Examination of Witnesses (Questions 40
- 59)
MONDAY 7 NOVEMBER 2005
BBC
Q40 Mr Williams: Why was it not possible?
You just have negotiations, as every other Department has done?
Mr Peat: We did not have the credit
rating which was essential in order to go down that route. Indeed
the bond market conditions would not have made sense.
Q41 Mr Williams: Do you mean that
the market saw you as a bad bet?
Mr Peat: No, I mean the bond markets
have changed substantially and we did not have the credit rating
which was necessary to access bond finance. By the time we came
to the re-financing, we were able to take advantage of very favourable
bond markets and achieve a bond rating which made access to appropriate
sources of funds achievable. That has now been achieved and I
think the cost of the re-financing is very much to be admired.
Mr Thompson: We should also just
briefly say that this Report by the NAO is a very useful Report.
We shall try to learn from its conclusions and ensure that they
are built in at the start of new projects. I have to say that
this Report is a good example of the current arrangements working
rather well.
Q42 Chairman: Surely it shows that
the huge rearguard action of the BBC in resisting the right of
Parliament to oversee your accounts and the way you carry out
commercial exercises such as this was totally misconceived, that
you had to be dragged kicking and screaming to Parliament to justify
yourselves. You actually have nothing to fear. Mr Peat said this
was a good contract. That we may have differences of opinion does
not matter. Surely, as you yourself have made clear Mr Thompson,
what we have already heard, even in the first half an hour of
this hearing, vindicates the right of the Committee of Public
Accounts to have full rights of access to you on behalf of the
licence-fee payer, who frankly has no choice in what is really
compulsory taxation. It does vindicate what we have been saying
all along. You have nothing to fear from this process, have you
Mr Thompson?
Mr Thompson: My job as Chief Executive
and as the leader of the management of the BBC is to operate under
whatever systems of accountability are set by our governors, by
Government and Parliament. There was an extensive debate the last
time I was present as a witness in front of the PAC airing the
broader issues. I would want really to restrict my remarks to
saying what I have just said, which is that this has been a very
useful Report, we will learn from it. I think it demonstrates
the current system seems to be working; the experimental system,
as you termed it, is working rather well.
Mr Peat: All I would say as Chairman
of the Audit Committee is that we have found the two Reports which
NAO have undertaken for us extremely valuable. We look forward
to three more pieces of work, one of which has started, two of
which are about to begin. We are very happy to discuss with the
Comptroller and Auditor General other aspects as the programme
unwinds. We have a series of studies which have been undertaken
by others as part of the value for money programme, two of which
have been submitted to you for this hearing. We benefit hugely
from those studies and we really do appreciate and have taken
a number of lessons out of this Report and the other Reports to
the benefit of value for money across the BBC.
Chairman: Thank you very much and we
appreciate having you in front of us too.
Q43 Greg Clark: May I start with
the declaration that I was an employee of the BBC from 1997 to
2001? I worked with John Smith and Mark Thompson, but not, to
the best of my recollection, on any matters that we have before
us today. Having said that, may I start with the updated note
we have had from the BBC since the Report, which gives a revised
vision of the property portfolio. I see from that that two buildings
have disappeared from the map: one is Woodlands and the other
is Millbank. Can you confirm that Millbank is to be closed down
and Woodlands is to be disposed of? Would that be correct?
Mr Smith: Woodlands will definitely
be disposed of; we have no plans to get rid of Millbank. It is
possibly because it is just outside the geographic scope of the
West One Village area that it does not appear on the map.
Q44 Greg Clark: So there is no significance
to be read into its omission.
Mr Smith: No, but Woodlands definitely,
absolutely, is to be disposed of.
Q45 Greg Clark: Woodlands, as I recall
it, is the home of BBC Worldwide Limited, the commercial subsidiary.
Mr Smith: Yes.
Q46 Greg Clark: Where is it planned
that the employees there will be going?
Mr Smith: Somewhere on the W12
site. Somewhere around the buildings which are the subject of
this NAO Report. The actual location has to be decided.
Mr Thompson: As you would expect
with an organisation like the BBC, it is a jigsaw and not all
of the pieces of the jigsaw are clear yet. For example, the proposed
move to Manchester has yet to be decided upon. As has been alluded
to already, Manchester would have a significant impact on our
need for property in London. Once it is clear what is going to
happen with Manchester, then the precise movement of the remaining
pieces in the W12 jigsaw will become clear. The expectation is
that the BBC will consolidate the media village and television
centre on the site west of Wood Lane and dispose of its properties
to the right, to the eastern side of Wood Lane.
Q47 Greg Clark: So Woodlands would
go and people would go into either Television Centre or White
City.
Mr Smith: Yes.
Q48 Greg Clark: When they go there,
it is very important, you will agree, that as a commercial subsidiary
they pay the appropriate market rates for that. Would they pay
the market rent if they were to go into White City, or the cost
of accommodating them? In other words, the cost that the BBC pays
for that space or the cost that would be available on an open
market?
Mr Smith: It is pretty essential
that the commercial subsidiaries are not given any kind of subsidy
by the licence-fee payer, so, as a minimum, they have to be charged
the cost to the BBC and where the market rate is higher, they
would get charged that.
Q49 Greg Clark: We know that in the
case of the broadcast centre, the BBC pays £42.92 per square
foot according to the C&AG whereas BBC Broadcast pays £25,
that being a benchmarked market rate which is rather less than
the BBC pays. We know that in the media centre the market rate
is £22.50 and the BBC pays £38.80. Can you reiterate,
Mr Smith, that BBC Worldwide will pay what you have just told
me is what the BBC pays for that?
Mr Smith: Yes, I certainly can
and I might just turn, if you do not mind, to Mr Chris Kane to
add some texture to that. The figures quoted in the Report for
BBC Broadcast Limited were as at the time of the Report and it
is not an exact apples and apples comparison as Mr Kane will tell
you. By the time we sold that company, as you know we have now
sold it, the deal with them was put onto exactly the same footing
as I am describing would be the one for BBC Worldwide as well.
Mr Kane: As John was saying, the
comparison in rental valuations is not precisely apples for apples.
The rental valuation provided to the National Audit Office by
Lambert Smith Hampton was based on a 10-year lease with five-yearly
upward-only rent reviews, whereas the broadcast arrangement was
in line with our unitary charge under a 30-year period for the
outsourcing. So in terms of pure apples for apples on a pure rental
basis, there is a difference. Holistically, the BBC has collected
all the money it has expended under the unitary charge payments
to Land Securities from all its commercial affiliates. We have
achieved full recovery both under the old unitary charge basis,
which was in existence up until the spring of this year, and we
are currently recovering a full amount from broadcasting as we
speak today.
Q50 Greg Clark: But you have had
to change the basis on which this was done and Mr Thompson in
his earlier remarks commented on the specialist fit-out of the
new White City centre. If what you are doing is moving a commercial
subsidiary, many of which do not require studio space and specialist
equipment, into a property which is especially kitted out for
that purpose, why is that an appropriate building for these people?
Mr Thompson: We will ensure that
the office space into which we move Worldwide is appropriate for
their needs. Across the W12 properties as a whole, we have a very
wide range of different kinds of spec, including the totality
of television centre. We are confident we can find a good match
between the needs of different parts of Worldwide and the range
of property we have available.
Mr Kane: If you look at the two
buildings, the broadcast centre, as you may recall, was particularly
designed as a play-out centre, whereas the media centre was designed
primarily as an office purpose with the flexibility to adjust
for broadcasting and indeed no less than a year in, we are already
planning to put programme makers into that building thus justifying
the investment we made at the outset.
Q51 Greg Clark: What I do not quite
understand is that there is a statement in the Report, paragraph
17, page 3, which says " . . . the BBC is confident that
the new buildings will be fully occupied" yet we have, as
was pointed out in earlier questions, a situation in which about
4,000 people are going to be made redundant or the payroll will
shrink by nearly 4,000 people and about 1,500 people will go to
Manchester. In other words, there are going to be at least 5,000
fewer people required, yet the buildings are going to be full.
How can this be?
Mr Thompson: We have identified
a large amount of space in London which we expect to vacate over
the period. In terms of initial reductions, we know of at least
750,000 square feet of accommodation of which, for example, Woodlands
represents 330,000 square feet, which we will vacate over the
coming year. So we will consolidate into the property we have
talked about, television centre, media village, West One and indeed,
since you mentioned it, Millbank.
Q52 Greg Clark: The problem is that
you have built a very high spec specialist centre here and you
are moving in office workers effectively to fill it up at great
expense.
Mr Thompson: There is a nuance
here which is worth exploring. We are saying that we believe that
as far as possible there should be a significant mix of programme
makers in the media centre. Across the W12 property as a whole,
we have quite a lot of general office space as well and there
is no reason at all why we cannot get a good fit for the different
departments, the different parts of Worldwide, the programme-making
departments and the other operations of the BBC, in the portfolio
of different kinds of accommodation we have in West London. Despite
the Manchester move and therefore the net increase in square footage
in Manchester, we believe that the reductions in square footage
that we can make across the London site mean that we will have
a more efficient use of property and the numbers of square feet
per employee will reduce over this period even after taking the
value for money headcount reductions into account.
Q53 Greg Clark: Worldwide will be
happy to pay the costs they will be charged and this will not
disadvantage them commercially in any way. The prices are comparable
to what they could get in any other part of London.
Mr Smith: To be honest, and I
speak as the chief executive of Worldwide, there is a lot to be
said for being relatively close to BBC programme makers. It is
worth paying a premium to get that.
Q54 Greg Clark: May I ask a question
about borrowing? The BBC's borrowing is limited to £200 million,
as I understand it, and counts towards the PSBR. Mr Thompson,
does Channel Four's borrowing, on the basis of your experience
there, count towards the PSBR?
Mr Thompson: I cannot recall whether
it counts towards the PSBR. What is certainly true is that Her
Majesty's Treasury insisted relatively recently on imposing a
£200 million borrowing ceiling on Channel Four as well.
Q55 Greg Clark: But Channel Four
has a much lower turnover.
Mr Smith: Yes; much lower turnover.
Q56 Greg Clark: If we look into the
future and expect, perhaps hope, that the BBC is a major global
player, to have a borrowing limit that is the same size as the
fourth UK channel, very much domestically oriented, seems a little
out of sync. Perhaps you would agree.
Mr Peat: May I just provide a
personal response on that? I agree with you Mr Clark; that was
the limit which was set for the present charter. In the context
of charter renewal, we have already had first discussions with
the Treasury about that limit and about how we should take matters
forward.
Q57 Greg Clark: What limit do you
think would be desirable for the BBC's ambitions?
Mr Peat: We are not at a stage
where I can give you an exact answer to that. It is very small
in the context of the turnover of the company and certainly we
should want to look at what sensible borrowing by the BBC would
be, given its programme of capital expenditure and other activities
over the period of the new charter. We have begun that process
of looking at it, but we are not at a stage where I can give you
an exact figure. Certainly we would wish to discuss with the Treasury
during the period rolling up to the new charter what was appropriate
and what would not be such a constraint as to risk damaging value
for money for the BBC.
Q58 Greg Clark: Final question for
Mr Thompson. Given your plans for the increased role in the BBC
around the world, do you find, compared with other competitors,
CNN comes to mind and some of the Murdoch channels, that the lack
of access to the capital markets is a serious constraint or is
it a minor matter?
Mr Thompson: The first thing is
that the BBC has the enormous benefit and privilege of the licence
fee and the BBC has shown over 80 years a considerable ability
to reinvent itself, modernise itself and continue to serve audiences,
both in the UK and around the world, despite being constrained
in what it can achieve commercially. Some years ago the BBC entered
into a strategic partnership with Discovery around the world,
whereby the BBC was able to get significant revenues into its
programme-making stream, launch the channel BBC America in the
United States and indeed participate in channels around the world.
The BBC's reputation, the attractiveness of the BBC brand and
BBC content around the world means there is a great deal we can
do through partnership rather than through access to the capital
markets.
Mr Smith: One other comment would
be that we have had the benefit of access to the capital markets,
even though it has not counted against our borrowing ceiling of
course, by issuing the bonds for these buildings.
Q59 Mr Bacon: Mr Thompson, you said
earlier, and I wrote it down, that at each stage of the process
this had saved the public money. In paragraph 19 it states that
the land was purchased in 1985, which was 15 years ago. If you
sat on this land for 15 years, 3.8 hectares of undeveloped land
purchased in 1985, how can that be a process which saves the public
money?
Mr Thompson: The BBC took the
view in the 1980s, and you will appreciate that I was not directly
involved in the decision-making, that it should begin to think
hard about its property requirements around the UK, but particularly
in terms of West London, and make sure that its property holdings
were future proofed. Several BBC sites, a good example would be
Queen Margaret Drive in Glasgow, land locked and very small, have
acute issues in terms of modernising and developing our services
to the public. The view was that the W12 series of buildings was
a very important engine room of television and news production
in the BBC during this period. They took the view that it was
right to secure the site, it was the site of the 1908 Olympic
Games, subsequently a dog track, as part of a long range plan
to rationalise its buildings and that, over the last 20 years,
has happened.
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