before Parliament.[163]
Sir Christopher Bland, a former Chairman of the BBC, suggested
to us that this opportunity could be more fully and methodically
grasped by Parliament.[164]
For some years, on the original initiative of Sir Christopher,
the BBC Governors and executives have appeared before this Committee
on, or soon after, the day of publication of the annual report
and accounts to answer questions on the information set out therein
(and in the past the Committee has published this evidence without
an accompanying report).[165]
Most recently, the Committee invited the BBC executive and the
Governors to appear separately; reflecting an emerging consensus
around the importance of separating their roles.
192. Annual evidence sessions with the BBC have often
been marked by robust exchanges on both the substance of the reports
and also on the style of the information provided (and not provided).
Over the years the Committee has consistently put to the BBC the
charge that the annual report was, in essence, more self-congratulation
than self-examination; to equally consistent rebuttal.
193. This year, therefore, we welcomed the agreement
of at least the new Chairman of the BBC, Michael Grade, that:
"Traditionally, the Annual Report and Accounts has been as
much about marketing the BBC as holding it to account - and as
much about management's view of its own performance as about the
Governors' view of management's performance."[166]
In the 2003-04 BBC report, described as a 'transitional' document,
Mr Grade states his aim is to turn "the BBC's Annual Report
into a document owned by the Governors, which evaluates the performance
of BBC management against publicly stated objectives and commitments."[167]
194. This aim is explicitly part of a stated broader
ambition for more robust governance, independent from BBC management,[168]
announced in the BBC's contribution to the Charter review debate:
"the [BBC] Governors in future will actand be seen
to actfully independently of the BBC's management and will
be resourced properly in order to make informed and independent
judgements."[169]
We discuss governance more broadly, and the adequacy of the BBC's
own plans and competing proposals, elsewhere in this Report.
195. In considering the BBC's past annual reports
and accounts, and the evidence taken in relation to each, we believe
that there are a number of key improvements that should be made
to the BBC's annual reporting to give effect to the new Chairman's
ambitions. HM Treasury guidance to government departments and
public bodies is that an annual report should provide an account
of the stewardship of public funds and it is reasonable to expect
the document to provide tools and data necessary for effective
scrutiny of:
- how well the organisation is
performing against its high-level aims, subsidiary objectives
and any detailed targets;
- performance in relation to external, or otherwise
objective, measures and comparators; and
- the quality of the strategic "grip"
that the organisation has over itself, its activities and its
operations.
196. In order to do this, annual reporting needs
to set out: high-level aims and purposes; clear objectives and
evidence-based measurements of how these have been achieved; performance
indicators for efficiency, effectiveness and economy; comparators
with other, equivalent or competing, organisations; a statement
of strategy; a candid assessment of performance and any difficulties
faced in achieving its goals; and some assurance of accuracy and
candour (i.e. external validation).
197. When we measured the BBC's recent annual reports
against these parameters there appeared to be some gaps (set out
in the boxes below and discussed thereafter).
The BBC's report should include a clear statement of what it needs to do to fulfil its public service remit, providing added value compared to other broadcasters. The previous BBC Chairman said that the BBC needed to provide a "richer and more ambitious" package than the commercial sector but provided no criteria against which performance could be judged.
|
198. The BBC's direct response reported agreement "with the
thrust of this point" and said that the 2003/2004 report
went further than previously in reporting on the performance of
each BBC service against its public service remit. The BBC pointed
to plans, set out in Building public value, for new evidence-based
performance metrics for BBC services based around: "reach,
quality, impact and value for money" as well as new public
service "licences" (setting out budget, remit and targets)
which will be monitored annually and reviewed regularly.[170]
There is no ducking the issue that the BBC's remit presents a
challenge in terms of formulation, as discussed elsewhere in this
Report, as well as sub-division into measurable objectives. In
Building public value, the BBC has defined its key role
as "aiming to maximise public value" and the new performance
framework looks set to become the touchstone for all its services
and activities.
199. The Independent Advisory Panel (IAP) said in
its statement of emerging themes, published as this Report was
being prepared, that "the new Charter should require the
BBC to focus clearly on its core PSB purpose and the areas where
it can generate value for audiences in addition to that provided
by the rest of the market".
Objective setting
It was difficult to assess the performance of the BBC against its key objectives as some were unspecific, some not measurable and some incremental without a baseline. There were statements such as "a year of strong BBC performance" without reference to measurable achievements or quantitative comparisons with other broadcasters (beyond reach and share).
|
200. The BBC has told us that the Governors' own work has led
them to decide that there should be significant changes in their
assessment of performance against objectives in future annual
reports, "much along the lines identified by the Committee".
The BBC said that key objectives for 2004/2005 were focused on
major pan-BBC priorities while individual channel, service and
genre objectives were set out in the Statements of Programme Policy.[171]
The IAP said that: "if the next Charter is to include more
specific high level purposes
there will be a clear need
for a set of measurable goals to inform the conduct of the management
and to enable the Governors to assess afterwards whether objectives
have been achieved". Lord Burns's panel also observed that:
"Building public value outlines some high level purposes
but more work is necessary if they are to be translated into how
the BBC operates on a day-by-day basis and they need to be set
out in a way that makes management accountable for the delivery
of these purposes."
Illustrating performance
More comparators should be used to illustrate the BBC's use of resources, output and performance compared with other broadcasters (both TV and radio).
|
201. The BBC agreed and reported the reinstatement in 2004 of
information, left out of the 2002/2003 report, relating to: comparative
reach and share; the range of peak-time UK-made programmes; the
comparative cost per household of viewing/listening.[172]
202. We welcome these moves. We see the relative
costs per household of viewing and listening arising from, on
the one hand, a compulsory licence fee, and, on the other, contracts
entered into by choice, as interesting (but incomplete without
estimates also for ITV and Channel 4).[173]
However, the truly valuable data for assessing the efficiency
and effectiveness of the BBC in its use of the public's money
would be comparative programme production costs per hour between
the BBC and other programme producers. The BBC said that it would
like to undertake such analysis but commercial broadcasters would
not release such information.[174]
Comparative data on programme budgets of the terrestrial broadcasters,
albeit in broad terms, used to be available on the former ITC's
website (which showed that, across 2001-2003, BBC One's budget
consistently exceeded that of ITV1 by £100-200 million).
One way of achieving these comparisons would be via Ofcom as a
mediator of commercially sensitive data. Alternatively the BBC
could make a start by comparing in-house costs with those of programmes
secured from the independent sector (the data for which is presumably
accessible).
203. Capital Radio told us that the BBC should be
subject to the same degree of scrutiny of its accounts as other
public bodies and should therefore be fully accountable to the
National Audit Office including on value for money issues; like
the rest of the public sector. Capital said it was impossible
to see how the Governors can adequately consider value for money
without access to comparable industry data. Unlike the Governors,
the NAO might be in a position "to compare and analyse costs
and spending across the broadcasting sector." This is a long-standing
debate with the BBC resisting a perceived challenge to its independence
over operational decisions despite the NAO's long experience of,
and clear focus on, efficiency, effectiveness and economy issues
while abjuring interference with policy. Mr Michael Grade, the
BBC Chairman, told us: "It seems perfectly proper
for the NAO to inquire into various things, but [not] to go through
the full formal constitutional proprieties of an NAO relationship"
where the Director-General becomes the BBC's Accounting Officer.[175]
204. An interim compromise was reached in 2003. Under
paragraph 4 of the Schedule to the amendment to the BBC Agreement,
dated 4 December 2003, the BBC Audit Committee is required to
examine the value for money achieved by the Corporation in using
the licence fee. In doing this, they must consult the Comptroller
and Auditor General over the possible scope of an audit programme
and consider which individual reviews under that programme might
best be conducted by the NAO.[176]
The NAO has completed a study of the establishment of Freeview
with no visible damage to the Corporation as a result. We regard
the BBC's fear of formal relations with the NAO to be based on
a misunderstanding of the C&AG's role and we look forward
to the development of the relationship between the BBC Governors'
Audit Committee and the NAO in the future.
Targets and standards
The targets within the BBC's Statements of Programme Policy (SoPPs) should be reviewed with a view to increasing: the correlation with the BBC's high-level objectives; specificity and measurability (tackling the vaguer instances of incrementalism); as well as the challenges posed. It would also be useful to validate performance by external, as well as internal, audit.
|
205. The BBC wrote that the BBC's approach to SoPPs had yet to
be informed by Ofcom guidance (on which consultation was published
in June 2004). The Corporation stated that its SoPPs for 2004/2005
were more detailed, more factual and more measurable than in the
previous two years and that the report on performance against
the 2003/2004 SoPPs, in the 2004 annual report, was "significantly
more thorough" than before.[177]
206. We noted that, as for example Channel 4 had
exceeded all of BBC's Two's quantified targets and a majority
of BBC One's in 2002, these targets must be relatively undemanding.
The BBC responded that the specific hours commitments were floors,
i.e. minima, and therefore not really targets at all in
the aspirational sense.[178]
In this light we regard them as largely useless as measures of
performance (and they should not be presented as such) being about
compliance with the inevitably low baseline, or safety net, established
by a system of quotas for PSB programming regarded by many as
a necessary evil.
207. The BBC also pointed out that the commitments
were about the type of programming and not its quality or the
range within each specified genre. The Corporation asserted that
the SoPPs for 2004/05 demonstrated a more sophisticated approach
through their clarity and specificity (and pointed out that the
minimum requirement for news on BBC One had been increased from
570 to 1,380 hours).[179]
208. The BBC said thatwhile BBC Two outperformed
Channel 4 on every relevant indicator in 2003/04 except hours
of religion (since the BBC concentrates religious programming
on BBC One) and BBC One's performance was significantly ahead
of Channel 4's in many PSB genresthe different remits and
audience-expectations of these channels made such comparisons
"rather invidious and of limited value". [180]
209. In our view the BBC should be setting its own
real targets, on top of its regulatory minimum duties, to set
out clearly the levels of performance that it believes it needs
to be achieving and to invite scrutiny of both its ambitions and
its subsequent performance.
Value for money
The BBC had targets during 2002/2003 for financial efficiency gainslicence fee collection, commercial activities, central overheads, and programme productionbut progress was only reported in relation to the first three which, even taken together, represented limited prospects for savings or gains compared to the potential within the BBC's £2.4 billion production budget.
|
210. It is worth taking a little time to consider the BBC's recent
record on seeking, and reporting on, efficiency savings in its
core spending; a key area for a body that receives a compulsory
and regressive viewing tax from about 20 million households. The
Secretary of State told us that: "the BBC's protected status
is not an accident, it is a democratic choice
which creates
for the BBC very clear responsibilities and one of them is to
ensure that money is not wasted".[181]
Tessa Jowell went on to suggest that evidence of waste would
be the surest way of undermining public support for the licence
fee.
211. In relation to the efficiency gains targeted
by the BBC in 2002-03: licence fee evasion represented a loss
of £200 million (with improved collection inevitably subject
to diminishing returns); commercial activities returned £147
million; and central overheads were £347.5 million. In contrast
expenditure on programme production was £2,378 million. The
outcomes from the reported improvements, in the first three areas,
added up to £60.1 million; 1.5% of total spending.
212. In the 2004 annual report the BBC failed to
refer to the specific sub-targets for efficiency. Instead, it
referred to the overall 7-year Charter target to achieve efficiencies
and earningstermed "self-help"of £3.3
billion between 1999-2000 and 2006-07. While there is merit in
this, as this target covers the whole of BBC expenditure, there
are also some difficulties. In its annual reporting the BBC has
not broken this target down into annual sub-targets (so it is
difficult to assess financial performance for 2003-04 specifically
against the target). The 2004 report did not report outturn against
the target to date since 1999-2000 and it does not say what contribution
to the target was achieved in 2003-04. There was simply insufficient
detail behind the statement of "steady progress" for
an independent judgement to be formed.
213. In Building public value the overall
cumulative progressand projected steep curve towards fulfilmentof
the self-help target is set out with a continuing, and perhaps
disproportionate, emphasis on gains from licence fee collection
(and it is not clear whether this is due to increased efficiency
or expectations of more households and more licence fee payers).
The 2004 report also said that a new programme of efficiency/earnings
had been agreed in order to achieve the £3.3 billion target
but gave no details. The report did reveal that the one-off sale
of assets, such as BBC Technology, will count towards the "self-help"
target which suggests a softer potential route, in extremis,
to its achievement than the rigour of efficiency initiatives.
We note that reductions in overheads has been limited and in fact
in 2003-04 there was an absolute increase of £4 million on
the previous year albeit within a reduction of overheads to 12%
as a proportion of total spending.
214. Programme production is the BBC's core activity
representing the great bulk of expenditure. However, initiatives
to increase efficiency in this area (without compromising quality)
have not been the subject of clear reporting; giving rise to the
suspicion that the issue has not topped the agenda of an organisation
enjoying a guaranteed level of public money. It is a matter of
more than anecdotal evidence that the BBC regularly sends large
numbers of journalists and other staff to cover the same news
or sporting event, with separate BBC outlets often replicating
each other's work. While direct comparisons with the print media,
or other broadcasters, would be invidious, we believe that the
BBC should seek to make further efficiencies in this area.
215. We also note that the BBC has been criticised
for programme acquisition,[182]
including of Hollywood blockbusters, for far above their 'market'
value, when in competition with other terrestrial broadcasters
without, therefore, a demonstrable gain in terms of public value.
216. In 2003 the BBC Governors reported that "Over
the next year programme production costs need to be benchmarked
to determine if further efficiencies are achievable. We have also
agreed with the Executive to look for ways to conduct a thorough
review of effectiveness-based, value for money measures of BBC
performance." They themselves emphasised this in going on
to say: "It is timely now to conduct a thorough benchmarking
exercise to ensure that the BBC's programme costs are justified
in relation to the value and quality of its programmes, as compared
with other broadcasters."[183]
217. In 2004 the Governors reported that the BBC
must "now set itself more stretching efficiency targets if
it is to deliver licence payers the best possible value for money"
and that the "key challenge" lay in improving the efficiency
of production processes. They conceded that progress with this,
particularly in terms of benchmarking productions costs, had "not
been as rapid as we had expected".[184]
No benchmarking of costs seems to have taken place and no efficiency
achievements for production costs have been reported on, presumably
either because there were none or because the BBC financial systems
were not in a position to identity them. This year the Governors
again undertake to have a "thorough review" of
this area, this time under the guidance of a new "Head of
Value for Money". The BBC told us that it "recognises
that this is an area where a renewed push towards world-class
levels of efficiency is called for."
218. We believe that the BBC, under new governance
and management and with the new business plans recently announced,
must grasp the nettle of the efficiency and effectiveness of its
core spending on programme production and acquisition - which
it seems it has courageously begun to do. It should have done
so before now. If necessary it should establish a project board
comprising both internal expertise and perhaps personnel seconded
from the National Audit Office and the independent production
sector to assist in the process of comparing BBC norms, values
and practices with those from elsewhere.
Evidence of internal financial control
Regarding cost targets in general, the BBC report would be enhanced by more information about and from the BBC's internal financial performance measure and indicators to provide a comprehensive picture of the BBC's financial performance.
|
219. The BBC told us that the annual report currently contains
most of the financial performance measures and indicators used
internally in the 'Broadcasting facts and figures' section of
the report. These measures included: network television hours
of output, radio hours of output, monthly bbc.co.uk and BBCi reach,
monthly bbc.co.uk page impressions, cost per hour of originated
programmes, distribution costs, cost per hour of originated programmes
by genre, and creative spend outside the BBC.[185]
220. The BBC said that the only main measure of internal
financial performance that was not included was comparison to
the budget but that it was "not considered appropriate to
disclose details of the BBC's internal budget in the annual report
and accounts". The BBC went on to say, however, that in Spring
2005, the Governors will grant licences for each BBC public service
which will "specify the budget of each service, as well as
its remit and performance targets".[186]
221. As we have noted, Lord Burns's Advisory Panel
on Charter Review has seen a need for the definition and demonstration
of its unique selling point (or in this case its unique justification
for the licence fee), added public value and public service contribution
as key emerging themes of Charter review. The Panel also said
that "any system of judging the BBC's performance should
be based on a wide range of factors, some quantitative others
qualitative." At first sight this seems to be pointing towards
a framework such as that presented in Building public value
for reach, quality, impact and value for money (especially
in view of the IAP's eschewing of audience "share" as
potentially perverse). However, Lord Burns's panel also concluded:
"if such a test is defined solely by criteria set by the
BBC, using data and measures defined by the BBC, it will lack
conviction. There is a clear need for an independently determined
set of objective measures, applicable to the whole of the broadcasting
industry, which the BBC should use when making such judgements."
The IAP points to Ofcom's conduct of its review of public service
television as an exemplar.
Conclusion
222. Overall the current situation poses great challenges
to the ability of external observers to assess what it is the
BBC is trying to achieve and to measure its success in making
progress. We note that the BBC indicates new thinking is taking
place on these points. We accept the encouragement of Sir Christopher
Bland to seize more fully the opportunity presented by the BBC's
annual report and accounts to improve the accountability of the
Corporation to Parliament. However, our determination must
be matched by a new culture of openness at the BBC, and rigour
among the BBC Governors, leading to a wholesale renewal of the
Corporation's reporting of its performance, and added value, to
the Secretary of State, to Parliament and, thereby, to the licence
payer. This has been signalled clearly by the new BBC Chairman
and in the mechanisms proposed in the BBC's bid for Charter renewal,
Building public value. However, we note that Lord Burns's
advice to the Secretary of State is likely to suggest that these
efforts do not go far enough with the BBC needing to come out
from behind its barricades and out from within the charmed circle
of its self-referential objectives and measures.
223. We recognise that a vessel of the size and complexity
of the BBC needs both time and effort to turn on to a new course
and adopt any significant change in organisational culture. However,
the BBC Chairman told us that: "from the outside the BBC
has looked arrogant. It is not arrogant, it takes its accountability
responsibilities very seriously. The problem is that decisions
that it has made have been behind closed doors, a cosy discussion
between the two boards
no transparency, no objectivity,
no independent thought, until after the decision has been made
but we are addressing that."[187]
This suggests a much more open process of which the annual report
would be just the pinnacle; rather than an annual spasm. It would
be a very great shame if Mr Grade's attractive initial offering
proved immune to further development or even to require discounting
over time to account for the twin inflationary pressures of Charter
review rhetoric and new broom bravado. We regard the area of
accountability, and concrete mechanisms and measures for improvement,
as a crucial test for the DCMS in its development of detailed
proposals for its prospective green paper.
132