UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 572 -i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

FOREIGN AFFAIRS COMMITTEE

FCO PERFORMANCE AND FINANCES

WEDNESDAY 3 NOVEMBER 2010

VERNON ELLIS, MARTIN DAVIDSON, PETER HORROCKS AND RICHARD THOMAS

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Foreign Affairs Committee

on Wednesday 3 November 2010

Members present:

Richard Ottaway (Chair)

Mr Bob Ainsworth

Mr John Baron

Sir Menzies Campbell

Ann Clwyd

Mike Gapes

Mr Frank Roy

Sir John Stanley

Rory Stewart

Mr Dave Watts

Examination of Witnesses

Witnesses: Martin Davidson CMG, Chief Executive, British Council, and Vernon Ellis, Chair, British Council, gave evidence.

Q1 Chair: I welcome Mr Vernon Ellis, the chairman of the British Council, and Martin Davidson, the chief executive-a very warm welcome to you both. Mr Ellis, I think you would like to make a short opening statement before we get into questions.

Vernon Ellis: I will keep it very brief if I may, Chairman. I thought it might be worth setting in context, first of all, who I am. I have been chair since 25 March this year. My background was 41 years at Accenture, where I led its operations in Europe, the Middle East, Africa and India, and then I became international chairman. Over the past decade, I have also had an increasing involvement in the arts. Since the end of 2005, I have been chair of English National Opera.

When I was approached in January to see if I was interested in being appointed, there was, of course, a competitive process and I dug around to find out a bit about the British Council. I had three impressions. One was that I was very impressed by the wide range of activities, the impact they seem to have and their importance to the UK. Secondly, perhaps because of that wide range and because it had developed into quite a complicated organisation, it was hard to get to the essence of what the British Council was about. Thirdly, I thought that my experience was relevant to the skills listed as requirements in the brief, and that I would bring something to it.

Since joining, I have spent a lot of time on it-the six days a month was an expected underestimate-and I have travelled a great deal. I was with the Prime Minister’s trip to India and I am going to China and other countries. The impressions I have got over those six months have confirmed all those three impressions; but, even more so, have confirmed that it is an important organisation, which can and does make a big impact. But it is also a little fuzzy and a little complex. I recognised from my experience at Accenture that it was on a journey of getting its arms around a very disparate set of countries around the world. Two things seemed to be important. One was to clarify the purpose; the other was to simplify the organisation.

Its purpose is not very different from what we have said. It is about creating international opportunities for and trust between the people of the UK and other countries. We do it by using our great assets: the English language, higher education and the arts. In terms of organisation, perhaps that is the key, because if we focused very precisely on geography and three sectors-English and exams, education and society, and the arts and culture-it would perhaps be a simpler organisation than the one we have at the moment.

I will close by saying that I have been absolutely delighted by the rapport I have had with the executive. At the end of the day, they have to manage-not me-the degree to which they experience things that have been useful. Lastly, on the rapport and engagement of the trustees, it is really important that we have trustees who are involved and committed. We have made a lot of progress, but I am hugely optimistic about the future.

Q2 Chair: Thank you very much. Some of us were in Afghanistan last week, we visited the British Council there and we were quite impressed by what they were doing-it was a good visit.

Vernon Ellis: Good.

Q3 Chair: Can I take you back to the events of the last couple of months and the fairly significant spending review that was announced a couple of weeks ago? How did the dialogue go with the Foreign Office and the Treasury and was there any point when your future as an NGO was threatened?

Vernon Ellis: Not explicitly, at all. There was no dialogue with the Foreign Office about an agenda to cut us. Right from the beginning the Foreign Secretary has indicated-publicly in speeches-that he regards the British Council as an important arm. It is a subtle thing, because the benefits are oblique, rather than direct, but it brings benefit and it is an important part of our integrated approach overseas. Of course, one only has to read to know that there must have been questions from some quarters, but it has never been part of the agenda with us. Martin, you have been more deeply involved in the actual dialogue than I have, although I have interacted with the Foreign Secretary on one or two occasions and it did not come up then.

Martin Davidson: Obviously the question was asked, along with other NDPBs, but I do not think that we felt at any particular time that there was an agenda for the British Council to be abolished.

Q4 Chair: How did the conversations with the Treasury go? Did you have the conversations with the Treasury, or was it directly with the Foreign Office?

Martin Davidson: Obviously, as an NDPB under the Foreign Office, we have to direct much of the conversation through the Foreign Office, but we also have a separate conversation with the Treasury. The conversation was very much as one would expect. What is the value to the UK of the work of the British Council? How do you demonstrate value for money for the expenditure that the British Council undertakes? Are there ways in which the British Council can do the work that we do at the moment in a cheaper and more efficient way? That was the nature of the conversation that we were having.

Q5 Ann Clwyd: Can you tell me what activities the British Council will need to stop or curtail to meet the 25% cut in spending? Can you give us an overview?

Vernon Ellis: There are perhaps three areas that I would pick on. First, as I have said, the journey we have been on is to try to get more integration and more synergy. That has meant building some programmes and functions at the centre in order to do that. I think that we have reached a point where a lot of that could be done more naturally with a simpler organisation. There is a cost to be saved at the UK end in the headquarters. Quite a lot has been done already, by the way. A lot of the cost was taken out last year by moving some functions to India, offshoring them, and by rationalising some other functions, but I think that we all agree that more can be done in London.

Secondly, in terms of activities, the area that is perhaps hardest to get your arms around is what we call "society". We are seeing education as a society. There is a seamless run from education, higher education, schools, schools linkage, inter-cultural dialogues and so on. At one end of that you might say, "Are we really making a sustainable impact, or is it just making a nice dialogue and making an individual impact on individuals?" I think that there are some programmes that we can cut out.

Thirdly, we will have to look at our geographic coverage. We very much do not want to pull back. We see our local coverage as being essential to our role, but maybe there are some cleverer things that we can do on cutting costs, on doing things in new ways, on perhaps having hub and spoke, but in some way rationalising some of the operations, particularly in smaller countries.

Q6 Ann Clwyd: In addition to the grant in aid from the FCO, you receive over £10.5 million in education grants from other Departments-from the Department for Education, from the Department for Business, Innovation and Skills and from the three devolved Governments. Following the spending review, will you continue to receive that funding and will you continue the activities that funding supported?

Vernon Ellis: I will turn to the chief executive for a more detailed answer, but the general answer on that and other things that are funded under grants-usually for full cost recovery work or other grant work-is that it would depend on their detailed review following the spending round. We won’t yet know the answer to all that. Martin, you might want to expand on that.

Martin Davidson: For example, the grant from the Department for Education, about £7 million last year, was very much about links between schools in England and other countries, and support to teachers to gain international experience. From the Department for Business, Innovation and Skills, it was to support the promotion of higher education and the recruitment of students into the UK through the Prime Minister’s initiative and specific work on developing a stronger education link with India. We are having discussions with those Departments at the moment on what they feel they will be able to continue, but on our side we believe that the opportunities to build stronger links between schools and to give young people who are here in this country an opportunity to gain international experience-albeit largely through internet or IT-based exchanges-are all very important initiatives. The money from the three devolved Administrations was very much in support of those same programmes. In addition to that, Scotland, for example, supported staging the Black Watch play by the National Theatre of Scotland in Washington and New York, where it had the most extraordinary reaction from the audience. The play is about the reaction of ordinary British troops to serving in Iraq.

Sir Menzies Campbell: I saw it in Brooklyn.

Martin Davidson: The reaction from the audience was truly extraordinary. Those grants from the other Administrations and the other Departments are important for us, but we have to recognise that in the present circumstances it is likely that they will be reduced.

Q7 Ann Clwyd: You also raised, I understand, about 70% of your money through commercial activities. Can you explain what those are?

Vernon Ellis: The bulk of those are English and exams. As I have been around, I have seen the value of that, not just in the commercial raising of income, but the linkage to our other activities. There is a huge demand for English around the world and it is growing hugely in countries like China, but there is still very strong demand in places like Spain and Italy where we have very active teaching centres. I was in Rome last week for the opening of a new Rome office, which is very profitable. English also extends into other parts of our work. What we are doing in India is funded partly by state Governments there. That is not through language teaching centres; it is training master trainers, who train teachers who then reach out to 14 million children. So we see English as being very synergistic with our overall mission.

Similarly, exams are quite profitable. A lot of them relate to English-they are English exams, IELTS with the Cambridge exam. What we are selling is decent premises and decent supervision, but above all trust. That is why I think it has something to do with our mission. Our brand is associated with trust because they know they are not going to have a corrupt overseer. They know that they will be decently housed, that they will be able to take their exam in private and that their results won’t be tampered with.

Q8 Mr Baron: May I press you on that just a little? There seems to be an assumption about the ongoing negotiations, as regards the settlement as I understand it, that you will have to become more entrepreneurial. Now, you did well last year. There was a 9% increase in your income. Can you tell us a little more about how you are going to become more entrepreneurial, if that is the case? Perhaps that is one reason why you were approached, Mr Ellis. Can you also enlighten us or assure us that, if you are going to become more entrepreneurial, it will not affect or diminish the brand of the British Council?

Vernon Ellis: If I may say so, that is a very good question. I had the same sorts of questions when I first started talking to the Council, because it seemed to me that you had to beware that there could be a dichotomy or a strain-that the more you become commercial, the more you put in the type of commercialism that would maximise that, the more you concentrate on, for example, places in Europe, where it is nice and easy and profitable, the more you might diminish your capability overall. I think that I have reconciled my mind in the following way. I am not saying it is easy, because you do touch on a thing, but I think we can manage the growing commercial aspects while, at the same time, having an English language programme that embraces not only those commercial activities, but the wider aspects of the use of the English language. There is no doubt that our brand, and the reason we are a premium supplier in most countries, derives from the fact that it is the British Council. They actually like the cultural associations. They like the high-quality teaching that they get. But I firmly believe that, if you were, for example, to say, "Well, why don’t you just sell them off to somewhere else?" it wouldn’t be worth as much as it is now, because it would lose something of that distinct brand. If that is so, we have to be very careful to maintain that. You’re absolutely right. I think it is something that we have discussed a lot. It is of such importance that I don’t know whether you want to add to that, Martin.

Martin Davidson: The area that I would also like to add is that an important aspect of our income is support from commercial organisations through their CSR works. In the report period, something like £50 million was raised through partnership with commercial organisations. I think that part of the future for us will be to develop stronger links with other organisations that are prepared to support and work with us.

One example is that I will be talking later this afternoon to the head of the Microsoft learning network, which is particularly interested in working with us on school-linking in sub-Saharan Africa and will, we hope, be wanting to partner with us, including financially, to develop those school links. If we aren’t able to maintain the level of school links that we have at the moment, we are looking for other partners that are able to work with us to do that, and they want to work with us, because of the brand and the sense of an organisation that is, yes, delivering something of value to the UK, but also delivering something of value to the places where we are working.

Q9 Mr Baron: That is very good to hear, but do we have your assurance, or a certain assertion, that the brand will be protected? One can think of other examples where commercialism has represented a sacrifice and is not to the long-term well-being of the organisation in question.

Vernon Ellis: I have thought about this a lot, and I think it is really important. We can be more entrepreneurial without destroying it. If I thought that it was an impossible dichotomy, and you really can’t do it, there would be a case for selling-off, but I think there is weak case for selling-off as it stands now.

Martin Davidson: The one thing we do say to all our staff when we start thinking about this is that we have a double-bottom line. We need both the commercial gain, but we also need the impact, the sense of a partnership and the building of trust through the commercial activities. Both of those things have got to be part of the agenda for the future.

Q10 Mike Gapes: May I switch the focus a bit? Last week, the Foreign Secretary wrote to our Chairman, and included with his letter was an interesting paragraph about what he expects the British Council to do to help reduce the deficit. The phrase that I would like to quote to you is to do with overseas development assistance, because I am not clear what it means and perhaps you will be able to explain it to me: "I am also asking the Council to meet an ambitious ODA target, and I expect to start a strategic dialogue with the Council quickly to agree how best to maintain the Council’s significant global impact, and target it to greatest effect in these new circumstances." Can I take it from that that, somehow or other, you are going to be used to pay towards some of our overseas development spend, rather than it coming out of either the FCO’s budget or the DFID budget?

Vernon Ellis: Already, I think 40% of our grant is classified as ODA. There is a very precise definition of ODA, which is laid down by the OECD.

Mike Gapes: Yes, I am aware of that.

Vernon Ellis: A lot of what we do naturally falls into that. Indeed, when you look hard at it, you can increase that still further. If you increased it more and more every year, it would inevitably mean that you would, indeed, take away some of our work. There would also be some interesting discussions, which will no doubt follow, about what ODA is and what work we do and how that aligns with Britain’s objectives in that area. For example, I believe that there is a very valid argument for arts for development. Establishing artistic institutions that give freedom of expression, that enable difficult topics to be discussed and provide outlets for local art on an international scale, is part of development. They can link on to cultural activities.

Certainly, as DFID was-I am not saying as it is now-that probably wouldn’t have been high on its agenda, because it had a higher priority of immediate poverty relief. With the way it is looking now-much broader-and the way that the Foreign Secretary, I think, sees development as a broader institution, I can see that falling more naturally. It is those kinds of discussions in detail that will come in due course, no doubt, but I don’t see a big threat to us, implicitly, in what the Foreign Secretary has written there. In fact, I think we’d welcome it.

Martin Davidson: Yes, we would see our work in English-English for development, the development of higher education and education more generally, and the work of arts within development-as falling within the OECD definition of ODA. That is where we see ourselves focusing.

Q11 Mike Gapes: Can I be clear? Are you saying that, at present, the British Council is spending in particular in areas related to art and culture, which could be included within the ODA definition, but are not? The implicit consequence of that, therefore, is that by counting what you are spending as part of the ODA, the Government could reduce their spend on poverty reduction in the DFID budget but still stay within the 0.7% target, because they don’t count what you do as being part of that 0.7%.

Vernon Ellis: I do not think that we can speculate on what the Government might do.

Q12 Mike Gapes: No, but am I correct in saying that you do things at present that are not counted within the ODA definition of the UK Government, but are counted within the ODA definition of the OECD?

Martin Davidson: At the moment, we calculate that something like £40 million of our grant has traditionally always fallen within the ODA definition, because that part of the grant was given to us from DFID about 10 years ago. Looking at the work that we do at the moment, we estimate that double that figure could possibly be submitted.

Mike Gapes: So if I am right, the definition could be changed to the OECD definition, and, by implication, a reduction could take place elsewhere and we would still meet the 0.7%.

Q13 Mr Ainsworth: We are not distorting the work that you do. We are effectively re-badging it so that it is ODA accountable.

Martin Davidson: That is probably correct, yes.

Q14 Mike Gapes: You referred to art and culture, and when we were in Pakistan last week we had a very interesting discussion with some British young people, who were taking part in an exchange programme, which I think you had something to do with. That was very interesting and very good.

We also had discussions in Afghanistan about the Chevening scholarships. If I have remembered correctly, and I may be wrong, I was told that there were some 800 applicants, but only eight people from Afghanistan go through the Chevening programme, which is obviously a very small number of people. Do you have any say in the prioritisation of countries? I know that you administer the Chevening programme for the FCO, but do you actually have any say in which countries and how many people there will be from each country?

Martin Davidson: On the whole, no we don’t. We act very much as an agent for the Foreign Office in administering the scholarships, but the decisions on the prioritisation of countries is made by the Foreign Office.

Q15 Mike Gapes: So they give you a number?

Martin Davidson: They essentially give us a number for individual countries, and we administer that within the countries.

Q16 Mike Gapes: Then you have to be sure that the people who make the application and qualify for the scholarships are those who are really able to come through the system, and have not been put in by some corrupt Minister somewhere because they are his nephew.

Martin Davidson: That is absolutely correct. It varies from country to country, but in essence our job is to ensure that the right people are selected, that they have the qualifications and that they will benefit.

Vernon Ellis: You probably know, but the number has been reduced. The grant has been halved.

Q17 Mike Gapes: Because of the CSR?

Vernon Ellis: The decision to halve the grant for that area was actually made in May this year.

Q18 Mike Gapes: What does that mean for you in the long term? Does that mean that there will be half the number of places available, or, given the admin costs, is the impact bigger than that?

Vernon Ellis: The precise number according to our estimates is that we were administering 1,000 awards and we are now at 580.

Q19 Mike Gapes: Do you have any view on what the CSR will mean in the long term?

Martin Davidson: I do not think that we are aware yet of what the outcome will be. The one thing that I would say is that, from our perspective, the Chevening scholarships are an extremely valuable contribution. Some outstanding people from across the world have taken them and are now in positions of real importance. We would very much want to see the scholarships remain as an element of the UK’s wider projection.

Q20 Mr Watts: On the subject of value for money and efficiency, you have been very successful in reaching the targets set by the previous spending review. What are the implications for the organisation in doing the same through this spending review? Are there any risks or problems associated with your decision to locate the financial processing centre in Delhi? Could you just outline how you view that decision?

Martin Davidson: We have been effective in meeting the efficiency savings, and it has been with real pain within the organisation. With the fall in the value of the pound two years ago and the loss of the overseas price mechanism, which compensated for that, we made a decision that we had to radically change the way in which we worked if we were not going to become an organisation that spent purely on being there and not doing anything. We made a decision to establish two principal changes. First, we decided to establish a support services hub in Delhi to bring together all our global finance, IT and increasingly HR work into that one location. Secondly, we radically changed the way in which we do our support for the operations here in the UK.

The Delhi hub opened in May. It has gone relatively smoothly; there have been some problems along the way, but they have not been significant. We have been very conscious of the potential dangers of having all our eggs in one basket, and as part of the development of the hub we also have a secondary facility based in India where we could transfer activity if that hub became unusable for technical reasons. We are also maintaining a skeleton staff in Warsaw and here in London. If India as a whole became unusable, we would be able to pick up and manage our activity from those two locations. So we have multiple layers of contingency planning to ensure resilience of the system.

Q21 Mr Watts: The general thing about this spending review is that you have already made substantial savings in efficiency. You would think either it was a very inefficient organisation to start off with, or you were now getting to a stage where they are not really efficiency savings but cuts.

Martin Davidson: Indeed. It is an area of real concern to us. We reduced our staffing over the past three years from something like 1,250 in the UK down to 800. I anticipate that we will want to reduce our headquarters yet further. The truth of the matter is, like many other organisations, we have been largely bureaucratic. We are wanting to move ourselves to being much less bureaucratic. That will probably mean reducing our headquarters staff quite significantly over the coming period. That does not necessarily mean having a lot fewer people in the UK, because we also have the UK operation as well as the headquarters, but I would see us becoming a much smaller headquartered organisation in the UK.

In order to manage a 25 or 26% reduction, we will have to do business in a different way. In particular, as the Chairman said a little earlier, that means stopping doing some of the work that we do at the moment and thinking about our physical presence overseas in very different ways. A physical presence is extremely expensive-the buildings and the necessary wraparound for that-and I think there will be a number of places where we will probably have a virtual wraparound for that. I think there will probably be a number of places where we will have a virtual rather than a physical presence in the future.

Q22 Mr Watts: Do you have any feel for how that 25% cut will be split between what you stop doing, and greater efficiency through less bureaucracy?

Martin Davidson: The model that we are looking at at the moment-obviously we are still working a lot of this through-would be for something like 35% of the total cut to be met through reducing our overhead. The balance will have to be found by changing the way we do our work overseas.

Q23 Mr Frank Roy: On this point in relation to a business transformation programme, I am interested to hear you speak about a 25 or 26% reduction when the numbers are telling us that you are going to cut the number of staff by a third. Isn’t that a top heavy slicing of your staff?

Martin Davidson: The reduction of a third is what we have already done through managing the reduction in value of the pound. We haven’t yet worked out what a further reduction in staff might be, but there will be some reduction; I think it’s inevitable.

Q24 Mr Roy: The ballpark figure that you are talking about, that you have already identified, is 500 jobs?

Martin Davidson: That is correct.

Q25 Mr Roy: Your report last year highlighted that you have got to 300?

Martin Davidson: That is correct.

Q26 Mr Roy: So I presume that you therefore still have the balance of nearly 200?

Martin Davidson: In the UK, yes.

Q27 Mr Roy: And that you are going to have more on top of that?

Martin Davidson: The balance of that 500 are already largely gone, but the balance will be gone by the end of the financial year. We would still expect to see a further reduction in headquarter staff and headquarter functions here in the UK.

Q28 Mr Roy: Presumably all those staff were doing really important jobs before you made them redundant. That suggests to me that if you are making such enormous cuts to your staff there will be massive cuts to the services that they provide. Surely you will not be able to deliver the same level of service as you did previously with 500 more people?

Martin Davidson: We will have to change the way we do our work. There is a lot of bureaucracy and administrative overhead in the organisation which we will need to strip out. But also there will be a reduction in services, absolutely. Part of that we will look to replace through our income-generating activity, but it certainly won’t be possible to replace all of it.

Vernon Ellis: May I just add a word about the bureaucracy? I do not want to label this organisation, or for you to label the organisation, as being inherently bureaucratic, but in any complex people-organisations there are things that could be called bureaucratic.

I mentioned this journey. The journey was 110 countries around the world, five or six years ago, each to an extent doing their own thing, often very good things, but there was a lot of reinventing the wheel, not much commonality and not much synergy in terms of bringing people across. What Martin and his team did, as I understand it, was to put in on top of our normal sectors of English some vigorous centrally led programmes that devised things of global impact in certain areas, such as inter-cultural understanding, the use of the creative industries and so on. They were driven out of London, and that did change the nature of the organisation. But it had a cost, because you then had some sectoral people, you had some programme people and you had some geographic people. And then you have a lot of other people trying to tie things together and monitor how this interfaced with that, and how we could plan for it and then monitor it more aggressively.

I think it has reached the stage of maturity when we can pull some of that back. We can be simpler. We can focus on where it matters on the ground in these three areas, these three sectors.

Q29 Mr Roy: How can you pull that back if you are now proposing even more job cuts?

Vernon Ellis: We haven’t done that yet. At the moment we have an organisation designed to support that rather complicated way of doing things. It isn’t going to be all our savings, but it will certainly be some of it. And I don’t think that that will reduce service at all, I really don’t.

Q30 Mr Roy: But you actually think that you can lose many of these jobs? Surely you cannot lose all those jobs and not reduce the service?

Vernon Ellis: We are talking about the UK?

Mr Roy: Yes.

Vernon Ellis: What I would be worried about in the UK-and this we will have to look at from a service point of view-is that part of the UK which is the UK end of bilateral and multilateral partnerships with universities, schools, whatever. I think we have to be careful of that.

Part of it also, as we journey, is that we’ve perhaps merged together two different things in the UK. There is a head office function, a headquarters, which supervises and does innovation and programmes; and then there is a UK service element. One of the things that we want to do is to make a more distinct difference between the two, and I would want to preserve the UK because it is a very important part of our service, but reduce some of the overhead.

Q31 Mr Roy: May I ask a further question? How many staff do you have now, and how many staff do you expect to have in two years’ time?

Martin Davidson: Here in the UK we have 825 full-time equivalent staff on the books. I don’t know at the moment exactly how many we will have in two or three years’ time, but it will be a smaller number than that; it is almost inevitable.

Q32 Mr Roy: What is a smaller number? Surely you have a projection of where you want your funding to be in two years’ time, and therefore your staffing costs and keeping people in a job, which is obviously very important for your employees.

Martin Davidson: Of course. This is exactly the conversation we are having with our staff at the moment. The spending review was only a couple of weeks ago. We will be working with staff, the trade union side and indeed with our managers, to see how we can actually-

Q33 Mr Roy: When do you estimate that you will know when you come to that?

Martin Davidson: I would expect us to come to a view by the end of this financial year. Given that the reduction in income for the organisation is a fairly straight line in terms of trajectory, I wouldn’t expect a huge change in a very short period of time. I would expect the change to take place over the next two years, but we will have the plans in place by the end of the financial year.

Q34 Mr Roy: Still on those 825 employees, do you have a reasonable breakdown, in relation to the United Kingdom, of where they all come from?

Martin Davidson: I do not have it off the top of my head. I can write and let you have it. We expect to maintain our offices in Belfast, Edinburgh and Cardiff, as well as Manchester and London. We think it is very important for our organisation to have a genuine distributed headquarters across the UK.

Q35 Mr Roy: On that point, in relation to London and Manchester, the lease of the Manchester premises is up pretty soon as I understand it-2012. For Spring Gardens that is 2020.

Martin Davidson: That is correct.

Mr Roy: What are the Council’s plans for renewing those leases?

Martin Davidson: At the moment, we need to work out the exact numbers that we will have in place. I would expect, if there is a reduction in numbers in the UK, that that will largely come from London, and perhaps secondly from Manchester, rather than from the other centres. We have a very good lease, particularly for our Spring Gardens premises here. It is about two thirds of market value, or market price, through to 2020. It will be too large for us within the next year or so, but we will look to sub-let part of the premises to keep the lease. We haven’t yet made up our minds exactly what our premises requirements will be from 2020 onwards.

Q36 Mr Roy: What about 2012 for Manchester?

Martin Davidson: The premises are significantly too large for us now in Manchester. We are negotiating with our existing landlords, but also looking elsewhere in Manchester to see whether we should move.

Q37 Chair: May I turn to the scale and scope of what you are doing? I gather that you measure the scale of your work in terms of engagement, the people you see face to face, and in reach-the people with whom you interact online. I understand that you will be doing some tracking of how many people you are getting through to. What is your thinking behind that?

Martin Davidson: As you say, we measure through those two lenses. We believe that the engagement figure, which is those individuals who come into a positive transaction with the organisation, is the most important measure. It is also important to ask the question, "What is the impact that that engagement has on them?".

Q38 Chair: And does it justify the resources?

Martin Davidson: And does it justify the resources? We have a certain amount of measure at the moment through our evaluation of long-term outcomes survey. We have also undertaken some work over the past year in five particular countries, including Saudi Arabia, China, Poland and India, to ask the question, "Does this engagement actually change the level of trust that individuals have in the UK and in the British Government?". Like all these things, it is always difficult to be able to draw a direct link between the work that we have done and the particular outcomes. But we believe that it is important constantly to ask the question, "Has this work actually resulted in a change in people’s attitude?". That particular piece of work, done for us by YouGov, indicated a very significant shift in people’s attitudes, particularly in those countries where the trust was perhaps least well developed. For example, the greatest shift has been in Saudi Arabia and China. People coming into contact either with the English language or with British education has changed radically their people’s trust in the UK.

Q39 Sir John Stanley: The British Council has had a pretty rough time in Russia in recent years. As you know from our reports in the previous Parliament, there is a lot of concern about that in this Committee. Where do you regard the British Council as standing vis-à-vis the Russia authorities? Are we still in, basically, a stalemate or do you see any chink of light that will enable you to do what you want to do in Russia?

Martin Davidson: As the Committee knows, we took court action against the Russia tax authorities and their demands for tax from the British Council. Those cases have been concluded in our favour, fortunately and, we believe, rightly. The tax bill was reduced for St Petersburg by 99% and for Moscow by 95%. That has been very important. The indication from the Russian authorities is that they desire a stronger cultural relationship between Russia and the UK. The Turner exhibition, which took place in the Moscow academy a couple of years ago, was extremely successful. It was awarded "exhibition of the year" by Russian critics. We expect a very major exhibition to take place in Moscow in 2012 and are in discussion with the Russian authorities to recognise the 50th anniversary of the first manned space flight next year, with an exhibition of Russian space exploration and, we hope, a statue of Yuri Gagarin, which the Russians wish to bring to London.

The mood music is very different. It hasn’t yet translated into the opportunity for us to sign our cultural centres agreement, on which we are still very keen, or to return to St Petersburg, which we believe to be critical. We don’t believe that we, as a cultural relations organisation, can be effectively present in Russia unless we’re present in both Moscow and St Petersburg. Work remains to be done, but there is no question but that the Russians continue to link the position of the British Council and a warming of our work with the broader political relationship between Russia and the UK.

Vernon Ellis: I was at a meeting the other day with the Britten-Pears Foundation, and there is a lot of talk about having a considerable presence on the 100th anniversary of Benjamin Britten’s birth in 2013. They have an intense interest in him and I think that a lot of activity will happen, of which we will be part.

Q40 Sir John Stanley: Do you feel that FCO Ministers can give you any additional support and help with the Russian authorities?

Martin Davidson: Certainly the position of the British Council remains an item on the agenda with the Russian authorities. We had the conversation several years ago in this Committee in the previous Parliament about that linkage between the political relationship and the cultural relationship, which we deeply regretted. One of the aspects of the problem with Russia was that the Russians, pretty uniquely, had linked the education and cultural relationship with the wider political relationship. Most other countries seek to keep that separate. We believe that the role of the British Council in building that wider trust relationship using culture and education is best done at one remove from the direct political relationship.

Q41 Sir John Stanley: Equally difficult, if not more difficult is Iran, where the British Council has been given a wonderful opportunity to let people know something of the world that is, to some extent, removed from them. Do you see any way of breaking out of the stalemate that you have with the Iranian Government?

Martin Davidson: In the immediate term, I don’t see any likelihood of the British Council returning with a physical presence in Iran, but we are looking to see how we can develop work with other organisations to support a wider involvement with Iran. For example, we now have a programme with the BBC World Persian Service on English teaching. That will be broadcast in the new year. Given the nature of the language, we will also, with the service, transmit that into Afghanistan and Tajikistan. We are working with a number of British universities to support university-to-university links and we are also supporting British arts organisations to try to become involved in Iran. But at the moment, given the Iranian attitudes towards us as an organisation, I don’t see a short-term likelihood of our being able to return to Tehran.

Q42 Sir John Stanley: Is the British Council in Iran being treated in the same way as the French and German equivalents, or have they somehow found a way of maintaining a presence that we haven’t been able to do?

Martin Davidson: I am not absolutely clear at the moment on exactly what the position is. Certainly I have had conversations with my French and German counterparts, who have had significant difficulties in that place. It is, however, true, I think, that the Iranian authorities treat British institutions like the BBC and ourselves with considerably more suspicion than perhaps they do those from other countries.

Chair: Time is up. This has been a really valuable contribution and it will be very helpful to us in preparing our report on the finances and performance of the Foreign Office, of which you are a component part indirectly. Thank you both very much indeed.

Examination of Witnesses

Witnesses: Peter Horrocks, Director, BBC Global News and Richard Thomas, Chief Operating Officer, BBC Global News, gave evidence.

Q43 Chair: I warmly welcome Peter Horrocks, the director of BBC Global News, who is no stranger to the Committee, and Richard Thomas, the chief operating officer for BBC Global News. You have been very much at the top of the agenda in recent weeks and very topical, so it’s very timely that you should be here today to tell us what is going on. I’m going to kick off the batting. The Foreign Secretary said to us the other day that he hoped to find a settlement that would allow the World Service "to become more efficient without actually reducing those essential services that you and I care about so much". Do you think that has been achieved, or are services going to have to be cut? If so, how, when and where?

Peter Horrocks: Clearly, we share the same objective as the Foreign Secretary. In terms of essential services-which I would take to mean the most important services, the ones where our priority audiences are, where we can have the greatest impact-it is absolutely part of our strategy to make sure that we are focusing in that way. Clearly, there is a significant alteration in our resource, so we can’t carry on exactly as we are. Our intention is to focus our effort in the most effective way, to take efficiencies wherever we can and to make sure that we are modernising our services to regenerate the BBC’s operations, which is what has been happening successfully over the past few years, and to continue that process. It is challenging, given the resource that is available.

Q44 Chair: But do you envisage any services being cut at all?

Peter Horrocks: I think that we will want to propose both to the BBC Trust and to the Foreign Secretary that some services should close, not simply because of the spending settlement, but because it is something that we need to assess because of competitors and impact on our audiences. There are parts of the world where listening and consumption patterns change, and we need to review the pattern of our services anyway, as well as consider it in relation to the level of resource. I believe that we will be suggesting that some services need to close.

However, that is only a small part of the way in which we intend to meet the financial challenge. There are other things, such as support areas and marketing-that kind of activity-that we need to look at closely. We need to look at our distribution costs. In many parts of the world, short-wave listening is in steep decline, and there are ways in which we can reduce our costs of distribution by reducing short-wave transmissions.

We can also organise our editorial operations in a different way. The Committee may be aware that all the BBC’s journalism activity is coming together in a single headquarters in a revamped Broadcasting House in central London. The domestic news services and the international news services are coming together. The efficiencies that can be created through that, and the different kind of content that we can produce of a much more global nature, allow us to make changes to our editorial provision, but at lower cost. But undoubtedly there will be real changes that audiences will notice.

Q45 Chair: So, to summarise that bit, things will look a bit different but "essential services" will remain untouched.

Peter Horrocks: That is a fair summary, yes.

Q46 Chair: In your last annual review, you referred to several items of capital expenditure as crucial in helping to "maintain a strong presence in core markets". Are you going to be able to go on maintaining that presence, given that your capital budget will be halved by 2014-15?

Peter Horrocks: I think the capital reduction is one of the most severe aspects of the settlement. That is clearly something that applies across the whole of the public sector, where capital is being squeezed in a number of areas. We use our capital to invest in new, more modern, more cost-effective facilities. We are using it as well to pay for the new journalism headquarters that I referred to. It is also something that we need to use in order to make savings-to move from short-wave radio distribution to FM transmission, for instance, or to create new online or mobile services. We use capital to make those changes. It will be harder to make the modernisation shifts that we want to. We are going through a re-prioritisation exercise to make sure that we are spending our capital as effectively as possible. It will be harder to do that modernisation and regeneration, which we have put forward as part of our strategy, without the same level of capital as we have had up to now.

Chair: Thank you.

Q47 Sir Menzies Campbell: On a point arising out of an answer that you gave a moment or two ago, if all the BBC is going to be put on one site, I understand there is to be one news-gathering organisation and, following from that, one news-dissemination organisation. Is that correct?

Peter Horrocks: It will certainly be a single organisation. One of the key aspects of the settlement that was announced was, of course, the transfer of the World Service to licence fee funding in three years’ time.

Q48 Sir Menzies Campbell: We will come to that.

Peter Horrocks: That will enable us to be streamlined. It will be part of a single news organisation, which will allow us to be more effective and share our content as widely as possible. But, of course, in the same way that domestic services need to differentiate between, for instance, the "Today" programme and 5 Live audiences, we will still need to distinguish. There will be editorial differences between different services, such as radio and television and, self-evidently, between English and other languages. We need to try to achieve the effectiveness of an integrated operation while still delivering differences to audiences and, of course, accounting for the money in an appropriate way so that the spend on international services is clear.

Q49 Sir Menzies Campbell: But it is clear to those who understand the World Service that it has a particular culture and a particular style. How is that culture and style to be preserved if the provision of news, to take one example, takes place in the way you have just described?

Peter Horrocks: I hope that the culture, style and distinctive character of the World Service will be more present and available to audiences, including those in the UK. For instance, our teams in our language operations are being increasingly encouraged to use their expertise to produce their content in English as well as in their native language. That character will infuse the whole of the BBC’s news operation, so there is both creative benefit and efficiency from that. The BBC Trust will put in place mechanisms to assess the effectiveness of the international services and how much money goes into them, so in the same way that the Radio 4 budget or the BBC 1 budget is accounted for within a single organisation, that will need to happen with the World Service as well. Clearly, the BBC Trust will work on how it wants to do that.

Q50 Sir Menzies Campbell: To achieve what you describe, and what I would think is highly desirable, will require firm editorial policy and firm supervision by the BBC Trust.

Peter Horrocks: Yes, and we have some years before the transfer to the licence fee happens. I am sure that the BBC Trust will consult and ask for input, and I am sure that the comments of parliamentarians and Committees such as this one will be taken into account when thinking about how that is to be organised and how those measures will be put in place.

Q51 Sir Menzies Campbell: Do you expect to be before this Committee in the future, or before the Culture, Media and Sport Committee?

Peter Horrocks: If this Committee were still interested in the World Service, we would be very happy to come along and continue to have the fruitful dialogue that we have had for many years. Although the overall governmental and departmental responsibility will lie with the DCMS, our intention is to continue to provide the benefits to the UK’s national interest that the World Service has provided for many years. If this Committee has a continued interest in that, we would welcome it.

Q52 Sir Menzies Campbell: I think that the Committee would welcome that opportunity. The licence fee is to be frozen for six years. By 2014-15, you will have passed from the tender mercies-if that is the right way to describe it-of the Foreign Office to those of the BBC Trust. At that stage, how will resources be allocated to the World Service and who will be responsible for doing so? What influence will the Foreign Office have, for example, on what resources are allocated?

Peter Horrocks: Obviously, this has happened relatively recently, so there are still things that we are thinking about and, as I have indicated, there is some time to think about that. As I understand from the initial consideration that the BBC Trust has given it-this is primarily its responsibility rather than a management one-a framework will be put in place to look at the total funding. The BBC, in its agreement with the Government about the funding transfer, has indicated that it will continue to meet the current plans for the World Service after extracting any efficiencies of the kind that I have already spoken about. That is in the letter that Jeremy Hunt, the Culture, Media and Sport Secretary, sent to the BBC Trust. As well as that, there is a commitment to make sure that the right mechanisms and the governance around that are in place. Finally, the BBC and the Foreign Secretary have agreed that the provisions of the current World Service agreement in relation to language service closures-the determination will ultimately be made by the Foreign Secretary-will continue as a shared responsibility between the BBC and the Foreign Secretary.

Q53 Sir Menzies Campbell: But the financing of the BBC World Service will become the responsibility of the BBC Trust, as you understand it?

Peter Horrocks: It will do. The funding will be raised through the licence fee, and the BBC Trust will allocate that total licence fee funding.

Q54 Sir Menzies Campbell: Of course, you are not the only institution, if I may put it that way, that has been dealt with rather differently, because BBC Monitoring, which is based at Caversham, is also going to become a responsibility of the trustees. Is that right?

Peter Horrocks: That’s correct.

Q55 Sir Menzies Campbell: I used to know, and I have admiration for, Mr Bruce Forsyth, but I am concerned that there might be competition for resources between the World Service and light entertainment. How is that to be resolved?

Peter Horrocks: As I indicated, the letter that sets out the agreement between the BBC and the Government on this refers to the BBC’s committing to provide sufficient investment in the World Service to support its current plans for the period. I take that as meaning that, by entering such an arrangement, the Government and the BBC both intend that the broad provision of international news services should be sustained. Clearly, in the long term that depends on the overall funding of the BBC through the licence fee, but I take that as being a broad statement about continuing the range of services as they are at the moment, or as they will be once the impact of the spending review has fed through.

Q56 Sir Menzies Campbell: But that will depend on the undertakings given on it.

Peter Horrocks: Yes, of course.

Q57 Sir Menzies Campbell: And in a set of circumstances in which the World Service becomes part of the overall BBC, but does not have the semi-independence that it has enjoyed from its direct relationship with the Foreign Office.

Peter Horrocks: It is a different set of arrangements, clearly, but we can be confident about how the World Service will deliver value to international audiences and, as I have explained, increasingly to audiences in the UK as well. Less than £10 of the £145.50 licence fee will go into the World Service, and we know from audience research that the British public, at all of the different levels, regard the World Service, in terms of bringing credit to Britain, as one of the most significant institutions in the UK.

I believe that we can make a strong argument, both through the value that we create for Britain and through the indirect benefits that come to licence fee payers. We get interviews-President Obama was interviewed by the BBC Persian television service only a few weeks ago-because of the BBC World Service, and viewers and listeners in the UK benefit from that. I remember David Attenborough talking to a group of us from the World Service, and he said that one of the reasons he is able to make his documentaries around the world so effectively, with co-operation from people, is because of the World Service’s reputation. There are many similar examples.

Personally, I am confident about the value that the World Service creates for Britain and for licence fee payers. If the BBC Trust puts the right measures and protections in place, the operational and creative benefits of the synergies that could be brought about will be a positive, rather than a negative, although I do appreciate the concerns that some people have.

Sir Menzies Campbell: I salute your optimism, Mr Horrocks, and I hope you won’t take it amiss if I say that you’ve simply persuaded me that the more this Committee continues to take an interest in the outcome of the proposals, and indeed the ultimate fate of the World Service, the better it will be.

Peter Horrocks: Thank you.

Q58 Mike Gapes: I was on this Committee in the 1990s, and I can remember a big campaign to defend the World Service from John Birt, who was trying to centralise the news services at that time. Malcolm Rifkind, who was then Foreign Secretary, was under great pressure, particularly from our Committee-Sir John Stanley will recall this-and we managed to get the Government to back off, and John Birt was put back in his box. Do you agree with me that there is a distinctive BBC World Service ethos?

Peter Horrocks: I do.

Q59 Mike Gapes: Are you confident that the ethos of the World Service will be maintained in these new arrangements?

Peter Horrocks: I am, because I think that what the people who provide the World Service, and have provided the World Service over many years, believe in is something that can exist within these new structures and is able to be spread and disseminated more widely, including to UK audiences. There is a belief in understanding the world and bringing the diversity of experience of all the World Service journalists together to make sure that that voice is heard more loudly and more clearly. We’ll be in a single building with single funding, but we can be more effective in doing that. I believe that we can be confident about this new arrangement. It is funding that I, personally, always thought would, potentially, be a good thing. It’s not something that has occurred only as a result of the recent discussions.

Q60 Mike Gapes: The comprehensive spending review is calling on the British Council and the World Service to find savings via greater commercialisation of operations. Given that you are now within the BBC, as opposed to the FCO, ambit, there have been some worrying reports; according to The Guardian, your foreign language service websites are going to start taking commercial advertising. Is that true?

Peter Horrocks: It certainly isn’t true that that’s about to happen. We are still within the Foreign Office ambit for the next three financial years, so this is a change to the BBC licence fee that won’t happen until the financial year 2014-15. Within the recently announced CSR, we are being asked to increase our commercial activity. I should say that, in comparison with the British Council, the ability of the World Service to commercialise is much smaller. We have a small amount of commercial operations at the moment-they bring in small numbers of millions-and we may well be able to extend that further. Exactly how far we go and what will be appropriate is something that the BBC Trust is yet to consider, so there are no plans for advertising on foreign language websites as things stand.

Q61 Mike Gapes: "No plans," as you know, is a term that has been highlighted in "Yes Minister" and elsewhere. Getting back to the point about ethos, it would clearly be inconsistent with the ethos of the World Service if we start moving down the route of commercialisation in order to finance your activities, because of the BBC. Would you agree with that?

Peter Horrocks: There is a debate about that. We, of course, have commercial activity on television-BBC World News-and the BBC News website has adverts on it internationally. If you were an Arabic speaker who is using the BBC News website in Dubai, you would look at that website in English and it would have adverts on it, and you would look at the BBC Arabic website and it wouldn’t have adverts on it. There could be an argument for making some commercial return from that and maximising the effectiveness of public investment into the BBC’s international news activities. That is what the BBC Trust will look at. Commercial activity with proper protection can make the public investment go further.

Q62 Mike Gapes: Okay. Final question: when all these changes were brought about, how early did you know that, from 2014, the BBC was going to take over, and that you were no longer going to be under the FCO?

Peter Horrocks: Informal discussion about the idea of licence fee funding of the World Service had taken place over a number of months, and it is something that had been discussed internally. Indeed, members of this Committee have informally asked me questions about it in the past. However, the actual decision to do it, or the likelihood of it, only happened about 10 days or two weeks prior to the announcement.

Q63 Mike Gapes: So it was very much something that you weren’t planning for and that you didn’t initiate. This came out of some other part of the system.

Peter Horrocks: At that stage, the licence fee was not part of the spending review. We had been thinking about the possibility of this being considered when the licence fee was thought about, according to the timetable that we were expecting. Of course, that suddenly accelerated because there were proposals from the Government to which we needed to respond. It was something that we had put thought into in advance, but, of course, it happened more quickly than any of us had expected.

Q64 Mike Gapes: So, in a sense-Sir Menzies has touched on this already-there are lots of unanswered questions now because of the speed with which this was pushed through and the uncertainties that it has created, aren’t there? We don’t yet know what the implications are going to be for the World Service.

Peter Horrocks: I think there are questions of detail along the lines of those that you have been asking. However, I think the commitments, in principle, are clear in the agreement that the BBC and the Government have entered into.

Mike Gapes: I am sure we’ll be probing you again in the future.

Q65 Sir John Stanley: I would be grateful for your frank, personal answer to this question, regardless of whether it will please Foreign Office Ministers or the BBC board. Do you think that the decision by the Foreign Secretary to transfer funding from the Foreign Office to the BBC for the World Service is, or is not, in the best interests of the World Service?

Peter Horrocks: I personally think that it’s in the best interests of the World Service. In formal discussions, to which I have just referred, it was something that I had personally suggested would be a good thing to do. I believe that one of the BBC’s greatest strengths is its journalism, and its ability to bring all of its journalism together, to organise it effectively and to make sure that the benefits of the World Service’s ethos, which we have been discussing, can be spread and brought to bear as widely as possible for all of the BBC’s audiences-the largest news audiences in the world. To be able to bring that together and strengthen its ethos is something that I personally believe in. So yes, I was and am in favour of the shift.

Q66 Sir John Stanley: There’s one specific point of detail on which I would be grateful for your clarification. It seems to me, if this is the case, that it was a very questionable decision to make you liable for a share of the pension fund deficit of the BBC.

When you wrote to me-and I assume every other MP on 25 October-you referred to the reduction of your budget in real terms of 16%. You went on to say that, "the World Service faces other financial pressures such as the extra costs of the BBC’s pension deficit, so the impact will be greater"-in other words, greater than the 16%. Two days later, our Chair received a letter from the Foreign Secretary which said, "If the BBC provide funding to the World Service at the anticipated level in 2014/15, the overall reduction in World Service funding will be 16% real over four years. This includes additional funding for the World Service’s element of the BBC pensions deficit." So, there appears to be a direct contradiction. Can you explain to us whether you have had additional funding or not to keep the amount by which your funding is falling at 16%, or is it more than 16%?

Peter Horrocks: The funding reduction is a real-terms reduction of 16%. The letter from the permanent under-secretary at the FCO indicates that the pensions element has been taken into account within that, but it is a 16% reduction. We have got to find the money for that pension contribution. I suppose another way of putting it is that, if the FCO hadn’t allowed for that, the cut would have been deeper.

Q67 Ann Clwyd: Can I ask about the relationship between yourselves and your journalists? You have talked about the importance of your journalists and your pride in them, but we know that the NUJ has some issues with you. Can you talk about the meetings you have had with the NUJ in relation to your staff?

Peter Horrocks: Do you mean in relation to the current pension dispute, or more broadly relating to the settlement?

Q68 Ann Clwyd: Both.

Peter Horrocks: The pension dispute is one that is BBC-wide rather than specific to the World Service. The World Service needs to make its contribution to the extra costs of the BBC pension deficit. Clearly, the journalists are concerned about the deterioration in benefits in the future. However, what the BBC more widely and the World Service specifically have been explaining is that the deficit is real, that there is a legal requirement, that the BBC needs to pay back that deficit to ensure that the pension fund is strong for the future, and that the only way that that can be funded is through reductions in services and jobs. So, it is a difficult judgment that the BBC has had to make.

The National Union of Journalists has voted-we are not sure what the turnout was in that vote-to have industrial action, which will happen on Friday and Saturday this week. We regret that, and we are doing everything to ensure the continuation of our services. The BBC has been very clear that it cannot make further concessions, because it would mean a greater deterioration in the quality of our service if we were to put more money into the pension.

In terms of the impact of the settlement, we are yet to announce the detail of that. We clearly have concerns about its potential impact. We haven’t yet made the announcements, so we’re not yet into the detailed discussions that we’ll have once we’ve finalised all our plans.

Q69 Ann Clwyd: What sort of redundancies do you expect in the light of the cutbacks?

Peter Horrocks: You mean the number of redundancies? Well, we’re a very staff-heavy organisation. Most of our costs are in people, and so the reduction in staff numbers will be broadly in line with the level of savings that we need to make-i.e. more than 16%.

Q70 Ann Clwyd: What sort of numbers?

Peter Horrocks: Well, our staffing is 2,000, so you can work it out relatively straightforwardly, but it will be hundreds of jobs that will need to go.

Q71 Mr Baron: One senses from public utterances that the dust hasn’t quite settled on the new governance arrangements yet. We’ve had Lord Howell talking about the BBC World Service being under the strong governance of the FCO. The Foreign Secretary has talked about his written permission being required for the opening and closing of new language services. Yet Sir Michael Lyons can talk about complete editorial freedom. Can you enlighten us a bit? When the dust has settled, how are the new arrangements going to work?

Peter Horrocks: I think it will be not dissimilar to how it’s been up to now. The funding, however, will be coming from the licence fee, and so we will be funded by the British public rather than the British Government. In some parts of the world that will be a very useful thing to say. I saw a translation by BBC Monitoring of an editorial in an Iranian newspaper today, which was referring to the BBC World Service as funded and directed by the British Foreign Office. That is something that will change; but the mechanics and the relationship, I think, will still be very strong.

We rely on the Foreign Office’s expertise and understanding. We get support from ambassadors and missions around the world, dealing with practical issues that we face in carrying out our journalism. That’s a mutually beneficial relationship. Often, the only times when there are significant discussions are every few years when funding is decided or services may be being opened or closed. At other times it’s a very well functioning partnership, where we share information: the BBC has the expertise in broadcasting-that’s clearly not a speciality of the Foreign Office-and we put forward our plans; the Foreign Office considers them and we invariably reach rapid agreement about what our priorities should be. The main instruments or the main determinants of it are in the existing agreement, and we’ve said that that will continue. There will probably be some fine tuning around that, but I don’t suspect that there will be a significant shift.

Q72 Mr Baron: The BBC World Service has huge credibility and tremendous scope around the world, partly because of its independence. Do you envisage any risks whatsoever, in the changing of the funding arrangements, to that reputation and that scope and reach?

Peter Horrocks: Clearly, if some of the anxieties that were expressed by your fellow Committee members came true-if, as it were, the "Strictly Come Dancing" budget were in trouble, and therefore the Somali budget needed to be raided-I would be anxious about that; but I think the right measures will be put in place. Apart from that I don’t have significant anxieties, and I’m sure we’ll be able to reassure the Committee in relation to those mechanisms once they’re agreed in the next period. As I say, they don’t need to be in place for more than three years.

Q73 Mr Baron: Putting anxieties perhaps to one side, then, do you think there are any other longer-term consequences of changing the funding arrangement?

Peter Horrocks: I think that the question that Mr Gapes asked about commercial funding, and whether that might be seen in a slightly different light, is a legitimate one. Also, what’s the balance between the journalism that’s created of benefit to specific countries, and the benefit that’s created for a global audience and for audiences in the UK? You might see that in a slightly different light, potentially. However, I think that fits with the overall likely necessary direction of travel. Local competition is increasing in many of the countries that we operate in, and the thing that we most bring to our audiences around the world is that global perspective. There are not many news organisations in the world that are as well set up as the BBC is to give people a rounded, tolerant view of a world that needs greater understanding. That does not tend to be provided by sensationalist media, whether it is commercial or state-funded, which is much more partisan than ours is. With the ability to do global journalism that reflects all those different points of view and with the expertise that we have-I think we are in a good position to do that. I think that is probably an editorial direction of travel, which is implied by this, but that is probably the right thing for our audiences and the distinctive role that the BBC can play.

Q74 Mr Watts: You seem to be fairly confident that the general public will continue to want to support the World Service to the level that you have proposed. You seem to get some comfort from the fact that you have done some survey work that has shown that the British public are generally in support of and value the service. Do you think that value goes as far as wanting to pay for it? We know from all the research that we have seen before that the BBC’s licence fee is not that popular out there with lots of people. Isn’t that likely in future years to lead to some pressure, if there is a reduction of funding for general programming? Aren’t you likely to be squeezed because you aren’t accessed to the same degree by the general public? You are seen as a secondary service to the main service that the BBC provides.

Peter Horrocks: I agree that that is a potential issue. Of course, the public pay for the World Service at the moment as part of general taxation. It is a different mechanism and it exposes it in a different way. As I have indicated, I think that with less than £10 of the licence fee going into paying for the World Service, our demonstrating through the contribution that World Service journalists make-particularly language service journalists, who are generally seen and heard less in the UK than they can now be elsewhere-will help to emphasise to audiences in the UK the value that is created.

Of course, it is part of the question, "What’s the right level of funding for the BBC in future?" That is as much a determinant of the ability to sustain the range of the BBC’s services, so I truly hope that it won’t be a question of the World Service getting the blame for any tightening of BBC funding. It is an agreement that has been entered into between the BBC and the Government, and I am sure that we can demonstrate the value to the audience.

Q75 Mr Watts: Isn’t the position going to be even worse than the one I proposed on the basis of the freeze of the licence fee, where there will be less money for normal programming than there would have been if you take into account inflation? It is not just the fact that the World Service is competing with general programming; it will be faced with reduced resources overall for the BBC. I don’t need to tell anyone in this room that you will hear criticism about repeat programmes and about the poor quality of some of the material that the BBC uses. Aren’t all those factors likely to make the situation even worse for the BBC World Service?

Peter Horrocks: I don’t think it will make it worse for the World Service if the measures that we have been discussing are in place. Of course I understand that some people may ask the question that you are asking. I suppose what you are referring to is a judgment that was made as a wider judgment, rather than the one that is specific to the World Service, by the BBC director general and by the chairman of the BBC Trust. They clearly took the view-especially in relation to the alternative suggestion, the possible funding by the licence fee of the free licence fees for over-75s, which would have represented a much more significant reduction in the domestic services of the BBC-that this was the right thing to do for the BBC given the financial constraints that the country as a whole finds itself in. That was a broader judgment that I was part of, but I wasn’t making that call.

Q76 Chair: Forgive me if you have dealt with this point, but it is still not clear in my mind. Who has the last word in editorial direction? If there are two countries, one of which you are broadcasting to and one of which you are not, and you want to switch it, who makes that decision? Will you discuss priorities with the Foreign Office, or is the Foreign Office out of this equation now and it lies with you and the BBC Trust?

Peter Horrocks: It won’t change; the funding mechanism doesn’t change until April 2014.

Q77 Chair: But after then?

Peter Horrocks: The mechanism is going to stay the same. In practice, the BBC would often be aware of a market need, and it would be aware that there was something that we wanted to respond to in the audience. But the Foreign Secretary has the authority to ultimately open or close any language service. That current arrangement is going to continue in the new funding.

Q78 Chair: So he’ll continue to have the last word?

Peter Horrocks: Yes, he would. I think it is expressed as a joint decision, but ultimately it would be the Foreign Secretary who still has that authority.

Q79 Sir Menzies Campbell: But doesn’t the Foreign Secretary have that authority because he is the person who is providing the funds? If he is no longer providing the funds, he no longer has that authority. He can make approaches to the trust, for example, but he will not be in a position to compel, as he is at the moment.

Peter Horrocks: The BBC has agreed that the existing arrangements will continue. That was the agreement that was entered into. In practice, as far as I can tell when looking back on the history, there has not been a significant disagreement between the BBC’s view about the broadcasting need and the Foreign Office’s view of, as it were, the long-term national need to be broadcasting in particular languages. As I say, the agreement says that that arrangement will continue.

Chair: The problem is how without financial responsibility.

Q80 Mr Ainsworth: In your written evidence you provide us with extensive detail on how audiences are changing the way in which they access world news. You say that this demonstrates the need for the World Service to be able to accelerate its response to global changes. In earlier exchanges with the Chairman, you talked about the very challenging capital programme that you have, and potentially your inability to do that. That surely is going to have a detrimental effect on impact.

Peter Horrocks: I wouldn’t say it’s in inability. It will slow down our ability to be able to do that. But one of the things in the funding settlement is an intention to reinvest in either new services or new offers within services. So one of the things we’ll be doing is to put together editorial teams from different languages, working in new ways to produce content for websites, for instance, or low-cost television programming. Our Turkish team, for instance, provides a foreign affairs programme to a Turkish television channel, which provides quality "Newsnight" type foreign affairs coverage in Turkey. We will be able to afford that type of programming within the settlement.

Q81 Mr Ainsworth: So you don’t envisage a deterioration in impact?

Peter Horrocks: Clearly if we do close some services, that would be a reduction.

Q82 Mr Ainsworth: How far away from taking decisions are you?

Peter Horrocks: Within weeks.

Q83 Mr Ainsworth: You will be taking decisions within weeks?

Peter Horrocks: There are decisions that are taken by the World Service board that need to be ratified or agreed by the BBC Trust, and then ultimately they rest with the Foreign Secretary.

Q84 Mr Ainsworth: So you are wrestling with this now?

Peter Horrocks: Absolutely. We are having a board meeting this morning in which we will talk about exactly these issues.

Q85 Mr Ainsworth: You say that you are not sure whether other than those closures there will be a diminution in impact, but you are not really meeting your performance targets now, are you?

Peter Horrocks: No, we are short on our reach target. That is largely because of the changes in listening habits that I have mentioned already.

Q86 Mr Ainsworth: And your inability to respond.

Peter Horrocks: It’s not so much that. Our largest audience falls, for instance, are in rural parts of India and Bangladesh, where people have only been able to listen to shortwave radio until recently. Local FM music stations start up and people listen, as they did in the UK, to commercial radio stations once that becomes available. So I don’t regard that as being a vote of no confidence in the BBC’s content. What we want to do in India is focus our activity on audiences who are particularly interested in international news and deliver that via television and online to reach opinion formers and people with educational aspirations who want to understand about the world. There is a significant shift in the type of audience, and it may be a slightly smaller audience. That is the kind of thing we need to invest in to modernise and change our profile.

Q87 Mr Ainsworth: Are you going to change the performance targets?

Peter Horrocks: The performance targets are set jointly with the Foreign Office. Having an unrealistic reach target would probably be the wrong thing in the context that we’re in and with resources being stretched. So, I think that it will be as important to put as much emphasis on looking at how we are doing in targeting specific audiences and the measures in terms of quality and reputation that we already have as on the overall head count.

Q88 Mr Ainsworth: But on reach, we will have to lower our ambitions?

Peter Horrocks: I think that’s right, yes.

Q89 Mr Ainsworth: By what kind of percentage, do you think?

Peter Horrocks: That will depend on exactly where we get to in terms of the number of services and the reinvestment plans. Once we have established that, we will calibrate what we think is a realistic target and suggest to the Foreign Office that we have a realistic approach to it. Given that we have a reduction in resource, I think that being realistic about that is the right thing to do.

Q90 Mr Ainsworth: Are there particular areas where you think you might abandon that reach and other areas where you might try to maintain that reach?

Peter Horrocks: I think our largest reach is in big markets-India and Africa would be good examples of those-where I think it is more about reorienting our reach rather than withdrawing it. If they happen, the service closures will tend to be in smaller, individual parts of the world, rather than in our large markets.

Q91 Rory Stewart: Could you tell us a little about BBC Arabic, how it is doing, how you are managing to compete with other Arabic language stations, where you hope to take it and how the funding cuts will affect it?

Peter Horrocks: The overall reach for BBC Arabic across radio, television and online is just short of the target of 25 million; it is 22 million, which we are pleased with. BBC Arabic has established itself as an effective 24-hour news service. However, our audience research indicates that it is not sufficiently distinctive compared to the existing, well established news channels, such as al-Jazeera and al-Arabiya. It is well respected and it provides an alternative and impartial news source, but we think that we can do more in terms of discussion, investigation, documentary and analysis. So our intention is to move more towards that type of programming and to provide something that is distinctive for the Arabic market, discussing topics and looking into things that the Arabic media tend not to look into.

Q92 Rory Stewart: Can you give us a sense of the contrast in resources between you and the main Arabic challengers?

Peter Horrocks: Al-Jazeera would have four or five times the resource that BBC Arabic has got.

Q93 Rory Stewart: And how will you respond to that? Given that they have four or five times the resource and the people that you do, how do you position yourselves?

Peter Horrocks: By competing in those areas that I mentioned. For instance, we produced a series of investigative documentaries about people who convert from the Muslim faith to Christianity, examining what happens to them in terms of how society treats them. That is not something that would tend to be covered by the mainstream Arabic channels. By making distinctive programmes like that, which gets talked about and gets noticed, we create a reputation for touching on subjects that other channels tend not to go into. That attracts people to us, because they want to have discussions on our programmes and they want to interact with us. And we use the radio, TV and online that is on offer around that distinctive journalism, rather than just competing head to head on mainstream news.

Q94 Rory Stewart: On the Persian language, particularly Persian language TV, can you give us a sense of how you will position yourself and defend yourself against competitors? That seems to be the main problem in all these markets. There is more and more money pumping in, great new satellite and domestic channels. How will you work with Persian TV?

Peter Horrocks: With BBC Persian TV, I think that we already have a distinctive proposition and I think that the response from audiences already shows that. We have not faced quite the same issues of competition that we have faced in the Arabic market. In many ways, we were providing something to Iran that others were not providing. So I think it is about sustaining that work and ensuring that the cultural quality that it has continues. For instance, the channel does quite a lot around technology, music and interpreting the world through Iranian eyes, which is very popular. As with the Arabic proposition, we make sure that the channel is discussing things and talking about subjects that are not talked about either in the Iranian domestic media or in the increasing commercial operations that are targeting Iran.

Q95 Rory Stewart: And Urdu, finally? Where are we with Urdu?

Peter Horrocks: We don’t think that we have the resource at the moment to launch a complete Urdu TV channel in the way that we did for Arabic and Persian. However, as part of the plan we hope to create some bespoke TV programming for the Urdu market and we also intend to build on the success of the Urdu website, which is already the most popular news website in Pakistan.

Q96 Rory Stewart: The instrumental argument is the war on terror and connections with these types of issues. Can you make an argument to the Foreign office about the importance of these issues?

Peter Horrocks: We don’t position any of our services in relation to any particular political goal or to a label such as the "war on terror". We say the provision of independent, impartial news, which helps people to understand their own world and to be tolerant of each other, can contribute to broader political goals, but I would not put such a badge on any of our services.

Q97 Sir John Stanley: As you know, Mr Horrocks, the previous Committee gave very strong, consistent support to the Persian TV service. You kindly invited us to its launch, which we were glad to do. How near are you to getting it out on a 24-hour basis?

Peter Horrocks: I am afraid that with the resource settlement that we have received recently, that is an aspiration that is beyond us. We will not be able to move towards 24-hour television for Persian with the funding that we have.

Q98 Sir John Stanley: Where are you as of now in the number of hours per day?

Peter Horrocks: We are about five or six hours, but there is some repetition as well, so there’s five or six hours of origination per day.

Q99 Sir John Stanley: I don’t know whether you were in the room during the evidence that we have just taken from the British Council, but its witnesses just confirmed to us that the Iranian authorities are on a complete shut-out of the British Council, which, indeed, highlights the significance and importance of the contribution that you are making through the BBC World Service. Can you just tell us what steps, if any, the Iranian authorities are taking to try and reduce the number of people in Iran who are able to pick up your World Service TV in Persian?

Peter Horrocks: This time last year we were being jammed all the time. That has now stopped, helpfully, so there has been a small improvement. It is still illegal to have satellite dishes trained on outside, international broadcasts and, occasionally, there are efforts by the police to confiscate those satellites.

The main restriction that we have is on our ability to be able to do any journalism on the ground in Iran. The BBC Persian service has not been able to operate there for many years. BBC News was there but, in the immediate aftermath of the post-election violence, the BBC News correspondent, Jon Leyne, was thrown out. So far, BBC News has not been allowed back in, and that makes doing the journalism from Iran very difficult indeed. We rely hugely on our viewers and listeners providing us with material, via mobile phones and so on, in order to be able to cover the country. That is the main way in which we are prevented from doing as effective a service for Iran as we would like to.

Q100 Sir John Stanley: Are there any ways in which the FCO could be giving you greater help to overcome these sort of obstructions being put in your way by the Iranian authorities?

Peter Horrocks: We value the support that we get, in helping to counter the jamming for instance. There are various broadcast regulatory bodies with which we are working closely, with the Foreign Office, to try and ensure that the jamming that happened doesn’t happen again. However, I think that the leverage that can be obtained on the Iranian authorities-across a very wide range of issues, many more serious than broadcasting ones-is relatively small. So, we value the support but, at the moment, it doesn’t seem likely that the Iranian authorities will decide to shift as a result of pressure. It is really something for the Iranian Government to decide-and it was interesting that they decided to stop the jamming. There were commentaries in the Iranian press pointing to the success of the BBC Persian service and saying that people were still watching it-they were managing to get around the jamming-and that it was important that we open up and that our broadcasting competes. That was an example in which the effectiveness of the BBC was helping to shift debate within a country.

Q101 Sir John Stanley: The people in Iran, who I am very glad to know are in touch with you-they are giving you mobile phone communications possibly, or other forms of communication, the internet, etc.-are they making any particular recommendations or suggestions to you as to how you might be able to increase your coverage and accessibility in Iran?

Peter Horrocks: Yes, we use their suggestions and we use their contributions to our programmes-we use that to guide the programming. They tell us which programmes they like and the music they like, and we respond to that. We are also working to help people who want to evade blocking of the internet-that is relevant in China as well. The BBC World Service’s technological team is working with technology organisations, such as Google, and also with other international broadcasters, such as the Voice of America, to support people who are creating software that allows jamming to be circumvented. That is important and helps us to get our content through, and helps to stop the regimes that wish to block the free internet.

Q102 Mr Roy: Many World Service journalists come to this country on work visas, and they often come from very dangerous countries with very dangerous regimes, and they broadcast impartially to those countries. What happens to those journalists if they lose their jobs at the BBC?

Peter Horrocks: You are touching on something that is one of my strongest personal anxieties, and it is relevant to the Persian television team. A number of those people came to London a couple of years ago when relations were relatively open, and now they can’t go back. The Persian service is not under any potential threat of closure, but it shows the personal difficulty and the commitment that individual journalists make. The things that they are doing for the BBC and, in effect, for this country put them in a difficult position. We will work very closely with individuals when we need to make changes to our services. If services are closing or if we are reducing numbers within services, we will try, where possible, to redeploy people within the BBC. We closed our eastern European services a few years ago, but many of those journalists still work within the BBC. So, as far as possible, we will try to retain people and help them with out-placement and training to help them get jobs where possible. Clearly, if anyone is in any personal danger, as a result of having lost their employment with the BBC and are not in a position to be able to return to their country of origin, that is something that we would wish to take up with the authorities and to ensure that due consideration was given to that. It would be very unfortunate if anyone was in the position of being exposed to danger because of the work that they had been doing for the World Service.

Q103 Mike Gapes: You gave us a helpful memorandum in which you highlight a number of other countries where there are what you call challenges. May I ask you specifically about what is happening in China? It has been jamming the BBC World Service, and it also has, as far as I understand it, a policy of allowing language services but not English services, and that relates to websites as well. Is that situation any better than it was? I know that it was relaxed for the Olympics and then re-imposed later on. How is it in China now?

Peter Horrocks: It’s not good. There was the recent award of the Nobel peace prize. The moment the words "Nobel peace prize" were uttered on BBC world news, the switch was switched, and the broadcast was stopped. It is not quite correct to say that our language services are freely available. We have two different versions of our BBC Chinese website. We have an English language teaching website that is available in China, but the news site in Chinese is blocked and isn’t available and neither is BBC news online in English. BBC world news is only available in a small number of hotels that tend to cater for outside visitors.

Q104 Mike Gapes: In the context of Iran, you referred to an ability to circumvent jamming and blocking. Presumably, there are a number of countries in which the authorities would be working very hard to stop you doing that. What is the position in China?

Peter Horrocks: The Chinese Government put significant resource into this, and built the so-called great firewall of China. However, there is a lot of technological ingenuity in China and people are finding ways round it. As I say, we are trying to help them. I don’t particularly want to go into the ways in which we are doing that. I don’t want to block off any of those avenues, but we are certainly focusing on that.

Q105 Mike Gapes: But it’s not just China. Don’t you have the same problems in other countries as well?

Peter Horrocks: Yes, although you do have to have quite significant resource as a Government to do it. China is by far the most focused and concentrated on doing this.

Q106 Mike Gapes: Overall, would you say that in terms of countries blocking or obstructing the BBC World Service, the situation is better or worse?

Peter Horrocks: The stopping of the jamming in Iran was a real plus, but in terms of the numbers of countries that have introduced new measures-for instance, the Pakistani regulatory authority has taken some of our broadcasts off air this year-

Q107 Mike Gapes: Why?

Peter Horrocks: Not clear. Both India and Nigeria do not allow BBC news services on FM, so we’re not able to do that in those two key countries. It’s a particularly difficult situation in Somalia, where the al-Shabaab militants seized all of our transmitters, and we’ve also had difficulties in northern Sudan as well. So I would say, on balance, it’s been a bad year.

Q108 Mike Gapes: I’m on the awarding body for the Speaker Abbot award. We gave an award to a BBC journalist from Somalia who wasn’t able to come to receive the award. You’ve clearly got very brave people there.

Can I conclude by questioning what’s going to happen in future, given this shift of resource constraint and movement to competition with other parts of the BBC system? Are you confident you will get the resources you need to overcome these difficulties, or will it be more a question that it might be deemed to be not worth the trouble, and therefore you’ll end up reducing your global footprint, so that perhaps you will have even fewer listeners than the Voice of America?

Peter Horrocks: I really hope we won’t lose that global leadership. I think that’s an important thing for Britain. It’s one of the most distinctive things that Britain has: the BBC and its ability to project British values around the world. I don’t see it as being about a competition within the BBC; I think that the right measures need to be put in place, as we discussed in the earlier part of this session.

The case for what we do gets stronger and stronger. Commercial news media are withdrawing from coverage in the world, and the only people who are investing in it are Iran, Russia and China, whose view of international broadcasting is very different from the ethos that the BBC stands for. The BBC’s strategy for both domestic and international audiences, which it set out this year, is called "Putting quality first", and the very top priority for the BBC is its journalism, both in the UK and around the world. It would be completely negligent of the BBC to ignore that need in the world. It has said that it thinks journalism needs to be put first, and it said in the agreement that was recently reached between the Government and the BBC that it wants to sustain the World Service. I am sure that those who have the good sense that you have, Mr Gapes, will hold the BBC to that. I am sure that we’ll want to be held to that.

Chair: We’ve got three minutes left, and two colleagues have caught my eye. We can have a few questions and quick answers.

Q109 Mr Baron: I asked this question of the British Council. Do you think there is any risk whatsoever that because of financial pressures and the need, perhaps, to commercialise activities a little bit, the superb brand that the World Service has will be tarnished? Is there any risk at all?

Peter Horrocks: There is a risk, and it’s one that we have to be alert to. I run BBC world news, the commercial news channel, as well. I have responsibility for that along with the World Service. It operates to the same editorial values. The BBC news website around the world, which is in many ways the most clear-cut and modern expression of what the BBC is about-they’re both commercially run. I think that if we are creating commercial revenues but then sustaining our journalism from and to parts of the world where a commercial model is not possible, we can use public funding and commercial funding in a smart way to sustain that World Service ethos.

We should be vigilant about it all the time, but as long as we are clear about what our values are and smart about how we execute a sensible financial model that uses the benefits of the public investment, which is now going to come from the licence fee, and an appropriate level of commercialism that doesn’t undermine the organisation and how it’s seen, I think that’s a sensible modern way of working. We get more value for the licence payer and for the UK public by working in that way.

Q110 Mr Ainsworth: On your answer to Mike Gapes about what happens in Pakistan, some of your programmes are jammed, and you don’t know why?

Peter Horrocks: They’re not jammed. What happens is that the regulator-

Q111 Mr Ainsworth: There’s no explanation for it whatsoever?

Peter Horrocks: Bureaucratic reasons, usually, are advanced. So-

Q112 Mr Ainsworth: Can you provide us with a note of what those programmes are?

Peter Horrocks: I can certainly do that. If we can clarify that with the Pakistani authorities, we’ll feed that back to you.

Chair: Thank you both very much indeed. It’s been a very helpful session. It’s much appreciated that you’ve taken the time to come along and speak to us. Many thanks.