Examination of Witnesses (Questions 1-19)
SIR MICHAEL
LYONS, MR
MARK THOMPSON
AND MS
ZARIN PATEL
3 JULY 2007
Chairman: Good morning. This is the Committee's
annual session to coincide with the publication of the BBC's Annual
Report and Accounts and I would like to welcome for the first
time to the Committee Sir Michael Lyons, the new Chairman of the
BBC Trust, and to welcome back Mark Thompson, the Director-General,
and Zarin Patel, the Finance Director of the BBC. I will invite
Adrian Sanders to start.
Q1 Mr Sanders: Good morning. This
is really for Sir Michael, and I would like him to ignore the
two people on either side of him when I ask this question, but
how confident are you, in the light of the Public Accounts Committee
Report, of the fullness and accuracy of information provided by
BBC management?
Sir Michael Lyons: It is a searching
question. I am clear that further progress has been made to improve
accounting standards in the BBC. I would like to believe that
what you have in front of you is completely accurate. It is a
large organisation. Any company struggles to get all of its information
in place and be sure of precision in every detail, but I do not
start with any anxieties on that front. I think that is the important
message to leave you with. The Trust has been strengthened in
its scrutiny role by the strengthening and independence of the
Trust staff, and those folk have themselves gone over all the
information that we have received.
Q2 Mr Sanders: But should you not
perhaps support a full, independent scrutiny by the National Audit
Office?
Sir Michael Lyons: The step that
we have taken is to involve the National Audit Office much more
actively in the setting of efficiency targets for the future and,
indeed, in all the work that we do in terms of value for money.
So, we have moved in that direction. Whether one needs to go further,
I think let us reserve for the future.
Q3 Mr Sanders: Do you think you have
got enough resource to do the tasks that you have been given?
Sir Michael Lyons: This might
not be the last time today that I say that these are still early
days for me to reach all of these judgments. I have only been
in post for two months now. A complement was set; we are somewhat
below that complement at the moment. We have got talented people
working well. I have no reason to fault information that I have
received from the Trust Unit or, indeed, for that matter, from
the BBC Executive. I need to remain watchful. I think that would
be the message I would draw from this.
Q4 Mr Sanders: So, you are confident,
you are up and running, you have probably got enough resource
there to do the job, the information coming through is, by and
large, accurate, the Public Accounts Committee perhaps went a
little bit too far and everything is tickety-boo?
Sir Michael Lyons: As you say
that, I see a big bare picture looming in front of me. I would
like to just leave an edge of caution. If I have sounded at all
complacent, that would not be what I would want to leave with
you.
Mr Thompson: Could I add a single
prosaic sentence to make the obvious point? The accounts presented
in our annual report are subject to a complete external audit
by KPMG; so they come with the detailed scrutiny of an external
auditor to whom the Trust has direct access.
Q5 Mr Hall: Could I push you. I think
you have been slightly complacent, because the Public Accounts
Committee quite clearly said that they thought it was wrong that
they did not have full access to the BBC books. Your money comes
exclusively from public funds, so why should they not have full
access? It is no good saying they should leave it to the future.
Clearly the Public Accounts Committee wants an answer now, and
perhaps so do we.
Sir Michael Lyons: My understanding
is that the whole debate about new governance arrangements for
the BBC sought to balance two proper concerns: how the BBC could
continue to be and, indeed, we might reinforce as a nation its
independence, but at the same time to increase the level of scrutiny.
That has led to the decision to create the Trust within the BBC
but separate, both to protect the independence of the BBC but,
much more importantly, to sharpen the level of scrutiny. That
is the job we are there to do. All I am saying is we are off to
a good start. I think that is a job you should entrust to us rather
than looking for new instruments to by-pass.
Q6 Mr Hall: What would be wrong with
giving the National Audit Office full access to the BBC books?
I cannot see an argument against it.
Sir Michael Lyons: It is just
that it might not be necessary. As stewards of public expenditure,
you, quite rightly, have to make a decision about how this job
is best done at least cost.
Q7 Mr Hall: The Public Accounts Committee
says it is necessary. Otherwise it would not have published its
Report in such a critical way.
Sir Michael Lyons: I think I have
probably gone as far as I can go in justifying where we are with
the new constitutional arrangements, where we are with the Charter.
My job is actually to work within that framework, and, although
I am giving you the assurance today, it is my intention to work
within that framework, to ask the tough and searching questions
and to make sure that I have got the skills to do that job properly.
Q8 Mr Hall: I understood the National
Audit Office was asking the tough and searching questions and
the BBC were answering them.
Sir Michael Lyons: I know that.
Q9 Chairman: Moving on to your own
costs, it has cost something like £16 million this year of
which, I think, six goes on fees to Ofcom for regulatory functions.
Sir Michael Lyons: Yes.
Q10 Chairman: That means the Trust
costs £10 million, and I think you employ 42 people. That
seems rather a large amount of money.
Sir Michael Lyons: There is a
quirk in the statistics. I myself focused on that figure and looked
at what appeared to be a very high average figure, and so I sought
an explanation, which I have now got and I am glad to share with
you. The costs include the costs of Trust staff working within
the nations, a total of 19 full-time equivalents, but they are
not included in the 42 because, even though the Trust was reimbursing
the BBC for their salary and associated costs, they did not actually
move over on to the complement until 1 April. So, the figure,
the true staff reflected in those figures is the 42 plus the 19.
Q11 Chairman: Is it your ambition
to reduce the cost of the Trust in the same way that Ofcom has
been steadily reducing its cost?
Sir Michael Lyons: I think we
start from rather different starting points. Indeed, if you set
me the target of not spending as much per capita as Ofcom, I would
be very happy to take that, as an objective. I think it is too
early for me to say whether or not there is room for savings here.
As you will have noted, we are not yet staffed up to the complement
provided for. It is still very early days. The Trust is only six
months old. It is working at a real intensity as it sets up its
mechanisms for the future. I am very happy to come back to that
question in a year's time with a little more experience under
my belt.
Q12 Mr Hall: Can we now look at the
bid that the BBC made for the licence fee, because clearly you
did not get what you asked for. I think there are two ways you
can look at that. You actually put in a bid that was a reasonable
bid and the Government did not give you enough money to carry
on doing what you would expect to do, given the requirements of
the Charter, or less churlish people might say you put in an inflated
bid and that the bid that you have got is about right. What is
your view, Sir Michael?
Sir Michael Lyons: My view is
that the bidding process is always complicated, is it not? There
is a good deal of game-playing in the bidding and responding to
bids. As I have no part in that, it is best for me not to assume
that I know who played the bigger game. The line that I have taken
in coming to the role of Chairman of the Trust is to very publicly
say I am not seeking to relive the issue of whether the licence
fee settlement was the right one. It is clearly less than the
BBC asked for, but, first and foremost, it is an extraordinarily
privileged position for the BBC to be in to have complete certainty
over its income for the next six years, and that is where we should
start from: how we use the resources that are available rather
than continuing to run a campaign about how the world might have
looked differently.
Mr Thompson: I think I take exactly
the same view. I said on the day that the licence fee was announced
that I absolutely accepted, and have always accepted, it is a
matter of judgment for government to make about what level of
funding the BBC should have, and I think that when the public
looks at the BBC, the public would understand that when we think
about the future and what we could do—reducing repeats,
developing some new services—we might well want to do those
things. I absolutely accept that it was a matter for government,
and the right thing for us to do now is to deliver the best possible
range of services and programmes we can within the funding that
we have got.
Q13 Mr Hall: Which part of the BBC
is actually going to lose out because you did not get what you
asked for?
Mr Thompson: I think the first
thing to say, we are in the middle of the process right now of
looking at the period of the licence fee settlement, the next
five or six years, and sharing with the Trust the issues around
the level of efficiencies, around possible new investments and
about the possibility of moving resource from some existing commitments
to new commitments. We are going to come up with firm recommendations
to the Trust in September. I would have thought by October we
will be talking publicly about what the headlines are, I hope,
out of that process, and it is a decision, in the end, for the
Trust, not for management, but I think some things are clear.
We had a long list of things, which we set out in Building
Public Value a few years ago about the things that we could
do. We will not be able to do all of the new investments that
we wanted to do. The decision about which ones we cross off the
list has yet to be made, but clearly some of the things we would
have liked to do we will not be able to do at all or we will be
able to do to a much lesser extent than we thought we would, some
of the improvements to existing services, for example the hope
that we could put significantly more money into our children's
network, CBeebies and CBBC, that we could put more investment
into origination on BBC1 and reduce the rate of repeats further.
You will see in the report, we have reduced peak-time repeats
somewhat this year. The idea of repeating that further, I think,
is going to be very difficult. So, some of the things we wanted
to do, we will not be able to do. The other thing to say is it
is clear, even in our bid we were very clear, that the BBC would
have to go on looking for efficiencies. The Government has proposed
a target of 3% so-called cash-releasing efficiencies, net of restructuring
costs, net of any rising costs we have to absorb. Another issue
for us working with the Trust is to work out whether that is the
right number, and although I believe the technology and streamlining
the ways we work can make those efficiencies possible, in other
words keeping the same quality but reducing the amount of licence
fee that goes in, I think that is going to be a tough process
as well.
Q14 Mr Hall: Your move to Salford
Quay. That is going to happen?
Mr Thompson: That is definitely
going to happen.
Mr Hall: That is very good. Thank you.
Q15 Alan Keen: I always come back
to this subject, but I think this is one of the most crucial issues.
The Trust was formed because there was not a sufficient backstop
to save the BBC when there were serious problems. Greg Dyke was
in front of us a short while ago and Greg said that the new system
would stop quick decisions being made that were crucial in running
a business, and the BBC is a business and has to be proactive.
It is early days, I accept that. What thoughts have you had about
how you keep the right balance between stopping the Director-General
from doing anything that might be dangerous and being proactive?
I want the BBC to be proactive and do the things it has always
done. How do you balance your role between the backstop and a
supportive Chairman?
Sir Michael Lyons: I think that
is absolutely the right term. It is balance, like in any company,
frankly, in terms of challenge and support. Let me first underline
that the BBC Executive has very substantial delegated powers.
The Trust sets the framework; it sets the service licences. That
is the job it has taken over, previously undertaken by the Secretary
of State, and we are trying to be clear and methodical in terms
of our expectations of the framework that the Executive works
in, but then all editorial decisions, all programme decisions,
are taken by Mark and his Board and, quite properly, the Trust
does not seek to involve itself or second-guess those decisions;
so there are some quite clear lines that are set out. Our job
is to, as you say, be the voice of the licence fee payer, to be
challenging, but to work in a strategic direction looking into
the future, engaging very actively with the public and bringing
back challenges. I hope you feel that is reflected in our first
Annual Report, because although we are only six months into our
life and only three months relates to that report, we have tried
to be very frank about those lessons we have learned in those
early days. Can I come back to Greg Dyke's comments? I am not
sure how much time Greg spent looking at the facts, but I think
what I can say is that the Trust in its six months has not only
set itself up, has not only established a clear and testing framework
for exploring the public value in a new service, but has applied
that to the BBC and reached a decision and, through that process,
did it in two stages so that people could see its provisional
position and had a chance. There were two sets of consultation
involved in that. So, I take very considerable pride, and I am
very pleased that sitting behind me is Diane Coyle, who led that
work. That shows exactly the sort of analytical evidenced-based
public-engaged approach that I think you would expect of, and
will see from, the Trust. Similarly, the satellite service, Freesat,
had been around as a proposition for some good time before the
Trust came into existence, and, again, within that six-month window,
we have resolved a way forward, again, marked by clear evidence,
clear reflection and public access to all of our thinking and
the evidence on which we have based our decision. So, I would
like to believe we are off to a good start, and I do not see in
that the problem of us holding up the BBC other than to properly
test the public purpose and the way the licence fee moneys are
being used.
Mr Thompson: If I may give you
one more example, which is interesting, which was the partnership
between the BBC and YouTube, both public service and commercial
content to be extensively available on YouTube. This came out
of a meeting I had with Eric Schmidt, the Chief Executive of Google,
just after they had bought YouTube just before Christmas last
year. By the end of February, very beginning of March, we had
been through all the improvements and had the BBC content up on
the site. So, that is eight or nine weeks from first conversation
to actually delivering. That is ahead of all other UK broadcasters
and pretty much all broadcasters in the world, including the networks
and the Hollywood majors. The Trust, by the way, came into existence
in that period. I think there is good evidence that when we have
to move quickly we can do.
Q16 Alan Keen: You did tell Michael
about it!
Mr Thompson: We did.
Q17 Chairman: Can I return to the
licence fee. Mark, you have been very successful at persuading
the media that the BBC has been subjected to a pretty savage squeeze
as a result of the settlement, with the result that you are going
to have to make some painful decisions which are going to lead
to redundancies; but the truth is that you have a guaranteed increase
in real terms every year at a time when no other broadcaster could
look forward to that. The famous jacuzzi still has the plug in;
the money is there. Why are you having to talk about making major
redundancies and cut-backs when actually your income is going
on increasing?
Mr Thompson: Firstly, and obviously
I know you are aware of this, Chairman, our income now depends
on the running rate of inflation over the next couple of years;
so there is some inflationary risk in the numbers. Let us see
what outturn is in terms of inflation. It is also true that the
projected increase in the number of households, although clearly
that potentially can lead to a significant growth in income, our
view is that the nature of the household growth is going to be
relatively harder rather than relatively easier for the BBC to
monetise because of the kinds of households that are emerging,
but the most important point is that the mission the BBC has been
given in this period is not to just maintain its existing services
but to invest heavily in broader digital infrastructure. We have
the task of building out the digital television and radio transmitter
chains, the television transmitter chain from 85 or so DTT transmitters
to over a thousand, to make universality after switchover possible.
We have the industry costs for digital to pay for, we have the
Government's targeted help scheme to pay for and we have some
other quite big commitments of our own around infrastructure,
notably Salford. So, this is a period where we are being asked
to invest very substantially in the future, our own future and
the future more widely of the broadcasting industry, at a time
when we want to and the public want us to increase the quality
of existing services. When you look at the mission, it is an expanding
mission, with licence fee incomes which possibly may go up very
slightly in real terms in aggregate, but in terms of the money
available for existing services, it will go down.
Chairman: Following on from that, Rosemary
McKenna.
Q18 Rosemary McKenna: Good morning.
Could you tell us a bit about your plans for reprioritisation,
if what you are saying is you have to work on a smaller budget,
the £2 billion black hole. Where can you do the same things
differently and where should you do less of the same things?
Mr Thompson: I will begin, and
we might want to talk about the process. My job, in the end, is
to come up with recommendations and proposals for Michael and
the Trust to scrutinise, and the Trust has to have regard both
to value for money but also to quality, making sure we are maintaining
the quality of what we do. Let me tell you some of the themes
that we are looking at, Rosemary. Firstly, it is a BBC which in
many ways is going to have to get smaller, and after years where
each year we have been making more output, more hours of television,
more hours of radio, more pages on our website and so forth, I
think it is likely that we are going to have to start making less
and using the technologies to exploit what we make more thoroughly.
That can be things like the iPlayer so that people get more opportunities
to watch our programmes on television or to listen to our programmes
on radio. It may also be the use of more so-called narrative repeats
across our networks. So, if Dr Who is on a Saturday, can
you see it a number of times on BBC3 as well as on BBC1. I think
concentrating on a slightly smaller amount of really high quality
content is the first thing. The second thing is looking at multimedia
production. In areas where we have got a television operation,
a radio operation and an online operation, can we bring these
together? Media companies around the world are trying to do this.
In every city I go to round the world they are talking about how
you might do this, create multimedia content creation potentially.
It does not just offer efficiency savings but, given the way our
content is being used now, it may mean the content is more fit
for these new platforms and new services. The third thing is just
using technology to drive efficiency and productivity. Somebody
gave me a high-definition camera to have a look at and to play
with. This is a camera which produces high quality pictures for
most of the equipment we use at the BBC. It does not record a
tape, it records straight to a solid state memory chip and it
costs £750. When I joined the BBC in 1979 the reflex camera
that we used cost £35,000. So, there is an extraordinary
revolution going on in technology.
Q19 Rosemary McKenna: That is saving
a lot of money then?
Mr Thompson: Potentially. To be
honest, an £800 camera probably will not work for our needs
as professional broadcasters, but there are three or four thousand
pound cameras that will do—
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