Examination of Witnesses (Questions 1-19)
BBC
11 JULY 2006
Q1 Chairman: Good morning. This is our
annual session with the governors and senior management of the
BBC. It has traditionally been timed to coincide with the publication
of the BBC's Annual Report and indeed would have done had the
Government not decided to hold a debate on the BBC yesterday and
the BBC kindly brought forward the publication of the report in
order that we had a chance to see it before the debate. It seemed
to me slightly curious that it was that way round rather than
the Government moving the debate, but never mind . . . I hope
it did not cost the BBC too much money. Could I welcome the Chairman,
Michael Grade, the Director-General Mark Thompson, from the governors
Jeremy Peat and the Director of Finance Zarin Patel. This is likely
to be the last of these sessions under the present structure of
the BBC but you have said that you are already operating, to some
extent, in the way that the new structure is likely to divide
responsibilities. Perhaps I could begin by asking Michael Grade,
given that you are now chairing a board of governors which will
evolve into the BBC Trust and already operating in that way, can
you tell us some examples where you have been able to be perhaps
more rigorous, independent and transparent, perhaps overriding
the Executive, than you might have been under the old structure.
Mr Grade: Thank you, Chairman.
Perhaps, very briefly, before I directly answer that question,
I could say how much the BBC welcomes on behalf of the licence
fee payers and is very grateful for the support from across the
House last night for the new Charter and Agreement. We recognise,
of course, that there are some strongly held differences of view
on particular aspects of both documents, the Charter and the Agreement,
as illustrated by the opposition amendments, but we very much
welcome the consensus over the broad direction of the future of
the BBC, if I could just place that on the record. Thank you.
On the new structure, the Board itself felt, once the air had
cleared following the huge public debate about the future governance
of the BBC, that, even though the new rules of engagement—or
disengagement—come into, as it were, legal force on January
1, we should operate within the spirit of that absolutely. As
a result of that, we have created a governance unit which depends
entirely for its pay and rations on the governors and not on the
management. There is a clear line of responsibility from the Governance
Unit to the governors, and not to management whatsoever, as was
the past: the governors used to depend for their information and
scrutiny on people who worked basically for the Director-General,
at the end of the day. So that clarification has happened. We
scrutinised with some independent consultants the licence fee
bid. We made the decision to go public on that. We questioned
many aspects of the bid that was compiled by the management. We
made quite a few changes to the bid before we were prepared to
endorse it, which we did when we went public with it. The Governance
Unit really provides the governors now with very detailed analysis
and questioning of all the documents that come out of the Executive,
and I would say it is much more efficient and there is much greater
accountability and scrutiny for the Executive than there ever
has been in the history of the BBC.
Q2 Chairman: Are there any areas
where you feel you will be able to do more once the Trust is fully
set up and operational or are you essentially already there?
Mr Grade: No, we are not already
there because we do not have the service licences in place yet.
That is the crucial step forward that will enable the Trust to
judge the performance on behalf of the licence fee payers of the
delivery of the six purposes of the BBC by the Executive. That
is the core. Those service licences are in preparation presently.
There are 27 separate service licences being prepared by the Governance
Unit presently which will go out for consultation in due course
when the Trust is in place. We have also said that, if any proposal
comes forward from the Executive before the Trust is in place
that is either a new service or a significant alteration to an
existing service, we will apply the public value test. Even though
we are not required to legally, we will of course apply a public
value test.
Q3 Chairman: Which we will come on
to in more detail. The decision about which services should require
individual licences, individual impact assessments, those will
all be decisions taken by the Trust.
Mr Grade: Indeed.
Q4 Chairman: Can I just ask the Director-General:
operating under this new rigorous regime, have you already encountered
areas where the Trust has told you that you have to do things
differently from the way you would like to have done?
Mr Thompson: You will recall,
Chairman, that before I spent a couple of years on Channel 4 I
spent some years on the Executive Committee of the BBC under,
as it were, the ancien regime, the traditional BBC governor's
role. There has been a step-change in the level of scrutiny and
it is scrutiny which is backed up by independent research and
evidence gathering. For example, the Board of Governors have employed
Deloittes as independent scrutineers of the BBC's proposals to
create a new broadcasting centre in the North of England, in Greater
Manchester, and at every stage of the process in the development
of those plans, in addition to receiving proposals from the management,
the governors have also had access to this independent work. As
with all the major decisions in front of them, I think it is adding
value. It certainly means that we are being asking questions and
in some cases being pressed in ways we would not have been under
the old scheme; in other words, pressed on value for money and
also pressed on the match between BBC proposals and the public
purposes of the BBC.
Q5 Chairman: Have there been any
examples yet where you have had serious disagreements or where
you have been stopped from doing something by the Trust?
Mr Thompson: There was a very
lively debate two years ago about the extent and the character
of the value for money savings and the programme of change that
the BBC was undertaking. In particular, I would say pressure from
lead governors—Jeremy Peat, to my right, was one of them—again
supported by external advice—in this case from PA Consulting—that
the management should think much more seriously about ensuring
that change in the organisation in the matter of efficiency was
genuinely transformational; in other words, going beyond the business
of simply looking at cost reduction and looking at new ways of
working and organising to deliver better value for money. I have
to say, that was an impetus which came from the governors, was
soundly based on evidence and materially affected the way that
I and my colleagues thought about the change programme.
Mr Grade: Could I add, Chairman,
that there are frequently robust debates between us. What we have
not had is a complete stand off on a major issue. The arguments
and the analysis from the Governance Unit is pretty effective
and pretty thorough and pretty intellectually and numerically
rigorous. Something which might start out as a major difference
between the Executive and the governors gets resolved through
evidence rather than emotion and serendipity. There have been
many, many differences but they have been resolved because they
have been based on evidence which has been provided by the Governance
Unit.
Q6 Alan Keen: Good morning. I made
a personal appeal to you last night, Michael, from the floor of
the House, to be Chair of the Executive, because of all your experience
in this, rather than, as a backstop, Chair of the Trust. We could
do with somebody, not like Zarin, but a boring old accountant,
who does not want anybody to do anything to chair the Trust and
to make sure the BBC does not do anything it is not supposed to
do, and you should be at the forefront and alongside, not helping
on a part-time basis but at the sharp end, making these decisions
based on all the experience you have got. Why is that not so?
Mr Grade: We are not getting divorced.
We still have each other's phone numbers and we will still talk
to each other. I think there was a lot of fear when I came in
that I would confuse the role of dispassionate, objective Chairman
with the role of wanting to be the Chief Executive of the BBC.
Experience has shown—I hope—and proven to the world,
that that is not the case. I think it is very important that the
operating board of the BBC under the new structure is chaired
by the Director-General, the Chief Executive, whoever he or she
might be in the future. We cannot have two lay chairmen of the
BBC running around town. It is a recipe for confusion and a recipe
for a game that the Executive used to play extremely well, which
was divide and conquer, enabling them to come through the middle
and do whatever they wanted. It has to be very clear in the governance
structure, going forward, who the Chairman of the BBC is, and
I think it is right that the Chief Executive should chair the
operating board and that the only lay chairman of the BBC should
be the Chairman of the Trust in future.
Q7 Alan Keen: Does that mean you
are not going to be involved proactively helping to drive the
BBC forward? If you are, how can you then act as a backstop? I
am referring now really to the problem with your two predecessors.
Gavin, rightly so, I thought, was involved in the proactive side
of the BBC, and therefore when there was a problem there was not
a backstop. We could have a boring old accountant as a backstop.
Nobody would mix you up with a boring old accountant, Michael:
there will still only be one chair in everybody's mind. Why does
it not work that way? I think I am right and I think the organisation
as it is now is wrong.
Mr Grade: I think one of the significant
changes in the dynamics of the Board of Governors which will be
carried over into the Trust is that there is some measure of sector
experience on the Board which has not happened before. We have
Richard Tait, as a governor, who is going forward as a trustee,
who is the former editor of ITN, and myself, with a lifetime in
the broadcasting industry. I think that is a valuable dynamic,
but the Board of Trustees is there to represent the interests
of all the licence fee payers and the value that I think I can
add from a distance is the sector knowledge that I have of how
it works and what supplementaries to ask the Executive Board.
I think that is a help but the trustees are there to represent
the interests of all licence fee payers throughout the UK and
I think the way it is will work extremely well.
Q8 Alan Keen: I will not go on about
it, but I have one last thing to say. In the system you are adopting
you are depriving the Director-General of what would be, as we
see in many commercial companies, an Executive Chairman, who is
there to rub ideas off.
Mr Grade: I think it would be
dangerous in the long term, inadvisable, to devise a government
structure built around individual personalities who are presently
in situ.
Alan Keen: I will not ask you
any more. There are so many questions we want to ask you. Thank
you.
Q9 Chairman: It does raise, however,
the root of the problem, in that you have said that you will have
each other's telephone numbers and you, as the Chairman of the
Trust, still have the job of setting the strategic direction,
but you are also expected to be the arbiter of complaints, you
are expected to be essentially the regulator. Do you not see that
even under this new separation there is still a conflict in those
two roles?
Mr Grade: I do not see a conflict
whatsoever because of the separation. The Board of Governors presently
is quite involved in the day-to-day operations of the BBC. It
will step right back from that day-to-day involvement, looking
at investment cases and the things that we presently do. We will
be able to step back; we will have distance; we will be independent
of management; enabled to devolve all the responsibility for the
day-to-day operation. Implementation of the strategy that we set
will be handed to the operating board and there will be a clutch
of senior non-Executive directors to act as a check and balance
on performance and to advise, as critical friends, the operating
board. I think it will work extremely well. The fact that we are
one stage removed, with our own governance unit, will bring an
objectivity to the governance of the BBC which has hitherto, frankly,
been sadly lacking.
Q10 Chairman: Just one small point:
you have said that you saw the Director-General as being the Chairman
of the Executive Board. That does not have to be the case under
the new structure, but it is your intention that the Director-General
will chair the Executive Board.
Mr Grade: It is indeed, Chairman.
Q11 Mr Sanders: How confident are
you that you are going to be both judge and jury in that situation?
Mr Grade: Judge and jury over
what, over the spending of the public's money? The primary responsibility
is to ensure not just that the money has been spent well but that
it is going to be spent well and you can only do that from inside
the BBC. That is the true raison d'etre for having a trust
which is a part of the BBC. It is no good some outside body coming
in afterwards and saying, "What happened to all that public
money?" when we are in a position to ensure that it is going
to be spent wisely and in the public interest. That is the key.
Q12 Mr Sanders: That sounds like
an argument against external audit.
Mr Grade: Audit is post facto.
Q13 Mr Sanders: You said there is no
point somebody coming in after the event.
Mr Grade: No, no, we have that
in any event. We have that in any event, but it is important,
since the Trust is going to be responsible for £3 billion
of public money, to ensure that it is going to be spent wisely
and then to be in a position to judge how the money has been spent.
The regulatory powers of the Trust are well defined and limited
compared to the powers of the governors prior to the Communications
Act.
Q14 Mr Sanders: One of the controversial
aspects of the increase in the licence fee is over the analogue
switch-off. In your calculations for the costs of the digital
infrastructure, what account has been taken of savings from analogue
transmission costs?
Mr Grade: May I ask the Finance
Director to answer.
Ms Patel: Our analogue transmission
costs are unnaturally low, largely because they are all fully
depreciated assets and we have been doing very little maintenance
work on them. Going forward, the new high-powered DTT transmission
network will cost us more because for the investment needed to
build on.
Mr Thompson: It is also worth
making the point that the analogue to digital television process
of switch-over begins in 2008 but much of the United Kingdom is
not switched over until 2012-13, so in this licence fee period
the BBC's bid relates to a suggestion of a seven-year period but
the duration of the period is itself obviously a matter for government.
In much of this seven-year period you are seeing simultaneous
parallel transmission on analogue and digital, until the analogue
signal is switched off.
Q15 Mr Sanders: One of the other
concerns around this is using the licence fee payer's money in
order to pay for the transfer. Quite a few commercial organisations
will be beneficiaries from the investment that has been made by
the licence fee payer. How do you justify that?
Mr Grade: I think there are three
components to digital switch-over. There are the BBC's costs of
reconfiguring its own transmitter network; there are the industry
costs of switch-over (that is to say our contribution to Digital
UK, the company that is going to manage this: we have been asked
to pay some costs for Channel 4); and the third element is targeted
help—which I think is the issue to which you are alluding.
Targeted help, which is yet to be quantified in any detail, seems
to the BBC to be entirely consistent with the BBC's mission which
is to be universally available. This is a unique event, I think,
that there is actually going to be a switch-off of analogue. I
do not think this has ever happened in the history of broadcasting.
When we went from 405 to 625, and from black and white to colour,
they did not switch off the black and white when we went to colour.
The Government is going to switch off the analogue signal and
it is very, very important that the BBC achieves its fundamental
aim of being universally available and free at the point of consumption.
To achieve that, it is going to require targeted help. That is
why we have not resisted the use of the licence fee to pay for
that. We have laid down two conditions for that, which we hope
the Government will be receptive to. One is that we do not have
to reduce existing services in order to pay for targeted help
and the second is that the cost of it is not so great that it
would bring the licence fee into disrepute with public support
for the licence fee. Those are the two conditionalities that we
have suggested.
Q16 Mr Sanders: In terms of the budgeting
for likely costs, what if they turn out to be significantly less?
Would that then be reflected in a future years' licence fee increase?
Mr Grade: Sam Chisholm, a friend
of mine, once said that in every negotiation there is a difficult
conversation. In that situation, I think we would be having a
very difficult conversation with the Government.
Mr Thompson: Absolutely, certainly
from the management side of it, the actual costs, the outturn
costs of this process, should be reflected in the overall funding
of the BBC over this period. We do not yet have a model. The Government
has yet to set out a model for what this licence fee period might
look like, but if, for example, the assumption is that you have
a licence fee which changes year on year, it seems to me that
if the outturn digital cost is lower than expected you could expect
to see a reflection of that in the out years of the settlement.
There is no intention at all on the BBC's part to ask for a licence
fee in the hope, as it were, that the actual outturn for costs
of digital is lower than expected and therefore there is free
money that can be applied to something else. We want to be completely
transparent about the actual costs. Once those costs are cleared,
if that means there is subsequent adjustment then so be it.
Q17 Mr Sanders: The person who would
make that judgment will actually be the BBC.
Mr Grade: The costs will be very
transparent on those big issues. There is no question of the BBC
keeping licence fee money that was intended for one thing if the
costs come down. There is no question of the BBC keeping the money
internally.
Q18 Mr Sanders: You said last year
that you had the proposition for satellite free-to-view and it
has not been launched to date. Can you explain why your most recent
governors' minutes edited out all discussion of the subject?
Mr Grade: There are commercial
conversations going on with potential partners which are at a
sensitive stage. The governors are deeply embarrassed that there
are licence fee payers in the UK paying for services through their
licence fee which they are incapable of receiving because free
view—for topographical reasons, transmitter reasons or whatever
reasons—is not available in certain areas. For the governors,
in all their public meetings, on the website, in their correspondence
with the licence fee payer, this is the biggest single complaint
from the licence fee payers and we have been pushing the management
to expedite these discussions. We are very keen to see that a
BBC free-sat offering, with partners if possible, is made available
as soon as possible. We believe we are making progress in that
area at last and there are active discussions going on with partners.
I do not know whether the Director General wants to add anything.
Mr Thompson: I believe that we
should launch this free-sat standard to offer licence payers/citizens
another useful choice as we come to switch-over. Sky has a free
satellite proposition currently, which is also a useful choice
for the public to have, but we believe this extra free-sat standard
does make sense. It is most likely to succeed and therefore to
be useful if it is done in partnership with other broadcasters.
It obviously needs the support of set-top box manufacturers and
others in the industry. I believe we are making progress and I
am confident that we will be able to launch this standard during
the course of calendar 2007.
Q19 Mr Sanders: Somebody needs to
put a rocket up you.
Mr Thompson: Did you say up us?
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