BBC Licence Fee Settlement and Annual Report - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 76-201)

Sir Michael Lyons and Mark Thompson

15 December 2010

Q76 Chair: Good morning. This is an unscheduled meeting of the Select Committee, since it is not that long since we last saw the Chairman and Director-General. However, it is to take account of the somewhat unexpected rapidity with which a new settlement for the BBC was achieved. That raises a number of questions that we are keen to put. I would like to welcome Sir Michael Lyons again, the Chairman of the Trust, and Mark Thompson, the Director-General. Damian Collins is going to start.

Q77 Damian Collins: Thank you, Mr Chairman. I would just like to ask some questions initially about the negotiation itself of the licence fee agreement. Mr Thompson, you have been involved, I imagine, in quite a few negotiations with the Government over the years. How does this rank in terms of its importance and the success with which it was concluded?

Mark Thompson: My experience of almost all negotiations with Government is that although there may be a long preamble, the actual business of sitting down and looking at the detail happens typically in a very compressed period at the end of a long process of theoretical discussion—you get down to business in quite a short period before reaching a conclusion. This was unusual in the sense that there wasn't a long preamble, but the actual detailed discussions were, in some ways, some of the fullest I've been involved in—much fuller, for example, than the last licence resettlement.

The BBC had spent the previous months going through a really very detailed look at its future editorial strategy, the running of the organisation and the finances of the organisation, and in particular we'd also already been digesting an earlier proposal by the BBC Trust, which was to freeze the licence fee from next year. Our understanding of the BBC's finances and our ability to use an essentially reasonably straightforward computer model into which we could put assumptions—the level of licence fee and the level of obligations that the BBC would have to meet—and very quickly to understand what that would mean in cash terms, meant that I felt we were in a good position to be able not only to understand the negotiation but also, crucially, to advise the BBC Trust.

The agreement was entered into between the Government and Sir Michael on behalf of the BBC Trust. In some ways, my job was both as a negotiator on behalf of the BBC but also, in a sense, to help advise the Trust on the implications of any settlement. Our conclusion about the settlement and my eventual recommendation with the Executive Board of the settlement was based on understanding it sufficiently well to be able to recommend it and secondly, on recognising that it presents some real challenges to the BBC; it's a tough settlement for the BBC and requires significant savings from the BBC.

Nonetheless, given the length of time and certainty about the BBC's future funding and moreover the guarantees from the Government about not adding additional obligations either to the BBC or to the licence fee until the next Charter can be debated, these benefits were sufficiently good that we could recommend the deal.

Q78 Damian Collins: Just on the language you used there; so the deal was negotiated by you and then recommended by you to the Trust?

Sir Michael Lyons: That's not really the full picture, in fact. Let me firstly acknowledge both the importance of and the skill applied by the Director-General in the face- to-face discussions, backed up by his own staff and indeed by Trust Unit staff on a number of occasions.

The negotiations were essentially between the Trust and the Secretary of State. The Trust laid down the red lines and the Director-General reported back to the Trust on the shape of the negotiations. The remit was set by the Trust, and the agreement, in the end, was one signed off by the Trust. So it wasn't sort of "over here and then comes back to the Trust". From the very beginning of the exercise, the Trust was engaged in this and the Secretary of State was very clear in approaching the Trust to kick off those discussions on 11 October.

Mark Thompson: So at all times, as it were, I was operating with a senior member of the Trust Unit in the room for the critical conversations. At all times, I was operating within a mandate and within clear parameters that had been laid down and agreed by the BBC Trust.

Q79 Damian Collins: Can I infer from what you said, just to be clear, Sir Michael, that you were involved in the face-to-face negotiations?

Sir Michael Lyons: No; nor would I expect to be. The clear and absolute choice was that the right way to do this was to leave—as is often the case in these negotiations—the Director-General responsible for the face-to-face discussions, supported, where appropriate, by his own staff and by Trust Unit staff and with us either in telephone contact or available for face to face meetings.

Q80 Damian Collins: You may say that is quite proper but it sounds odd to me that you, as Chairman of the Trust, in what the Director-General referred to as the critical stage of the negotiations, weren't actually in the room.

Sir Michael Lyons: I don't know how odd it might sound to you, but it seems to me to be the perfect model of negotiations. In most commercial negotiations, you don't have the principals in the room conducting the discussion; you have agents of the principals doing the negotiations, and that's exactly the model that we followed here.

Q81 Damian Collins: You said the agreement is between the Trust and the Secretary of State. Was the Secretary of State involved in those meetings?

Sir Michael Lyons: That was his choice. You might ask him whether that is normal.

Q82 Damian Collins: So the Secretary of State was there and you were not?

Sir Michael Lyons: That's right.

Q83 Damian Collins: You were not there for any of the meetings?

Sir Michael Lyons: I wasn't there for any of the meetings. We chose not to be and were quite comfortable with that arrangement.

Q84 Damian Collins: I do find that extraordinary, I am sorry—not to be at any of the meetings and the Secretary of State to be present as well. An agreement between the Secretary of State and the Trust—and the Chairman of the Trust isn't there.

Sir Michael Lyons: Let's be very clear about this. What then is the argument against taking the entire Trust to those meetings, since it's the Trust that makes the decisions and not the Chairman?

Q85 Damian Collins: Again, for the Chairman of the Trust not to be there at what most of us would see as an unusual and critical set of negotiations and probably one of the most fundamental reviews of the licence fee and the role of the BBC in recent years—and you were not there.

Sir Michael Lyons: I don't think that in any way disadvantaged us. The Trust was able to keep a very clear line. It was the Trust that emphasised the red lines: those things that were unacceptable and those things that would be acceptable. It was the Trust that took a very clear decision to withdraw from negotiations when it looked as if they were not going to be able to be resolved. It was the Trust that took the decision to write to the Prime Minister to make clear its strength of feeling about the proposal to move funding of the over-75 licence fee remission.

There's no lack of leadership here by the Trust. I think it is a red herring and, indeed, a misunderstanding of the process of negotiation to suggest that it would have been in the BBC's interest for the Chairman to be compromised by a presence in those discussions when, in fact, it worked to the BBC's advantage for us to have the two-stage arrangement that we described.

Mark Thompson: As it happens, I think it's an example of a Government's model working very well and having an environment—that is, having quite interesting points of the day and night whereby you have a group of people who are not in the hurly-burly of the discussion, but who can calmly and methodically scrutinise it, test it, debate it and then come up with a fresh mandate. I thought that worked out rather well. It meant that this was a very deliberate, dispassionate process rather than getting caught up in what is sometimes in the commercial world called "deal fever".

Q86 Damian Collins: I hear what you say, but I still think that if it was necessary to have Trust staff there, or people from the Trust to represent the views of the Trust, it is unusual for the Chairman not to be there for any part of the process, particularly for the concluding agreements. I completely accept that there might not be any need for the Chairman to be there for all of the meetings and all of the negotiations, but when the final decision was made, I find it quite strange that you weren't there. I hear what you say. I think we have to agree to disagree on it.

  What I primarily wanted to ask about was: agreement was reached, and quickly, but very much alongside the Government's conclusion of the Comprehensive Spending Review. Do you think there is a danger that the BBC effectively became part of the CSR as a result of that process?

Sir Michael Lyons: There is a danger; there is a reality that Government decided to approach this issue in the closing stages of the Comprehensive Spending Review. Did the BBC have any real choice but to enter into discussions then? No, it didn't. Furthermore, the BBC had already gone on record; the Trust was very clear that it recognised the difficult national circumstances, that it understood that this would be a tough set of licence fee discussions, and understood that the Government would be basically seeking to make sure the BBC didn't somehow enjoy some privileged separate position from the experience of the rest of the economy.

Are the things irrevocably coupled for the future? No, I don't think they are. I think these were extraordinary circumstances. We responded to a challenge from Government. The timing of that challenge you have to take up with Ministers.

Q87 Damian Collins: Do you think this is now a model for the future, in effect?

Mark Thompson: No, on the contrary. What this settlement means is that there will be no part of the BBC's activities that are, as it were, part of the scope of Government spending. World Service and Monitoring have been paid for by the Government for many decades; World Service began with licensing funding but moved very early on—I think possibly just after the Second World War, but I can check that—over to direct Government funding.

Because World Service and Monitoring have been paid for historically for many decades by the Government, part of the BBC has always been in scope for Comprehensive Spending Reviews. But in the next Comprehensive Spending Review, the BBC will not be in scope at all. So one of the benefits of this settlement is that for the first time in decades—in 2014, or whenever the next CSR happens—the BBC will be entirely separate. I think that for an independent public broadcaster, being entirely separate is an improvement on the previous arrangements.

Damian Collins: Thank you. There are some specific questions I would like to ask about the settlement, but I know other colleagues want to get in so I'll come back to that later on.

Q88 Paul Farrelly: Usually, we spend months poring over the licence fee settlement and it's out there in the press and it's in here in the House, but this happened very quickly. Who first broached the prospects or an idea of an early settlement?

Sir Michael Lyons: Firstly, let me venture to put in a little bit of context to this; I won't take very long over it. We were clear from statements made before the general election by both the major parties that we were going to face tough discussions in the licence fee settlement. That is why we started the strategic review exercise, both to examine the options that were available to the BBC and to reflect on changes in technology and audience behaviours. That led us, as the Director-General said, to the conclusion that we should, recognising the difficult national circumstances, seek to forgo any increase in licence fee over the last two years.

So we'd done some of the preparatory work that you would have expected in a licence fee settlement; for the BBC, this is not as compressed as the negotiations were and it's worth just underlining that. In terms of where the overture came from, unequivocally the overture came from Government with a shopping list that included transfer of responsibility for the World Service, and much more significantly, as far as opening discussions were concerned, the proposal for the BBC to fund the costs for over-75 licence fee remission.

Paul Farrelly: I want to come to that.

Sir Michael Lyons: That remission is firstly very expensive, secondly a welfare payment that we believe has no part to play in the BBC's funding, and thirdly an uncapped liability.

In the discussions, recognising the already established position of the Trust, which was that the Trust was sensitive to the position of licence fee payers in these difficult times, the earlier discussions took the shape—and I'll ask the DG to say about more about this—of an indication that we might be willing to talk. We certainly would reject outright the over-75 licence remission costs. We might be willing to talk about the transfer of responsibility to the World Service, but only in the context of a licence fee settlement which would give us the time to digest that responsibility and to plan rationally for its absorption. That's exactly how this was.

Mark Thompson: The overture of would the BBC consider taking on additional obligations was from the Government.

Q89 Paul Farrelly: Who in Government?

Mark Thompson: The Secretary of State for Culture, Media and Sport.

Q90 Paul Farrelly: And how long before the settlement was reached from that overture?

Sir Michael Lyons: On Monday 11 October, officials from DCMS rang both the Trust to speak to me, and the Director-General, to say that the Government had a shopping list and was inclined to shift the responsibility for the over-75 licence fee.

Q91 Paul Farrelly: Was the shopping list verbal or was it followed by something in writing?

Sir Michael Lyons: I don't think it was ever in writing.

Mark Thompson: So after that Monday meeting, on Tuesday 12 October[1] I, with a number of colleagues, had a meeting with the Secretary of State in the Palace of Westminster. The Secretary of State raised a number of possible obligations that the BBC might want to take on. Exactly as the Chairman has just said, I made it clear that some of the suggestions—for example, the Government's ceasing to pay the BBC in view of the over-75 free licences—would be, in my view, wholly unacceptable to the BBC Trust and to BBC management as well.

But there were other proposals—for example, the BBC World Service coming under licence fee funding—that were absolutely possible to contemplate and indeed might have certain advantages. But, and this is the important thing, I did not believe that the Trust could consider taking on any obligations without understanding, in full, the future funding of the BBC, due to the obvious danger of taking on an obligation without understanding where the funding is going to come from. The danger, if it was the World Service, for example, is that you have to end up explaining to the British public why, in terms of the licence fee, they pay for services themselves to the BBC that they are having to pay for international audiences.

Q92 Paul Farrelly: Was the initial shopping list ever committed to paper by the Government?

Mark Thompson: The short answer is that I do not believe the Government ever produced a written version; at least, we were not shown a written version.

Q93 Paul Farrelly: Did you ask for one so that you transmit it unequivocally, in black and white with no misunderstanding, to the BBC Trust Board?

Mark Thompson: The next stage is after consultation with the Trust and indeed, there was a note that set out very clearly the respective roles of the Trust and the Executive in this whole process. We came back, I think, the following day with a note that was a record of the meeting and a commentary from us on the various proposals that had been made, making clear that some would be wholly unacceptable. Others certainly were worthy of consideration, but could only be considered if they were accompanied by a long-range settlement on the BBC's funding. The debate in these early days was, it's fair to say, whether it would be possible to include a multi-year licence fee settlement in the time between these conversations and the announcement of the CSR the following Wednesday.

Q94 Paul Farrelly: Mark, you have anticipated my next question in that answer. It is: were all these meetings minuted by the BBC and by civil servants?

Mark Thompson: The note I sent to the Secretary of State was intended to be a minute of our understanding of that meeting and, more than that, also a somewhat more formal, albeit interim, response with Trust approval to the various things that had been suggested.

Q95 Paul Farrelly: Could you send us copies of the notes and minutes of meetings or relating to meetings?

Sir Michael Lyons: I don't want to be unhelpful about this. I think we ought to just take notice of that question and reflect on it. After all, these are documents relating to detailed negotiations with the Secretary of State that he chose to conduct personally. I don't want to be obstructive with this Committee.

Q96 Paul Farrelly: We'll ask the Secretary of State.

Sir Michael Lyons: I absolutely understand that you will and you will pursue the matter. If we can just hold our position until we've reflected on that.

Q97 Paul Farrelly: We want to be sure of our facts. There's been so much commentary and speculation in the media, and very little time for parliamentary scrutiny of something that we would have spent a lot of time looking at had things been different.

Sir Michael Lyons: Mr Farrelly, can I be very clear: whether or not we feel that it is appropriate to release those documents, we're certainly happy to give you, in writing, our own summary of those events so there is absolutely no room for uncertainty about the events or the way they were dealt with.

Q98 Paul Farrelly: I'm very grateful for that. You reflect on your position and we'll reflect on it as well, but any information in black and white so that we base our report on the facts would be helpful. I don't want to monopolise too much of your time. You said that the welfare payment for the over-75s was very much in the Government's initial shopping list. Could you tell the Committee how you managed to fend that off?

Sir Michael Lyons: This continued—I don't think the Committee would want to, nor do I think it would be appropriate, to go blow-by-blow through the events over the next few days but—

Paul Farrelly: To the contrary, actually. Quite to the contrary.

Sir Michael Lyons: Let me just say that I was being optimistic in that comment.

The issue of the quantum of how much money could be transferred from the Exchequer to the BBC was a live issue throughout these discussions, which did not follow, frankly, a simple linear path but broke off on a number of occasions for different reasons. On one particular occasion, it was because the Trust felt that we just were not going in the right area. On another occasion, it was because Government took a decision to go back to the issue of the over-75 licence fee remission. So this continued to be an issue throughout the discussions as a sort of back-up issue, but particularly because it offered a bigger quantum in terms of Exchequer relief: £560 million per annum and a growing burden rather than the costs of—

Q99 Paul Farrelly: I don't want to take too much time because we've a lot of subject matter to cover. Was it your impression that the initial shopping list had been signed off by the Coalition? Specifically, there are no Liberal Democrats in the Culture, Media and Sport Department. What impression did you get of the role played by the Liberal Democrats in the Coalition in signing off any initial shopping list?

Sir Michael Lyons: I certainly don't want to suggest that there were not any discussions around this, but the truth is that we had a Minister of the Crown leading for the Government. I don't think it was for us to assume that he was doing anything other than acting in good faith on agreements that represented the Government, and I can't imagine how we could have thought otherwise.

Mark Thompson: To be honest, as far as I was concerned, it was a straightforward negotiation between Her Majesty's Government and the British Broadcasting Corporation, and over quite practical matters such as money, spreadsheets, specific obligations, start times and all the rest of it. I took it in that spirit. I have to say that was absolutely the spirit of the conversations with the Secretary of State.

To be honest, I thought I gave all of my focus and concentration throughout this entire process on the matter in hand and regarded the Government as just that, so that the finer points that involved the Coalition were not, as far as I was concerned, a matter for us to consider in these negotiations.

Q100 Paul Farrelly: The implications for the BBC of taking that burden on would have been profound. It's quite important to establish how the initial shopping list was approved, whether it was a Secretary of State acting on his own behalf or with Cabinet approval.

Sir Michael Lyons: Absolutely. I think the important thing, Mr Farrelly, is that you should pursue that with him, but let me answer your very precise question. From the moment when that proposal was put forward, the DG advised that he did not believe that it would be acceptable. The Trust confirmed that within 24 hours and maintained a consistent position that this was unacceptable under any circumstances, so in a further stage in the negotiations when this came back on to the agenda, how did we fend it off? By seeking to debate an alternative, acceptable package in the context of a new licence fee settlement. That's essentially the heart of how that was fended off but it did re-emerge back on the agenda. That led the Trust to withdraw from discussions, and after agreement I wrote to the Prime Minister making it clear that this was a matter of principle for the Trust.

Q101 Paul Farrelly: A red line?

Sir Michael Lyons: An absolute red line; one of a number of red lines that had been defined earlier in our discussions by the Trust, and they are a matter of formal record.

Q102 Paul Farrelly: And the effective meaning of "red line" would have been what?

Sir Michael Lyons: These were unacceptable issues for the Trust.

Q103 Paul Farrelly: Had it been crossed or was there a serious risk of its being crossed? What would have been "red line"; what would—

Sir Michael Lyons: I know where you'd like me to go to. Let me just say that a red line means something that is unacceptable. That was explicitly referred to in the letter, and I think we all know what that means.

Q104 Paul Farrelly: It would have been a resigning matter.

Sir Michael Lyons: It would have been for me and, I believe, for the Trust.

Q105 Paul Farrelly: For other members of the Trust as well, collectively?

Sir Michael Lyons: I've said what I've said. I don't need to add to that.

Q106 Paul Farrelly: My final question, because we've got a lot of ground to cover. Mark, you gave an interview to the Media Guardian recently. There were some quite unequivocal lines of comments in The Guardian and I'll just read you two lines: "It's clear now that even Nick Clegg, as well as David Cameron and George Osborne, was prepared to sign off the deal that would have lumped in the cost of the free licence fees for the over 75s. Only phone calls by the BBC to lots of Liberal Democrats managed to get Clegg to change his mind the next day". Can you just shed some—

Mark Thompson: To be honest, if I may say so, there's a slight overstatement of the view I think I expressed in that interview, which is that it is certainly true that once news that the Government was formally minded to go with the over-75s option started breaking on the Monday—this would have been Monday of the following week, Monday 18 October—we, as an organisation, made a lot of phone calls to a lot of our people across the political spectrum making clear our position on this issue of the over-75s. Through the course of that afternoon, we were making a lot of phone calls to a lot of people.

Just so you understand, this was something that we thought was a very grave potential danger not to the BBC's funding but to its independence, and we were absolutely alerting a lot of people across the political spectrum about that. And over the course of that Monday, the mood that was around that proposal began to shift. By the early evening, it was shifting very considerably.

Q107 Paul Farrelly: I'll finish it here. Just so we're dealing with facts, did those phone calls, either that day or over the week, include calls and lobbying of Nick Clegg and Don Foster?

Mark Thompson: I don't think I want to say any more about it.

Paul Farrelly: Sir Michael is nodding.

Sir Michael Lyons: It included individuals. It included individuals, and I think that's the best that we can say at this stage.

Paul Farrelly: Sir Michael nodded to the question and to the two names.

Dr Coffey: I think it is fair to say Don Foster is Chair of the All-Party Group on the BBC.

Q108 Chair: I quite understand your concern that had you taken responsibility for funding the over-75 licences, that would have been a significantly bigger financial consequence to the BBC, but you were suggesting in your answers that that was not the main reason; that you regarded this as a matter of principle.

Why is it acceptable for the BBC to fund the welfare package, which is represented by the digital switchover scheme or help scheme, but it is not acceptable for the BBC to fund the welfare scheme for the over-75 free television licences?

Sir Michael Lyons: It's a bit of history, I agree, and the former Governors did agree to a licence fee settlement that included the cost of the switchover scheme. That was integral to BBC activities that were taking place and the responsibility the BBC had for the encouragement of and the engineering issues behind the digital switchover.

So I think it's qualitatively different, but I come back to the fact that I do think that the over-75 licence fee remission issue is much more clearly and unashamedly a welfare issue, and would have been effectively a big step further to melding the licence fee with general taxation. And that's the point on which the Trust, throughout its existence, has taken a principled stand.

Mark Thompson: A couple of other points. Firstly, the point about digital switchover. There are powerful reasons directly to do with the BBC's public purposes why—and also it is economic—it might be in favour of universal analogue to digital switchover, both because we can get our services to every household in the land, and secondly, because once you've achieved digital switchover and every household can get digital television, you can switch off analogue transmission and save on the costs of dual transmission.

The point about the over-75s, though, is that it goes to the fundamental fairness of the core licence fee itself. The danger—because the licence fee is a flat and, therefore, in fiscal terms, a regressive charge—is that if you are not careful you end up with poorer households being asked to pay. When you ask the BBC to pay for the over-75s, you're asking other licence payers to pay for households of over-75s. The danger in terms of the BBC's independence is all to do with the legitimacy and fairness of the core licence fee. So it is not a small segment that is designed to achieve something that is one of the BBC's public purposes—digital switchover and universal digital delivery—but something to do with the core proposition of the licence fee.

Q109 Chair: I would only say firstly that I am glad to hear that you acknowledge that the licence fee as regressive and, therefore, an unfair tax—

Mark Thompson: There are many charges we have that are flat charges. Vehicle excise duty would be another example. We have a fiscal system that has some flat charges that absolutely in fiscal terms have a regressive quality, but it's very important that the word "regressive" in this context is not necessarily a derogatory one. I mean, it may be your view that it should be, but in fact it isn't.

Q110 Chair: I quite accept that it is part of the BBC's strategy to achieve digital switchover, but this wasn't part of that; this was a welfare scheme that was designed to help elderly people on low incomes.

Sir Michael Lyons: It takes us back, doesn't it, to a decision of another Government that took the view that this was an integral part of encouraging switchover.

Q111 Chair: Do you regret the decision of the BBC to agree to it and to fund it?

Sir Michael Lyons: I think that it was worthy. It's always dangerous to be invited to comment on other people's decisions made in difficult negotiations. We've just had our own round of negotiations and here I am facing commentary on how we might have done things differently, so it makes me particularly sensitive about offering any judgment about others. I think it's fair to say that I think it would have been better if the principle of the BBC licence fee being reserved solely for BBC services had been maintained at that stage, but I wasn't there to play a part in those discussions.

Q112 Chair: It was observed at the time, I think by this Committee among others, that it did represent quite a significant shift in the use of the licence fee. Would you have regarded that as a red line had you been in charge?

Sir Michael Lyons: I think it is taking it too far to hypothesise a situation that I wasn't in, but I think you can draw your own conclusions from what I've said this morning.

  Chair: All right, thank you. Louise Bagshawe.

Q113 Ms Bagshawe: I want to ask you some questions about figures. But before I do, I'd just like to go back to my colleague Paul Farrelly's last question and your answer to it, Mr Thompson. You have just said that was not a fair characterisation of your answers in that interview, whereas you've just said to this Committee that when the issue of the over-75 licence fee was being pushed by the Government, you made calls to various people across the political spectrum. What you actually said in the interview was that you made calls to Liberal Democrats, so one of two things is true: either you were completely misquoted and you didn't in fact say that, or you did make calls to Liberal Democrats. Which is it?

Mark Thompson: We spoke to politicians of all the principal political parties, not just the Liberal Democrats.

Q114 Ms Bagshawe: Then why in the interview did you single out the Liberal Democrats? Are you specifically saying that that is wrong and that you were misquoted?

Mark Thompson: I don't believe I suggested, for example, that we made phone calls to Nick Clegg. I certainly wasn't aware of any phone calls to Nick Clegg and didn't speak to Nick Clegg myself.

Q115 Ms Bagshawe: That's a pretty serious misquote by the journalists then. It's a complete mischaracterisation.

Mark Thompson: To be fair, it may be that the interviewer is wrong. It may be that I misspoke. For the record, let me make it quite clear: although, yes, we spoke to politicians of many different parties, I certainly didn't speak to Nick Clegg and nor am I aware of anyone else in the BBC speaking to Nick Clegg.

Q116 Ms Bagshawe: I do not want to harp on about it too much, but the quote does seem to be, "We spoke to loads of Liberal Democrats and we lobbied the Deputy Prime Minister". I mean, that's pretty black and white, isn't it?

Mark Thompson: What I'm saying is that what actually happened is we made a large number of phone calls to politicians, I believe from all major political parties. That included the Liberal Democrats, but was not restricted to the Liberal Democrats.

Ms Bagshawe: So a fairly serious misquoting there. You have suggested over and over that this settlement requires the BBC to achieve savings of about 16%, but the figures that the Committee has in front of us note that you're already two years into a five-year efficiency programme and that you've identified various savings that the BBC is going to make anyway before the licence fee settlement.

The summary figure that I have here is that prior to the settlement you were already planning efficiency savings of £344 million. So can you tell the Committee how confident you are that you genuinely have to deliver 16% of new savings by 2016 to 2017? What basis did you use to come up with that 16% figure, as opposed to existing savings you're already going to make?

Sir Michael Lyons: Can I just have first bite at that? I don't want to challenge your figures; I'll just accept them and understand the point you're making about efficiency savings on efficiency savings. There's no doubt at all that we've been through a period of the BBC being very successful in achieving its efficiency target, both in this licence fee settlement and in the years preceding that, so this has continued for a number of years now.

The Trust has been crystal-clear in agreeing the settlement. While we would begin the process of looking for what could be achieved through efficiency savings—and, of course, it is down to the Director-General and his team to find those—and while we would look for radical solutions to providing existing services in different ways, it was impossible with this level of reduction in resources and the new responsibilities taken on to be confident that it would not lead to reductions in services or indeed, even the cessation of services.

So I don't want to leave you with the impression that at any point the BBC has said, "This can all be done through efficiency savings". From the moment when the settlement was announced, I was making it clear that we would, of course, start from efficiency savings. We would search diligently for those and we had a good track record but, at the end of the day, we couldn't guarantee that it wouldn't have an impact on audiences.

Q117 Ms Bagshawe: In assessing whether this settlement is tough but fair, as you both have characterised it, the Committee will be interested to see to what extent you can fund the savings that you have to make through your existing plans—that is, your pre­settlement plans. In other words, how tough is this settlement really? How much would you say through existing plans you can already cover some of the additional costs that you are now being asked to absorb?

Sir Michael Lyons: Shall I just say one thing, Mark, and then hand over to you for the detail? When the Trust itself decided to forgo the planned increase in the licence fee and to forgo any prospect of an increase in the final year of the settlement, it was after very detailed discussions with the Director-General, his finance director and indeed, detailed work undertaken showing the steps that would have to be taken for that to be achieved. So already, there is limited room for manoeuvre. Let me give you a chance to come in, Mark.

Mark Thompson: I will deal, first of all, with the issue of savings and then with the issue of the BBC's income, because they're not exactly the same thing. On savings, exactly as the Chairman said, our expectation under all scenarios was that we currently have an efficiency programme with the BBC delivering 3% cash-releasing efficiencies each year. That programme of efficiencies that we report on, with KPMG independently auditing them in each annual report to demonstrate they've been achieved, continues to the end of March 2013 and the earlier licence fee settlement.

Under all scenarios, we assume that the BBC would expect—the BBC Trust would definitely expect and the Government would definitely expect—that in any future licensing settlement there would be a further set of efficiency targets. What we've done in the current settlement and what we would expect to do in any future settlement, as is true across the whole public realm, is to divide that between productivity efficiencies—i.e. delivering the same programme or same service at the same or higher quality for less resource—and then allocated efficiencies, for more effective use of the licence fee. That can sometimes mean reducing services and transferring money from one thing to another.

In terms of agreeing to the target of 16% efficiencies over the last four years of the Charter, i.e. beyond March 2013, we believe that with a combination of these two things and productivity gain, we will have major new digital broadcast and production centres opening in West One and Salford.

In particular, we have a new digital television production solution that we're rolling out across the entire BBC. Under the settlement, we're combining UK BBC News with World Service. These are all opportunities for productivity gains. We believe, with the savings, that we can achieve that 16% by a combination of productivity gains and some further allocated efficiencies, i.e. focusing the use of the licensing more effectively. A current example would be a proposal we're discussing with the Trust to reduce our spend on our website by 25%, and we believe we'll end up with a website which is, in some ways, more valuable, more useful and more distinctive but with less money spent on it. That would be an example of allocated efficiency. So that's savings.

  In terms of the BBC's funding, there are a number of things going on. The level of the licence fee is frozen. We expect the number of households paying a licence fee to go on growing and that obviously, to some extent, increases the amount of money you get from the licence fee. We believe that we can make further significant strides in terms of the cost of collecting the licence fee and in terms of further reductions in evasion of the licence fee. Depending on a number of other assumptions, we would expect commercial revenue to the BBC to continue to grow fairly rapidly, as it has been growing in recent years.

  We also have a specific objective that is to take the cost of running the BBC, which is currently 12% of licence fee revenue, to 9%—so that's 3% of the licence fee that we hope to repurpose away from overheads into services.

  So in terms of the overall economy of the BBC, we have a number of levers for both dealing with rising prices and also taking on these new obligations. Part of that story is this fairly tough but, in our view, achievable set of efficiency targets.

Q118 Ms Bagshawe: That's interesting as to how you're going to do it but, in terms of public and parliamentary scrutiny of the deal that you've just achieved, what this set of questions is driving at is to say you've characterised this as a further 16% cut that the BBC has to absorb. In a recent newspaper interview you, Mr Thompson, identified £300 million savings that would have to be made.

How much of that is new money and new cut dependent upon this settlement, and how much was already there in your efficiency plans and budgeted by you as savings that you were already doing before this settlement? How confident can the public be that this 16% figure is a result of the settlement you've just achieved with the Government?

Sir Michael Lyons: The 16% figure appears in the Secretary of State's letter. It is the joint assessment of the impact of the agreement. It is not affected by, and doesn't take into account, the track record in earlier efficiency savings—the efficiency savings and other measures required by the BBC Trust to live within a fixed licence fee for the last two years of this settlement.

So our collective view is that this is a tough settlement for the BBC that will require changes in the way we do business. We begin by looking for efficiencies. The Director­General will encourage more radical options in the way that services are provided, but we can't rule out the possibility that it will have some impact on the scale of those services, and we've never hidden that.

Mark Thompson: I would like to have one more go at this to say that the last licence fee settlement was struck at a very different moment in the British national economy and in the context of public expenditure and public efficiency. It was set with the Government requiring 3% cash-releasing efficiencies per year during the settlement.

So I think one way of looking at this question is: imagine we'd had a set piece, traditional licence fee negotiation or discussion with the Government in 2011. What level of efficiencies would a Government in 2011 be looking for from the BBC? What would have been the benchmarks across the public sector? It's probably a slightly bogus concept, but what would have been the going rate of efficiencies for other public bodies and cultural bodies? We certainly thought that any Government, irrespective of political colour, would have been looking for deeper savings given the broadest sense of funding for the public sector.

  In this debate over this licence fee settlement, we thought that 4% firstly was achievable and secondly was reasonable, given the targets and obligations that would have been set more broadly across the public sector.

Q119 Ms Bagshawe: You've just described the settlement again, Sir Michael, just now, as a tough settlement and you've told us about your red lines as to the over-75 licence fee. There's some feeling out there that, on reflection, the settlement in fact isn't that tough for the BBC after all and that the Government need not necessarily have accepted your red lines of the over-75s. I have heard it said that there were "whoops of joy" in the BBC Trust when the settlement was agreed. Do you recognise that characterisation?

Sir Michael Lyons: No, I don't, not at all. This was a tough set of discussions. I'm certainly not aware of any celebrations. There's a tough job to be done and I think, like many of the other reductions that are being implemented across the entire nation, we've yet to see the real consequences of those. I don't want to give you any sense of complacency or comfort about the position of the BBC today.

Q120 Ms Bagshawe: What about you, Mr Thompson? Like journalists, politicians sometimes have to protect their sources but I'm satisfied that I heard it from a reasonably informed source. Did you recognise any sense of celebration when these negotiations were completed?

Mark Thompson: No, it's not true. I think if you ask whether there was a sense of relief that we'd ended up with a tough but workable settlement rather than being in a situation of some crisis—of having something that we collectively regarded as a wholly unacceptable imposition i.e. the over-75s on the BBC—and if you're asking whether after this process we were relieved to have what we thought was a tough but fair outcome, then I think there was relief.

But for the BBC, after many years of stretching efficiency targets, trying to maintain and, where we can, increase quality—by the way, the public measures for quality of the BBC are high and higher than they were three years ago and some of them are at historic highs despite efficiencies—it means four more years of hard graft and difficult choices. Although I say that there may well have been a moment of relief from my side of the BBC that we'd arrived at this point rather than a very different and unacceptable point, I myself didn't whoop and I didn't hear anyone else whooping either. If I've been quoted whooping, it's bad journalism.

Q121 Mr Sanders: Do you accept that you have now, in effect, agreed to top-slicing of the licence fee by allowing it to be used for a range of non­BBC activities and services?

Sir Michael Lyons: No, I don't and indeed, I'm clear that if I thought that, we wouldn't have reached agreement. All the proposals—and they're all in the public realm; there are no hidden parts of this—are consistent with the BBC's public purposes and the BBC Trust oversight of the money is maintained. There is some ring-fencing. There are some detailed schemes to be worked out for some components of this and negotiations continue, but against the backdrop of the fact that the BBC Trust will insist on oversights of the expenditures and then remaining consistent with BBC's public purposes.

Q122 Mr Sanders: But how can you say that in light of the S4C responsibilities you've taken on, such as broadband and other non­BBC local television services? Surely that is a clear top-slicing of the licence fee.

Sir Michael Lyons: No, it's not and you look to the Secretary of State's letter where there's a very clear acknowledgement in the case of broadband being consistent with the BBC's public purposes. If you look at the situation for S4C, a very clear clause included— admittedly in the sort of provisional sense of what the agreement might look like—that the BBC Trust will have an oversight role here while protecting the creative independence of S4C. It was the same, frankly, with the very modest contribution to local television: a very clear recognition that this will essentially be a continuation of BBC partnership-type working.

Q123 Mr Sanders: What about the welfare element of broadband?

Sir Michael Lyons: I don't, at the moment, foresee a welfare element of broadband. All of the reasoning behind this, following on from the publication of "Digital Britain", is essentially about how you enrich the national economy with the achievement of high speed broadband roll-out across the country.

Q124 Mr Sanders: You're not leaving it to the market. Clearly, you're intervening—

Sir Michael Lyons: But that doesn't make it a welfare issue, because there's a public intervention. I don't regard the BBC as a welfare intervention. It's reflected in the public purposes of the BBC that it's about the enrichment of society.

Q125 Mr Sanders: But the purpose behind the broadband roll-out is to reach those groups who wouldn't otherwise have been reached if it had been left to the market.

Sir Michael Lyons: It is those areas that wouldn't otherwise have been reached; it is not individually—of course, we're both speculating here because we don't have the details of how this is going to be implemented. So I probably ought to stop at this point. My understanding is that the momentum here is essentially one of national economic importance. I've certainly detected no indication that it will favour households in terms of their ability to pay. It will essentially be for those areas that might not otherwise be served by the market, for which you know it's been designed.

Mark Thompson: It will mean that all these households can receive BBC public services—our website, iPlayer and so forth.

Q126 Mr Sanders: The amount of money that you're going to be putting into S4C will be far in excess of the money you'll been putting into any other region of the United Kingdom. How do you justify that, if that's not a top-slicing of the licence fee?

Sir Michael Lyons: Let's be very clear. It's not a top-slicing, because top-slicing would only be the case if it was inconsistent with the public purposes and there was no oversight by the BBC Trust.

Let me just come back to the point and say I do understand the mission that you're on to understand the settlement, but it's very important that the BBC doesn't leave you with the impression that we went looking to fund S4C. We didn't. It was part of an agreement; it was indeed a component of the initial negotiations, which we were most wary of for two reasons: firstly, that there might be a danger of top-slicing, and we think we've found a way round that. Also, we know that in Wales, the issue of the independence of S4C is felt very strongly and the BBC did not want to leave any suggestion that it was somehow the pioneer of this proposition.

  When you enter into negotiations, and you know this well, you sometimes end up accepting things which you might have chosen not to. That's part of the discussions.

  Mr Sanders: Tell me about it.

Sir Michael Lyons: Sorry, that wasn't meant to be as pointed as it no doubt appeared but I just want to be very clear that as we're sitting here, we're not somehow sort of sucked into something that leaves the impression that this was a piece of pioneering work by the BBC; far from it.

Mark Thompson: If I might just add about S4C, it's quite important to realise that as a broadcaster, the BBC has a profound interest in the Welsh language. We're the most significant broadcaster in the Welsh language in radio and indeed, on the web. We've been making, producing and broadcasting Welsh language television programmes for more than half a century, many decades before S4C arrived.

Although S4C is absolutely an independently branded channel, its core news and current affairs spine is BBC branded i.e. BBC Newyddion and the other news and current affairs programmes. Many of the most popular programmes on S4C are BBC programmes such as Pobol y Cwm, our soap opera, and our sports coverage and so forth, and we have a very strong interest in a continued thriving Welsh language television channel available to licence payers across Wales.

Although it's absolutely the Government's initiative to ask for a stake on this funding, I want to be quite clear that our interest is absolutely working as a partner to ensure a flourishing, creatively successful and creatively independent S4C in the future.

Sir Michael Lyons: None of my earlier comments in any way are at odds with that at all.

Q127 Philip Davies: You're rather dancing on a pin here, aren't you? You're absolutely desperate not to accept that it's top-slicing, but in any kind of public perception of the meaning of top-slicing, which is money taken from the BBC and given to something that isn't a core BBC activity, this is, to all intents and purposes, top-slicing.

I've no idea why you're so determined to dance on a pin pretending that it isn't. You said that this was the part of the deal that you were most wary of; the reason why you were most wary of it is that you know that if it looks like top-slicing and it sounds like top-slicing, it is top-slicing. Why won't you just admit what everybody else in the room knows and everybody else in the country knows—that this is top-slicing?

Sir Michael Lyons: By your own definition, Mr Davies—and thank you for putting it in more accessible language—the key issue is: is the money taken away from the BBC and given to somebody else? No, it isn't. It remains with the BBC.

Q128 Philip Davies: So you said that S4C of course maintains its operational independence and so has, therefore, been taken off the BBC and given to somebody else who has operational independence.

Sir Michael Lyons: No, with oversight from the BBC Trust. Let's be very clear about that. I didn't use the term "operational independence"; what I said was "creative independence"—the exact terms of how we ensure that the creative independence is protected, so that choice over programme scheduling remains with S4C, but there is oversight for the BBC Trust to ensure the licence fee payers' money has been spent wisely. That is the challenge to which the discussions currently taking place have to find a solution.

Q129 Philip Davies: You said that local TV was a traditional BBC partnership. In what way is it a traditional BBC partnership and what control is the BBC going to exercise over the local television services?

Sir Michael Lyons: In as much as in the debate about local news provision—indeed, local provision has been an active debate over recent years—the BBC itself is clear that audiences would like more local coverage and so there is unsatisfied need there. There were indeed proposals by the BBC, which you know in the last licence fee settlement were turned down, for a local TV service provided by the BBC, and there has subsequently been a discussion about whether the BBC should be clear about the limits of its local ambitions to leave room for existing newspapers, radios and so on, in a difficult market.

That's the context and the background of why the BBC is interested in this and, of course, when under the previous Government there were discussions about a local news service, the BBC was very clear about its commitment to plurality there and put proposals on the table for a partnership working with ITV to retain those local services.

So that's the background against which we view this. This was added into the discussions at the suggestion of the Secretary of State, in two parts: a very modest contribution to the capital start­up costs, which we regard as being in the spirit of the partnership working—and indeed, of a much lower value—that the BBC's offered in the past. The second component is £5 million a year for the purchase of content, again in a spirited partnership, but with a clear benefit to the BBC in terms of that content.

Mark Thompson: Could I just briefly—Nicholas Shott published a report this week—

Chair: We are going to come back to S4C and local television in more detail in a little while, so—

Mark Thompson: Will you allow me one brief interjection, Chairman?

Chair: One interjection.

Mark Thompson: This is Nick Shott this week on the topic of the BBC in local news, "The involvement of the BBC should help ensure higher quality, particularly if the use of BBC facilities and training is included in a partnership model. The BBC already has precedence in news partnerships with other agencies. Training and accreditation of local TV operators will contribute to the long­term sustainability of the service." Later, "The BBC is positively engaging in the debate and continuing to investigate ways in which it can facilitate local TV", and so on. So I think what Nicholas Shott is seeing is that a partnership model with significant BBC engagement has potentially powerful benefits to it. That doesn't sound like simple top-slicing.

Chair: No. We may explore that further shortly. David Cairns.

Q130 David Cairns: Thank you. Can I join the jig on the head of the pin, if there's room for a small one, on top-slicing? There is a real distinction of principle here which was slightly blocked earlier, to my consternation. What the previous Government proposed was to put an additional supplement on to an already generous licence fee increase, solely for the purpose of digital switchover and the help scheme.

Far from funding that, what the BBC was asked to do was administer a scheme, but it was not money that was otherwise available to the BBC. It wasn't a penny piece from the budget of the BBC that was being asked to be spent on digital switchover, whereas what we have here—call it top-slicing or not—is money not from an increased budget but from a decreased budget, taking on all sorts of additional responsibilities from money that the BBC would otherwise be spending on BBC programmes and BBC purposes.

There's a very clear distinction as to why you would've been quite right not to resign if the top-slicing on digital switchover was put to you, but this is absolutely—a moron in a hurry could see that this is top-slicing.

Sir Michael Lyons: I would encourage anybody in a hurry just to slow down and look at the detail very carefully. Mr Cairns, I don't know what you knew about the last Government's intentions, and maybe it is more than I knew. The only proposal that I was aware of was that money, already planned to be collected from the licence fee as part of the existing settlement but unspent because the digital switchover scheme was not as costly as was originally anticipated, would be transferred.

Q131 David Cairns: Sorry, but this is very important. I am not talking about the IFNC (Independently Funded News Consortia) proposal; I am talking way back to the previous licence fee settlement under Tessa Jowell, when not only did the BBC get a generous increase in licence fee but an additional percentage, solely for the purpose of digital switchover, was added to the licence fee which would otherwise not have been there. So it was hypothecated, not top-sliced. The BBC had to and agreed to administer it, but that was not money that would have come from a penny piece of the BBC's core budget. So there is a very significant distinction.

Sir Michael Lyons: Let me firstly agree with you that that settlement provided money for the digital switchover scheme. I absolutely agree with that. That was agreed at the time, that's very clear, and indeed it was made clear to the public that the licence fee included that element and that it was being collected appropriately. I absolutely agree.

The difference comes, I think, when we start talking about money being taken from the BBC and spent by another party for purposes that are not the public purposes of the BBC. I am satisfied—we can argue until the cows come home about whether you are satisfied, but I am satisfied—that we have not yet agreed anything that represents top-slicing. I acknowledge that, if it were the case that the funding for either S4C or local TV left the oversight of the BBC Trust or was deployed in a way which was not consistent with the BBC's public purposes, that would be a different matter.

Q132 David Cairns: My view is that you caricatured something that wasn't top-slicing as top-slicing, and something that is blatantly top-slicing, you're saying, isn't top-slicing.

Sir Michael Lyons: No, sorry, if you think I caricatured anything. I was referring to the IFNC.

Q133 David Cairns: But that was money coming from an under-spend of a pot of money that wasn't available to the BBC in any case, so it wasn't money that was being top-sliced from the BBC's budget at all.

Sir Michael Lyons: The most important thing is that it was raised from the public under a clear intention that it would be used for the BBC's public purposes. There is no getting away from that, and the IFNC proposal was not consistent with the BBC's public purposes.

David Cairns: I think we've got "Riverdance" on the head of this pin.

Sir Michael Lyons: There are plenty of us there.

Paul Farrelly: It is a Mr Kipling question.

Q134 David Cairns: Isn't the truth of the matter that the Government threatened to shoot you in the head or shoot you in the foot? And you chose to be shot in the foot, which is a perfectly rational choice, but that is what you chose to do with this licence fee settlement.

Sir Michael Lyons: Look, did the Government come looking to take the pressure off them at a time when they were trying to make very substantial reductions in Exchequer costs? Of course they did. So there is no doubt that was the momentum. The BBC then agreed an honourable deal that, in these difficult national circumstances—I can't say that enough—took on some of those expenses, but only where they were consistent with the public purposes of the BBC, maintaining the independence of the BBC and with a new settlement that provides time to digest those changes. You can characterise the deal differently. That's the way that I characterise it and I think it's a fair way to characterise it.

Mark Thompson: If I can just add in terms of the chronologies that I felt convinced by the final knockings of this conversation—we're talking about late on Monday the 18th and Tuesday the 19th—that the over-75s was coming off the table, and the counterfactual for the BBC to consider was not accepting this deal or facing the over-75s but, in the final stages of the conversation, either accepting this deal on its merits or accepting the alternative that was a separate licence fee negotiation with Government on the original plan in 2011-2012. That was the choice in front of us finally. There were many chops and changes before we got there, but that was the choice, in a sense, facing the BBC Trust.

Q135 David Cairns: I don't want to reopen the discussion we had earlier with Mr Farrelly, but did it never occur to you that this was a bluff, and that they went in with something so big, so ridiculous, so completely unacceptable that you would be so relieved when they took it off the table that you'd have agreed to any old nonsense that they suggested in its wake?

Sir Michael Lyons: I'm eager, and I know it would be of interest to you, not to go further than I think is appropriate in terms of the detail of these negotiations. But I will go so far as to say that I am satisfied from all of the discussions I had with the Secretary of State that he regarded this as a real prospect and that he himself wanted to, if it were possible, reach agreement with the BBC Trust throughout these negotiations. There was a point where the negotiations fell down and the Government resumed its intention to press for the funding of the over-75s and, indeed, I believe the record will show that it went so far as to draft the necessary proposals for that. You will be able to explore that more fully than I will.

Q136 David Cairns: Just on the local TV question, which we will take at this point. As the Secretary of State—and I will call him by his title rather than his name—stands over the equine corpse of his plan for local TV, flogging it one last time, he says, "This isn't going to work without public subsidy—oops, I've said there wouldn't be public subsidy. I know: those sops at the BBC, they'll agree anything. I'll go and get £25 million from them." I fail to see the distinction between why you agreed this, and yet it was such an incredible point of principle that the IFNC's were completely different. Where is the distinction here?

Mark Thompson: You'll recall, though, that in the conversation about the sustainability of Channel 3 regional news, the BBC made it very clear that, in terms very close to the ones set out by Nicholas Shott in his report this week, it was prepared to look at ways in which, through training, facilities, and the sharing of rushes, it could help with the sustainability of plurality in regional television programmes.

Our underlying posture on the city-based new services that are being proposed by the present Government is very similar to our approach to the concerns by the last Government, which in that case was a Channel 3 regional news question rather than a city-based question. But the proposition that there are a number of ways in which the BBC, as an effective partner, could help because of the public value we've identified in more choice and plurality—in the case of the city, the idea of an entire new layer of local services—is there. The BBC is not—and nobody, I believe, thinks that it is—a complete solution to this issue, but we believe, as I think Mr Shott believes, that it could potentially be a valuable partner in opening up a new area of broadcasting.

The debate about whether it's necessary and sustainable, and whether there's a long-term commercial model, is all to come. I think if you were standing back, you'd say that there's been a period of public policy development in the area of regional local broadcasting that is still ongoing and, in a sense, that's where the music hasn't stopped yet. But what's consistent about the BBC's approach is recognising that there is value in plurality and in making sure that people have a good and broad selection of different local and regional services to turn to, and that the BBC may have a role as a partner and as one of the necessary but not sufficient means by which it might be brought about. I think we have been fairly consistent in our approach to this question across the two Governments and across the two different proposals.

Q137 Paul Farrelly: I think it's very important, given what's happened, not to leave things hanging in the air. Can I just ask you briefly: we've concentrated on the over-75s, but was there anything else so unpalatable on the Government's initial shopping list that it would have crossed a red line? If so, what?

Sir Michael Lyons: Yes, there were. Do you want to say any more about that, Mark?

Mark Thompson: Certainly there was a suggestion put to us that the BBC might be a vehicle for showing a large amount of information produced by the Central Office of Information—Government messaging—to the public. I thought again it would have been a very serious breach of the BBC's editorial independence.

Q138 Paul Farrelly: At your own cost?

Mark Thompson: We were sufficiently crisp about the unacceptability about this. We never really got into too much detail about what it would mean. I rather assumed it would be using the interstices between programmes where you often hear information about other BBC programmes, for example—using that to broadcast a large quantity of Government information, and I said this again—

Q139 Paul Farrelly: Over which you would have had no editorial control?

Mark Thompson: One assumes not, and as I said, that was another really good example of something that in my view neither the BBC Trust nor the BBC would be able to countenance. Historically we have, and we do occasionally still. On matters of firework safety, for example, you will occasionally find public information films on the BBC, but the idea of the BBC becoming a significant repository of Government information content, I thought, would be wholly unacceptable to us.

Meanwhile, commercial broadcasters, for whom this has been historically a significantly valuable source of income, would also, quite reasonably, have talked about the commercial market impact of such a move. But the principal reason was that the BBC is an editorially fully independent broadcaster that makes its own decisions and therefore stands accountable for its own content.

Paul Farrelly: It would have compromised the independence.

Q140 Chair: When was this proposition made?

Mark Thompson: It was raised several times through the conversations.

Q141 Chair: During the four-day period?

Mark Thompson: In total, it was an eight-day period and it was raised several times.

Sir Michael Lyons: And it came back again towards the end.

Q142 Chair: By the Secretary of State?

Mark Thompson: Yes. I think, to be fair, he was representing the interests of other parts of Government, but yes.

Sir Michael Lyons: Just one other component. I would like you to see the fullest picture. It isn't quite another proposal, but it is in response to the BBC's suggestion that we would only be able to contemplate an agreement in the context of a new settlement. There was, throughout these discussions, an attempt to condition that agreement by leaving the scope for a further examination of the scale and scope of the BBC to be conducted by the Secretary of State himself, and that was another component of the negotiations where we were clear that that was out of the question. There either was a settlement or there wasn't, and indeed at one stage the discussions faltered over that very issue.

Q143 Paul Farrelly: That is a serious revelation in itself. The consequences for editorial independence at the BBC of being shunted down the road of being a Government mouthpiece are quite clear. But just very briefly, what would have been the consequence of the BBC's having to take over that over-75 licence component? You mentioned, Mark, that there could have been a sense of crisis.

Mark Thompson: What I meant by that, to explain it simply, was because of what the Chairman said earlier. It would have been the imposition of an obligation that absolutely both the BBC Trust and the BBC management felt was wholly unacceptable.

Sir Michael Lyons: The implications here: a bigger quantum—£560 million—growing over time, but most of all an expenditure completely inconsistent with the BBC's public purposes, and as the Director-General said, leaving us presiding over a situation where licence fee payers might in many cases be funding the better-off for their service.

Paul Farrelly: Very finally, anybody can go through the BBC Council reports, look at all the headings and expenditures, and draw conclusions for themselves about what might suffer as a consequence and whether the consequences are either intentional, reckless or cavalier.

The final thing is a muddying of the waters. We shouldn't leave any assertion that respected journalists and media editors have misquoted anybody. Sir Michael, did you speak to Nick Clegg in his office?

Sir Michael Lyons: No, I didn't and indeed my line throughout this was that, having decided the negotiating arrangements that we were going to follow, we followed them methodically.

Q144 Paul Farrelly: Did anyone on the BBC Trust or the BBC Board speak to Nick Clegg directly, or was it just simply left to other Liberal Democrats to use that influence?

Sir Michael Lyons: I don't know the detail of this. I am aware, from what was reported to me, of discussions across parties so I can confirm what the Director-General said there from what was reported to me, and I understood that messages were conveyed by the most effective means.

Q145 Paul Farrelly: Are there any notes of conversations, results of conversations, a ring-around list with the responsibilities and results within the BBC?

Mark Thompson: I don't believe so. We were making phone calls rather than making notes.

Q146 Paul Farrelly: If we asked for one, would you look at providing us with one?

Sir Michael Lyons: I don't think it could be—I don't think we could guarantee that it would be comprehensive because it would be reconstructed from memory. So I am not sure how useful that will be to you, but you must reflect on it.

Mark Thompson: I don't believe there were any contemporaneous notes made on that particular afternoon; as I say, we were using the phone rather than notes.

Q147 Chair: We now need to move on to look to the future. Yesterday, you published the strategy review which states right in the opening sentence that it is a wide-ranging review of all aspects of the future strategy of the BBC. It goes on, "We have now completed that work and published the final strategy for the BBC." In the next paragraph, you say, "We have since had the licence fee settlement, that is likely to require a more fundamental review of the cost base and the shape of BBC services than was done in the course of the strategy review." So does that essentially suggest that you are now going to have to go back to the starting block and start again?

Sir Michael Lyons: No, not at all, but I think if I was able to reel the wheel back I probably would not use the word "review" twice in such short succession. I had the joy of explaining to the press yesterday the difference between these two exercises. I am very clear that the review exercise, which this is the final chapter of—and I think all members of the Committee will see that you need to read this with the provisional conclusions published in July, the Director-General's response to the Trust in terms of "Putting Quality First" and, indeed, the trust's original challenge.

Those go together to make a single volume in terms of the output from the review exercise. It charts a clear way forward with clear conclusions, including in this latest piece of work some proposals for how the BBC deals with the increasing array of platform challenges in the future and continues to get to its audience. What we are saying, nonetheless, is that there is detailed work to be done and done quickly on the consequences of the 16% reduction in budget. This provides the framework in which that will take place, but it doesn't by itself prescribe exactly how that's achieved.

Mark Thompson: Could I just add one thing, which is that the themes and priorities laid out in "Putting Quality First" are a useful roadmap as we think about how to make sense of the new licensing settlement? For example, saying that there are particular editorial priorities for the BBC—we mentioned five of them: delivering the best journalism in the world, outstanding programmes which illuminate the world of knowledge, music, arts, culture, outstanding original British comedy and drama, outstanding services to children and a commitment to invest in events which in different ways bring communities and the nation together. Those five priority areas, I think, are examples of exactly what you want to have in your mind as you're making difficult choices about trade-offs and about where you concentrate your mind.

So as we reduce the amount we spend on our website and try and make sure we come up with a website which is high quality, distinctive and valuable to the public, focusing on what matters most to licence payers and what they most want the BBC to produce is going to help us. So I think it is not as if you have a strategy that is "that was then, this is now", and you have to start from scratch again.

The most valuable part of this whole dialogue between the Trust and the BBC, and absolutely a dialogue with the public, has been about what the public most want from the BBC. As we think about the BBC of 2015, 2016, what's the direction of travel? I think we have the direction of travel. We now have the fairly considerable task of turning these broad themes and directions into practical plans for genre and services and platforms.

Q148 Chair: But in terms of the areas you have mentioned as where you can seek to achieve the necessary savings, you've talked about cutting overheads, about reducing the number of acquisitions and about concentrating sport spend on events of national significance. These are proposals which you have been talking about in every session when you've come before this Committee in the course of the last five years. Are you saying that you think you can live within the settlement by continuing that kind of programme or does it not require a much more fundamental rethink of what the BBC does?

Mark Thompson: What's interesting is that in the part of the conversation with the public through "Putting Quality First", it has been very clear the public do not want any diminution of the services offered by the BBC. Indeed, the experience is that even proposals to withdraw what, on the face of them, are not relatively, or were not relatively, widely used digital radio services meet with—and we absolutely understand this—really quite strong opposition from the public.

So our challenge is that the public want a broad range of services from the BBC; there isn't a single service from the BBC that has not got a powerful constituency out there. They want a broad range of high quality content from the BBC, and our challenge, if you like, is can you meet that public expectation in the context of the reality of the funding the BBC will have over this period?

My answer would be, in broad measure—we need to do the detailed work; we absolutely, of course, need to have the detailed dialogue about this—you look at what we've been doing most recently. Two examples. First, that reduction in the website; I believe it will leave us with a more valuable website, not a less valuable one, but we're taking a significant amount of funding out of it. Look at what we've done with factual programmes on television, where, the number of hours of factual programming having expanded, we've reduced the number of hours, but we have increased the investment in some of those hours to increase the quality. The public tell us they believe we're doing a better job with factual programmes now than three or four years ago.

So there are ways in which you can work the way you use the licence fee. If you've got clear priorities and clear values, and put quality first as the strategy suggests, we believe we can deliver a service which is going to be more valuable to the public, but is still broad. This is still going to be, in my view anyway, when you get to the middle of this decade, a BBC which plays a very big part in people's lives and offers a very broad range of services.

Sir Michael Lyons: Can I just make one short addition to that because I think the Director-General has clearly captured the main issue around public support for all BBC services?

Clearly this is a challenge, a 16% reduction. I said earlier on about the way that both Trust and executive are clear that we should go about this by looking for efficiency gains first. But all that is against the backdrop that there can be no question of diminution of quality, so this is not just going to be achieved by spreading it and generally reducing the quality of the weave across the whole organisation. That will be the issue of tension in discussions between Trust and Executive, and where the challenge is for the Director-General to bring forward proposals that are acceptable.

Q149 Chair: The Strategy Review originally proposed essentially that—the headlines were—a reduction in the amount of BBC online provision and the closure of two rather small radio stations, one of which you then decided not to close after all. This new—

Mark Thompson: But, if I may say so, Chairman, that's only true if you ignore, as it were, the most important part of the strategy, which is the broad direction of travel for the BBC's content.

Chair: I accept that.

Mark Thompson: There's a terrible danger in this; it becomes a rather silly business of just counting different BBC services rather than thinking about the total value that the BBC offers, which is more to do with what you provide within the services than with trying to nominate individual services for—it's partly because of the lens that's applied. If I may say so, there's a slightly pygmy quality to the debate about this. The most important thing is what quality of services, what quality of programmes does the BBC deliver. How you play them out, of course, is important, but actually it is a second-order issue.

Q150 Chair: Nevertheless, it is an important issue and you didn't in the Strategy Review really address whether or not you needed to have as many television channels on as you currently have. Now, in this new document you state that it's going to be, as I said, a more fundamental review and it is likely that it will also need to incorporate the reassessment of the television portfolio that we had imagined would take place around switchover. So you are now going to consider whether or not you need—

Sir Michael Lyons: Well, can I talk about the Strategy Review rather than the Director-General's proposals? The Strategy Review did look at the issue of the current portfolio of television channels, and determined, and made quite explicit, that it was premature to consider any changes in that, not least because the public's viewing patterns, as we know, have not significantly yet moved away from adherence to linear schedules. So this was firmly put in the future after switchover, believing then we would be clearer about the effectiveness of three and four in winning audience in a fully digital future and to see whether public behaviours have changed in the meantime.

In the context of a 16% budget reduction, the Trust is clear that we don't have the luxury of that; it has to be looked at, as indeed does all BBC activity, to make sure that we are confident we can live within this reduced budget. Again, I come back to the fact that the Director-General can find—and one can only be enthusiastic about the search for it—radical ways of doing business that avoid reduction and any need to reduce the services that we offer to the public; everybody will win and we know the public will celebrate that.

Q151 Chair: But I would hope that you would approach this not by looking to see whether or not you can continue to finance everything within the settlement you've achieved, but rather whether or not you need to go on providing all those. The Director-General has talked about doing less and doing it better. Is there not a case for putting more investment into fewer channels?

Mark Thompson: As I say, when you come to the phrase "fewer channels", that's one possible way of doing less better, but there are a few points to make. To state the obvious, as we approach digital switchover and more and more households have digital television, the value—the audience value and public value—of the digital channels increases and their cost per viewer hour, their efficiency as it were, improves.

So as we approach a fully digital UK, the underlying value of the digital channels increases; it does not decrease. There is a different argument which says, "Will there come a point in the future when asynchronous non-linear viewing of television or listening to radio will be so far established that the logic for having a broad portfolio of channels will diminish?". iPlayer, Sky Plus and many other technical means will mean that you need fewer channels. Of course that is possible. That is not a transformation. We are already at 90% digital and, as I say, our digital channels are performing better and better in that environment and are proving more and more valuable to the public. It is possible that at some point in the future—though if you listen to media technical analysis, we are talking about many years in the future—the logic for any broadcaster having a broad portfolio of channels will reduce.

But the BBC, as you know, are part owners of UKTV, which is a set of channels driven by opportunities, essentially, to show BBC television content again. There are 10 UKTV channels and it is an extraordinarily profitable business because of the appetite for the public to see BBC content after it has already been through the BBC's public service channels. I don't know of a major broadcaster in the world that's thinking of reducing its channel portfolio at the moment.

Nothing the BBC does should be beyond the bounds of debate or conversation as you think about how to deliver the best possible service to the public given constrained funding. But I've given you the example of factual programmes. We are delivering a factual strategy which gives you a year of science on the BBC this year, which gives you next year a year of literature programmes on the BBC—or our opera season, or, this autumn, "The Classical World" on BBC2 and BBC4.

Having ambitious, outstanding content is the key issue. How to make sure the licence is going into the best possible content—of course, there are some costs in having an extra digital channel, the last marginal digital channel. But they are very small economic questions when you compare them to the underlying point, which is making content. That's where the money goes, is the making of content. It's what content you make. You want to get it most conveniently and usefully to the public—that's what your channel strategy and services like iPlayer are about—but, if I may say so, it's only a small part of the picture.

I know it's convenient for newspapers and others to say, "Oh, it's all about are they going to shut Channel X or are they going to have this number of channels or that number of channels". In terms of getting the right strategies for the BBC, it is a second order issue.

Q152 Chair: Can I just ask you about one very specific area of BBC activity? This Committee is coming to the end of an inquiry into funding of arts and heritage. The Arts Council is going to have to take some very difficult decisions about how it allocates its money. One of the areas on which it spends quite a lot of money is that of orchestras. The BBC, equally, supports a large number of orchestras. Has there ever been a conversation between you and the Arts Council about the national need for orchestras and whether or not you both need to be supporting as many as you are? Are you looking at the funding of orchestras as part of this?

Mark Thompson: Firstly, if I can talk about the BBC and the five orchestras that we support, either in part or fully. We're incredibly proud of our performing groups and the point about the BBC, to state the obvious, is that we have a very powerful broadcast reason for having our orchestras and for having them available—not just to delight audiences around the UK, but also to provide content for radio through our classical music channel, and for BBC television, and to be the spine of the orchestral coverage of the Proms, which is the world's biggest classical music festival.

As the Editor-in-Chief of the BBC, I am intensely proud of our role in music making in this country and our support for and relationship with the orchestras that are part of the BBC. Of course, if it makes sense for all of the funders of orchestras in the UK to come together and look at the future of the UK's orchestras, I'm sure the BBC would be very happy to take part in such a conversation. I wouldn't want you to think that that means that we think our orchestras are a burden; they are a jewel in the crown of the BBC, and that is how we would enter any conversation.

In constrained times, and given the economics of supporting large musical groups, if it is appropriate to have a pan-UK—or, indeed, across-England—conversation and some work done about the future of orchestral provision across the country, either across the UK or across England, I am sure you would find the BBC very happy to take part in such a conversation.

Q153 Chair: You say, "If it is sensible." I think most people would think that if you have two publicly financed bodies, both giving public money to support orchestras, many of which are in the same place, it would be sensible for you to get together and discuss between the two of you whether or not you couldn't find some savings.

Mark Thompson: Yes. The answer is that it may well make sense. I want to say, though, that I wouldn't necessarily jump to the conclusion that the right answer for orchestras in the UK is to have one—because once you've got one, as it were, you've got one and you don't need to have any more. I think the fact that some of our great cities have more than one orchestra is possibly a source of pride and is also of use to the public at large. Clearly, in a moment when public funding is constrained, looking at the ways—like BBC strategy—in which, without losing quality or plurality, you can get more effective use of public money, is a conversation that I'm sure you would find the BBC Trust and the BBC willing to enter into.

Sir Michael Lyons: Although I would say that almost all of those—well, in fact, all of the orchestras are independent bodies, for which Arts Council funding is only a proportion of revenue. The discussions would need to take place with the orchestras, rather than with the Arts Council.

Chair: Perhaps we would encourage you at least to talk.

Sir Michael Lyons: I hear your encouragement, Chair.

Q154 David Cairns: A few questions on S4C. I spent last Friday in Cardiff with BBC Wales, as part of my Industry and Parliament Trust Fellowship, and thank you very much for hosting me. BBC Wales is really confident; it is going from strength to strength. They're doing fantastic work down there. By contrast to an outsider, S4C appears to be a complete basket case with everybody resigning or being sacked, or they're at employment tribunals. Did this not strike you as another hospital pass from the Secretary of State—punting this basket case, particularly in the light of how well BBC Wales is doing?

Sir Michael Lyons: One never takes pleasure in other people's discomfort, or at least tries not to. S4C have had their problems, there is no doubt about that, but their existence—and their continued existence and health—is a matter of real significance in Wales. The Secretary of State, in putting the proposal to us—and indeed in the agreement—was clear that the current arrangements are not sustainable in their present form, and so a solution is needed.

So I think we start from a common point, that the current arrangements are not sustainable into the future, and that is the context in which the agreement is shaped. The BBC will fund, if we can reach agreement which simultaneously ensures that there is a strong organisation here, capable of providing local, creative leadership for Welsh language broadcasting and able to satisfy the Trust that public money is being used well.

So you can put your finger on the challenge. I don't think that is beyond us. The BBC sees, given its commitment, which the Director-General underlined earlier on, to Welsh language broadcasting and its existing contribution to S4C output, that it's not inappropriate for us, in the spirit of partnership, to try and find a solution.

Q155 David Cairns: Do you understand the feeling in Wales, which is similar to the feeling that you get a lot throughout the rest of the UK, that, wonderful though the BBC is—and I am an enormous fan—getting into bed with the BBC is like getting into bed with an elephant. Little old S4C isn't going to be an equal partner in this arrangement because the BBC is just a behemoth. That's what they feel at the moment. How can you respond to that sensitivity?

Sir Michael Lyons: Well, with sensitivity, and that is why absolutely from the moment this became public we have been clear that this was not an initiative inspired by the BBC. The BBC sees itself as a part of the solution rather than the cause of the crisis, with good work by BBC Wales—and indeed the new BBC trustee for Wales, Elan Closs Stephens—and working very carefully with local partners, as was envisaged when we agreed to this being part of the settlement.

So you are right to draw attention to the sensitivity, but we do understand that, and that is why we initially had some reservations about whether this should be part of the settlement. In the end, we felt that we could agree—on the clear understanding the BBC was not making a land grab for S4C's activity, but did have a requirement to have line of sight on the expenditures on behalf of licence fee payers.

Mark Thompson: It is worth saying that the circumstances and the funding are very different, but I believe that we are making a real success of our partnership with MG ALBA to deliver BBC ALBA's Gaelic television service in Scotland. The BBC—BBC Scotland in this case—is in partnership with MG ALBA, an independent body, and between them they are delivering what has turned out to be a really successful service.

I think that, historically, the BBC probably wasn't always a good partner, but I think we have a longer and longer list now of partnerships we can point to: Freeview, Freesat, HD, YouView now would all be examples, as would the partnership with the British Museum, which produced The History of the World in 100 Objects. We now have a long list of partnerships. If you talk to the partners, they'll say that whatever their fears about getting into bed, it turned out not to be an elephant.

Q156 Chair: To return to Philip Davies's question earlier, about operational and editorial independence. Sir Michael, you referred to "creative independence". There is a difference between the two?

Sir Michael Lyons: What we have to get to in the end is something where there is no question but that S4C is a separate service—there is no question of its being branded as a BBC service; that is not the intention. It is a separate service with its own editorial voice and control, but done in a way that doesn't breach the Trust's responsibilities for oversight of the licence fee payers' money involved. Otherwise it would become top-slicing, so it is a very important issue for us to be careful about.

Q157 Chair: So the suggestion that, for instance, the accountability and the assessment of whether or not S4C is fulfilling its public purpose—that is something you think must remain a responsibility of the Trust?

Sir Michael Lyons: Yes. Let me approach this as pragmatically as possible, so as not to leave the impression—in an already febrile situation in Wales—that we have in our back pocket the way this is going to be done. We do not. We're entering into these discussions with an open mind. It doesn't rule out—clearly, we want to be clear that the governing body of S4C, in whichever form it continues into the future, has proper responsibilities and that those are clear, and is accountable for those responsibilities. So all of this is being mapped out, but will the Trust be insistent—putting the detail to one side—that it can see and account for the value of the public expenditure involved? That is non-negotiable.

Mark Thompson: It must be said, in the BBC we have one of the most brilliant research and development departments in world broadcasting; we have distribution experts and technology experts; we have outstanding training capability; and we have the largest international sales and distribution house outside the Hollywood majors.

There are lots and lots of ways in which the BBC's scale and facilities could potentially help S4C, in a sense, reach some of the confidence and success that I think you are seeing. I very strongly agree that BBC Wales, over the last 10 years under the leadership of Menna Richards, has gone through a transformation in terms of its ability to create outstanding and world-beating programming. So the issue is about looking at ways in which the BBC can—absolutely in partnership—support, strengthen and help S4C get not just stability but success and remain absolutely independent as a channel. That is our challenge.

Q158 Philip Davies: To try and put it into accessible terms again, because I think many people will still be rather confused by this, either S4C is independent or the BBC Trust has oversight of S4C. I don't see how many people can see that those two things are compatible with each other. It must either be one or the other; it surely cannot be both.

Sir Michael Lyons: Perhaps I can draw an analogy with the position the BBC enjoys, its independence. It is independent, but it is independent within a democratic system where everything is subject to the overview of Parliament, and we have clear, constitutional arrangements to protect the editorial independence of the BBC from time to time, but actually to ensure oversight of the public monies involved. So we live in a world in which you can have both things at the same time. This is just a very special model of it.

Q159 Philip Davies: So how are you going to ensure that the money is spent wisely, and how do you do that without cramping their style?

Sir Michael Lyons: The way that the Trust does it with the Executive, where you have a model that may possibly be relevant, is by the Trust laying down the strategy advised by the Director-General, but the day-to-day decisions, and the running of that, all of those matters, rest entirely with the Director-General and his staff.

Q160 Philip Davies: Indeed, so in effect S4C is going to have the relationship with the BBC Trust that the BBC has with the BBC Trust—that is, it's not going to be independent as S4C; in effect, it's going to have exactly the same relationship as the BBC has with you. That seems to be more like a takeover than independence.

Sir Michael Lyons: In a takeover—and we both know this—the motive becomes a critical issue. There is no motive here for the BBC to take this over. It is basically an initiative of the Secretary of State with the BBC contributing, in the spirit of partnership, to see if it can find a solution for Welsh language broadcasting.

Q161 Damian Collins: I would like to ask a couple of questions about the World Service. The Foreign Secretary has stated that the BBC will provide funding for the World Service at the anticipated level—if you do—in 2014-2015. The overall reduction in World Service funding will be 16% in real terms over four years. I just wonder whether those figures are your expectation that you will fund the World Service at a level that you have agreed with the Government.

Mark Thompson: The situation is for the next three years, from April 2011 onwards, the World Service will be funded—as it has been historically—by Her Majesty's Government, FCO, and there is a profile of savings over those three years. Under the agreement, the BBC has some flexibility about how it funds the World Service in year four, but our intention—and this, in the end, must be subject to a formal ratification—will be, if we can, to slightly increase the funding for the World Service in year four.

But it is worth saying that the particular character of the World Service, the fact that its baseline this year was reduced significantly, in a sense before the CSR began, mean that the actual savings the World Service is going to have to make over the next three years are significantly deeper than the headline numbers would suggest. While it is still being paid for under the CSR, there will, I am afraid, have to be significant reductions in the World Service.

Q162 Damian Collins: At what sort of level?

Mark Thompson: I think a headline number would be that over the next three years, to achieve the savings that will be required and to live within its means, we are looking at savings of around 19%.

Q163 Damian Collins: So more than the—

Mark Thompson: Slightly more than the headline number. This is partly because of some other inevitable rises in costs. And it is also true that the BBC World Service has a significantly lower capital budget and is not funded for some of the restructuring costs which will be needed to make the other savings—in other words, to pay for the redundancies that are an inevitable part of the savings.

We are looking at the agreement that we have with the Government—although it has not yet been finally laid into the Charter and agreement—which says that the BBC will be allowed over this period to use some licence fee funds, if it chooses, to support the World Service in the three years before we get full funding of the World Service. And we are looking very hard at the ways in which we can potentially help the World Service to mitigate the scale of the reductions that would otherwise be required.

Sir Michael Lyons: Just let me underline that whilst the BBC would like to ameliorate the impact of this very concentrated reduction, in time, we can't avoid the scale of reductions that the Director-General is talking about. There are discussions going on with the Foreign Secretary about whether or not there are other ways that Government could help to make it possible for these changes to be spread over a longer period, which is certainly the BBC's strongly preferred strategy.

Q164 Damian Collins: Have you reached an agreement with the Government—or as part of the negotiations, was there an agreement reached as to what the level of licence fee funding would be for the World Service by the time you took over full responsibility for that?

Mark Thompson: There isn't a formal ring-fence or anything like that, but there is an indication in the agreement of the funding level. The interesting thing is that for a variety of reasons, we believe it is the right thing to do if we can in year four—that is essentially year four and, in our terms, year five—to slightly increase the funding for the World Service.

Q165 Damian Collins: I just want to ask finally about what discussions you had about the nature of the relationship you will have with the Foreign Office once you are responsible for funding the World Service, because you are signing the cheques, but the Foreign Office still has a role in deciding what services should be offered—where in the world, what languages. If the Foreign Office comes to you and says, "We'd like you to offer a new service" in a part of the world that's not covered, and you say, "We can't afford to", how do you resolve the situation?

Sir Michael Lyons: This was pretty well the final stage in discussions, which then led to the settlement letter, which you have seen, from the Secretary of State. Of course, in the context of pressing time, there is some difference of opinion about how we enshrine this future if the service came to the BBC for funding—but a clear national interest, and the Foreign Secretary having a view and an interest in where the BBC was broadcasting overseas.

In the end, that was resolved by us agreeing that the settlement, the exact wording of the agreement entered into in 2006—which defined essentially a twin key operation; the Foreign Secretary would be consulted on the direction of the service, but would hold a key which was required to be turned before the opening or closure of any overseas service—essentially should just be taken in its entirety and carried forward.

That was just a pragmatic decision based on what had worked in recent years, when the funding came in a different direction and there was therefore no reason to be anxious that it would not work in the future. So in short, it protects the BBC's independence and the decisions made by the BBC Trust, which is explicitly referred to, but it does limit the BBC and it can't open or close a service without the agreement of the Foreign Secretary.

Mark Thompson: It is worth saying, though, just to restate, that the current conversations about the World Service are happening, as it were, with the old form of funding and under the old constitutional arrangement. So in a sense, what we are doing now is exactly what we would have been doing if the World Service had simply remained part of the CSR and had not been revamped. The licence fee settlement makes no difference to the present conversation whatsoever.

Q166 Damian Collins: And finally, just one thing I want to ask. So would it be fair to say that the Foreign Office has a view and a lock on the breadth of the services offered—where in the world, what language, what types of services? You have responsibility for the funding. If you decide that we could fund those services at lower cost than is being funded at the moment, as long as the breadth of coverage remains the same, you are free to do that?

Mark Thompson: Just to repeat, our intention is to do the opposite. One of the things that will happen over the next few years is that we are going to look hard—the World Service faces some, for reasons that I haven't got time to go into, tougher efficiency targets than are implied by the main settlement, partly because of the nature of the cost base and the nature of the very deep savings we have made in the World Service over the last decade. So it's one of the hardest parts of the BBC in which to find savings easily.

There is a big opportunity potentially, in much more closely combining—there's some dangers and risks as well—the World Service with BBC News, our domestic news operation, in the new Broadcasting House and around the world. Now if that yields, as I hope it will, significant savings by reducing duplications in back office, by enabling us to use teams on the ground more effectively across our news services, my expectation is that we will use those savings to make sure that the damage to international services is as little as it can be.

Moreover, if there are opportunities there, reinvestment to improve international services in the BBC. The spirit is not, in a sense, to wind them down and concentrate on domestic services. The international services of the BBC are very important and when we tested with the public the idea of the licence fee funding the World Service, which we did in the summer because we've been interested in the idea for some time, it turned out that an awful lot of licence payers already believed it was being funded by the licence payer and that broad support for the World Service is very high amongst the British public. The public would want to make sure the BBC was a really good custodian of its international services as well as of its home services.

Q167 Damian Collins: But as you say, there is no ring-fencing of the budget and the budget can go up or down?

Sir Michael Lyons: Absolutely. Can I just underline that, because there is just a danger that indications sound like promises. The Director-General and the Trust have had a discussion about this. We do recognise the importance of the World Service. We are inclined to increase its funding once we take it over. We do have a short-term problem to be sorted out, which is urgent and pressing. But all of this is in the context of having to make those reductions, so I do not want you to regard this as somehow banked and sacrosanct; that would not be true.

Q168 Chairman: We have a few other areas, which we will just cover relatively quickly. You may be aware that the Committee, a few weeks ago, visited Media City in Salford, and I think it is fair to say we were extremely impressed by what we saw. The BBC has made a fairly substantial commitment to moving to Salford, but you will be aware that there is a lot more space available at Salford. Do you think you will move further services to the north-west?

Mark Thompson: I have to say, it has come as a surprise to some people in the BBC, but the direction of travel over the last years has been to add services to the scope in Salford, rather than to subtract. The position, sometimes, of regional moves at the BBC, was to start off with a long list and end up with a rather small minibus, as it were. But I have been, and the Trust is, 100% behind the idea of making this a very big and substantive base for the BBC.

I believe that for the launch phase of Salford—we are now in the process of beginning to get to detailed mobilisation plans for physically getting the people, the services and the technology in place—we have, as it were, enough to be going on with, to get that centre up and running smoothly and effectively through 2011.

However, I certainly would not want to rule out, in the future, looking at whether there are other parts of the organisation which also might benefit from what are going to be some of the best facilities any broadcaster has anywhere in the world. I would also look at whether there were partners, whether independent producers or other parts of the creative industries, that wanted to join us, as it were, in Media City to build the broad critical mass of Media City. But I certainly do not rule out other parts of the BBC being involved in the move to Salford.

Q169 Chairman: Part of the reason for the move was to break the impression that the BBC was very much London and south-east-centric, and to demonstrate that it was a national broadcaster with a strong commitment in the north. Would not the most effective signal of that be if you decide that, of your two main terrestrial channels, one should be based in the south and one should be based in the north?

Mark Thompson: Those channels again. We have, as you know, a number of UK networks. The children's channels and 5Live are already to be based in Salford. We have no immediate plans to move other UK networks, but like everything else, I would not rule that out.

The challenge with both television and radio networks, obviously, is that one of the things you are trying to do as you are running a television portfolio is to get the closest possible collaboration between different networks, and the physical proximity, as it were, between the networks, has some advantages as well. But the reason why we moved the children's channels and 5Live, or announced we were going to do that, was precisely that we wanted to make sure this was a centre which had significant broadcasting clout as well as production clout. So I don't rule it out.

Q170 Chairman: And all the services that you have announced are definitely going to go to Salford?

Mark Thompson: Yes.

Q171 Dr Coffey: I need to declare an interest, in that I used to work for the BBC and I am still on a retainer—a financial thing—after an administration error. The BSkyB takeover is under review at the moment, and I would like to ask the Director-General, why did you sign the letter opposing News Corporation's takeover of BSkyB without discussing it with the Trust first?

Mark Thompson: I did not. The letter does not oppose the takeover.

Q172 Dr Coffey: Okay. Sorry, I will rephrase that. The letter that was sent about the News Corporation's attempted takeover, with a number of other media organisations?

Mark Thompson: Which suggested there were sufficient grounds for it to be a good idea for it to be referred to the competent competition authorities, which is precisely as far as I have ever gone. Indeed, it is precisely as far as I go.

In my view, it is for others—these are complex technical issues. Ofcom is considering them currently, and they need to be considered by specialists. I would abide with any decision, of course, that the authorities reach. The issue is simply about whether or not referral was appropriate, and whether there were sufficient reasonable grounds for referral to be a good idea.

The BBC executive has frequently, as part of our work just in the industry, taken part in debates about, and indeed has written numerous letters about, competition issues. That has been done historically and there is always a broad briefing to the Trust about what is going on. Matters which are novel, exceptional and significant, I would normally expect to discuss in advance with the BBC Trust. I did not in this case—I should have done, I think. I should have discussed it with them. I expressed my regret to the Trust for not doing so.

Q173 Dr Coffey: Sir Michael, if the Director-General had been able to discuss it in advance, would you have advised him not to sign the letter?

Sir Michael Lyons: That is a hypothetical situation, isn't it?

Q174 Dr Coffey: Do you regret the fact that he signed the letter? That is not hypothetical.

Sir Michael Lyons: The only issue that I really want to comment on is: should he have discussed it with the Trust? He acknowledges that he should have done; we would have been in a better position if he had. This is the only time we have had this sort of difference of opinion in four years of covering many controversial issues.

What I will go so far as to say is this, and this is on a personal basis. It is clear to me there is a competition issue here of some significance. Is it right for the BBC to offer a view on that? It might be, as long as the impression is not given that the real issue is competition with the BBC, which is of no relevance. The issue here is competition with other companies in the media sector. So I do not want to go any further than that today. This is all a matter of public record. We will sort it out in terms of the future, and we leave it at that.

Q175 Dr Coffey: Has the BBC Trust made a further submission to Ofcom or Dr Cable?

Sir Michael Lyons: No, although we were consulted on a subsequent letter to Ofcom by the Executive, which is exactly the model that we have used in the past. Indeed, the Trust is very clear that it is the job of the executive to respond to consultation invitations, but that is generally done in consultation.

Q176 Paul Farrelly: Just very briefly, while we're on Sky, I just wanted to raise another issue that is of burning interest to many households without satellite dishes. While these exchanges were going on, you lost Mad Men to Sky. In the context of these exchanges, was that just a normal, any-old-contract negotiation, or do you feel it might have assumed a bit more significance for the BBC or for Sky while these exchanges were going on?

Mark Thompson: It seems as though we have enough mad men in the BBC to be going on with, without having to buy more in. The position of the BBC on acquisition, in today's BBC, is where we can buy interesting pieces that we think our audiences will love, and characteristically, when they are adding something particular and of quality to our schedules, we still think there's a role.

We think it is much smaller than it has been historically. The BBC I grew up with had a movie or an acquisition pretty much every night, in the middle of BBC1. That was the core of BBC entertainment. It's a different world nowMad Men is a really good example of a piece that no other UK player wanted to buy. We have had Mad Men for a number of years; another broadcaster has believed it is of significant economic value for them to pay much, much more money to take it. My view is, in the case of Mad Men, let them take it—let's use our money on something else, or let's use our money on an original British piece.

I absolutely accept there is the kind of welfare loss, which is that some people who love that programme who do not have satellite will lose it. But against that you have to ask yourself a question. Another good example in recent years was Neighbours, which was a very bright, enjoyable piece, which the BBC had for many years on daytime, and where it was part of our offering. You wouldn't have said it was in the absolute vanguard of the public service, Reithian tradition, but a perfectly good piece. There comes a moment when, in this case, Channel Five wanted to purchase it, and we are suddenly looking at a sum which is about £100 million, and you think, "You know what, if they need it that much, let them have it".

With acquisitions and with other things like top stars, it is just making sure you are using the licence fee as effectively as possible, not damaging. For other broadcasters, acquisitions are really important. I think there is a separate issue, which is, for some of the public service broadcasters, notably Channels Four and Five, acquisitions have been a very important part of a model which has funded programmes like Channel Four News. What is interesting is the concentration of firepower and purchasing by Sky, I think, is going to make it harder for some of the other PSBs to compete for acquisitions. That is a separate issue, but it is definitely happening in the market.

Q177 Paul Farrelly: Just a final supplementary on this. I do not know whether in the context of your exchanges at the moment, Sky's targeting of Mad Men was in any way provocative at all, or in any way putting the BBC in a situation?

Mark Thompson: At almost the same time, Sky also announced a very, very big output deal, an archival deal, with HBO. This is part of what feels to me like a broader strategy, which is trying to take as big a position in high-quality acquired programmes as they can. I would say broadly, that if that is their strategy and they have the money to fund it, then so be it.

Q178 Paul Farrelly: So there was no feeling in the BBC—it has attracted a lot of comment—either from the negotiation team or at the higher levels, that the massive bid by Sky for Mad Men was not so much a bear trap as a rather large hole illuminated by a light saying "Trap"?

Mark Thompson: We have had experiences like the Mad Men experience over more than a decade with Sky, and it is part of their model, which is taking programmes which have been discovered and made into hits by other broadcasters and then, in a sense, paying a premium to take them behind a pay wall, so they offer an improved, greater attractiveness for subscribers to continue to subscribe or to start subscribing to Sky. This is a tactic, if you like, used by pay operators around the world.

Sir Michael Lyons: I would just say something about the policy outlined by the Director-General of being willing to give up, whether it is on talent, programmes, format, acquisitions or sports rights. If something that the BBC has cherished and developed becomes too expensive, it was publicly declared more than two years ago, and very clearly by the Trust, that that was the route we wanted to go down, to safeguard value for the licence fee payer and to underline the distinctiveness of the BBC.

Q179 Paul Farrelly: Very briefly, what does the future hold for BBC Worldwide?

Sir Michael Lyons: We can help you with drawing the meeting to a close on that one: not changed. BBC Worldwide is doing very well; it has had four good years under the stewardship of the Trust—indeed, probably the best four years that it has ever had. We have no plans to dispose of that, but we do clearly reserve the right, in the interests of the licence fee payers and the eventual aims of Worldwide, to rethink that if ever it seems appropriate in the future. There is always speculation about it and there always will be, I suspect.

Q180 Paul Farrelly: Not just speculation because, Mark, you gave an interview, again to Media Guardian, some time ago, where it was quite clear that bringing in an outside investor might very well be an option on the table.

Mark Thompson: But that is not a new position. Both the Chairman and I have said over some years now, that ultimately looking at the capital structure of BBC Worldwide is not ruled out, and one can see advantages in that, potentially. One can also see risks and dangers. A couple of obvious points. Worldwide carries the BBC brand on channels and services around the world. The good name of the BBC is incredibly valuable, not least because our World Service also carries the brand and the last thing in the world you would want is loss of control of the brand.

Secondly, at the heart of the Worldwide model is the exploitation and commercialisation of intellectual property developed by the public service in the UK. Again, another big question mark about any change in the status of Worldwide is, how do you protect that? Which is why, in a sense, we took the view we did when it was, at least for a while, being discussed—the possibility of some sort of merger between Worldwide and Channel Four, a couple of years ago.

Q181 Paul Farrelly: Did BBC Worldwide figure in any shape or form in the Government's—

Mark Thompson: No.

Q182 Paul Farrelly: Finally, the licence fee settlement does say that the BBC will maintain its present borrowing limits, not only for the BBC group, but also for the BBC commercial holdings. Why should that figure in the licence fee settlement?

Sir Michael Lyons: I think it is because they were conducted in the context of, essentially, the Comprehensive Spending Review and the Government wanting to be clear about the scale of their obligations in the future, and the scale of all public expenditure. That is why that is included in the letter, rather than signalling any discussions about Worldwide or anything else.

Mark Thompson: One of the technical debates was: could the BBC take on the obligations, some of which are frontloaded and which are going to be paid for by efficiencies which build up over the course of the settlement? Was there going to be a cash issue, where the BBC might have to borrow beyond its current statutory limit to fund the settlement?

The most important part of the modelling we were doing was not about the underlying revenue and savings; it was about the cash profiling of the settlement. We were satisfied that we could achieve the settlement within the current statutory limits and we were keen to get that in the agreement. It is no change from the present, though.

Sir Michael Lyons: My advice prompts me to say, and I think this is helpful, that borrowing limits are always a feature of licence fee settlements, so this is to some extent just following the model of previous settlements.

Mark Thompson: Critically, there is no change on the current level of it.

Q183 Damian Collins: Has the settlement affected the amount of support you can give to digital radio switchover and the build-out of digital radio in local services within the regions?

Sir Michael Lyons: What you see in yesterday's announcement is a clear message that the BBC remains committed to DAB and will continue to build out up to FM equivalents. That is clear. It is involved in discussions with the commercial radio industry and Government about local build-out, for which it is not responsible and for which there are not funds currently identified. They were expected to be undertaken by the commercial operators of those Mux licences.

I don't think I should add very much to that, other than that, clearly, the Government has determined on a switchover date. Whether that can be achieved is, in our view, whether the audience is ready for it to be.

Q184 Damian Collins: I suppose whether it can be achieved ought to be linked to the level of coverage as well. The Government has been clear about that, too. In those negotiations you are having with Government and the commercial stations, is the amount of money you have on the table a smaller amount, as a result of the settlement, than it was before?

Mark Thompson: No.

Sir Michael Lyons: It is clearly another one of the pressures that we have to balance in a tighter envelope; that is the important thing.

Mark Thompson: I think it is fair to say that the underlying commitment that we have made and the focus we have on the building out of our own national multiplex, is unchanged by the settlement.

Sir Michael Lyons: Absolutely. It is a reference to local, I think, that I was—

Mark Thompson: Quite. But the BBC's focus has always been—the issue about local is that we only have in England, and only intend to have, a single BBC local radio station per region. With each local multiplex that has been opened so far, we have taken a place on that multiplex; we decided that we should do that.

I have no reason to believe we would not continue to do that as they are built out. But whereas the national multiplex, obviously, is a way of getting additional BBC services to the public—the digital services—there is no such increase in BBC services that we can offer if you are taking a single station which is analogue and putting it on digital as well. So our focus is on national build-out, and the broad policy and the commitment over time to absolutely keeping pace with the audience, building out nationally, is unchanged by the settlement.

Q185 Damian Collins: Your commitment is clear, and you made that again today, but is it going to take longer to get there now, as a consequence of finding some other issues you have to deal with?

Mark Thompson: I don't think so. If you say something slightly different, which is, "Would some people have liked some level of additional commitment in the settlement?", perhaps they would, but it is not there.

Q186 Damian Collins: But as far as you are concerned, your commitment is the same?

Mark Thompson: It is exactly the same.

Q187 Damian Collins: In the document put to us yesterday, you talk about preparing for any potential radio switchover. That does not sound like it is going to happen within the next five years.

Sir Michael Lyons: That is not a judgment for the BBC; that is a judgment for Government. The BBC is very clear that it is doing its bit in these national investments. There remain unresolved issues about where the investment comes from at a local level. That is not the BBC's responsibility, but we are part of those discussions. Only then, very critically, as the Government has conceded, switchover can take place—I do take your point that audience preparedness will to some extent depend on coverage, but it also depends on choices made about replacement television sets, investment in cars and a whole series of other things, which are not in our gift.

Q188 Dr Coffey: Sir Michael, you announced that you are not seeking a new term as Chair of the Trust. Clearly, it will be your successor who is in the seat for the next five years and running up to the time of the next Royal Charter. Would you like to see any changes in the governance structure?

Sir Michael Lyons: I did not design this governance structure. My job has been to try to bring it to life and I can see that lying behind it is a real challenge for any—which I think was confronted back in 2006: how do you simultaneously strengthen the challenge on the BBC on behalf of licence fee payers in areas like value for money, serving all audiences with the BBC sticking to its public service mission and distinguishing itself from what other broadcasters are able to do? All of those issues the Trust has articulated and continues to articulate. How do you simultaneously energise that challenge and protect the independence of the BBC? And that is the challenge for any alternative model.

We are looking at ways in which you might refine the arrangements; one of the things that are under discussion at the moment is the complaints arrangement whereby, quite properly, complaints are initially considered very close to the people who made the programme. Subsequently, there is a sort of second evaluation if somebody is not satisfied with the response they have had—and over 90% are satisfied with the answer they get from the programme makers—by the Executive, looking again at whether or not the editorial guidelines were satisfied. The Trust only comes in on appeal, looking again with them and Parliament to see whether we can make this any more streamlined, and continuing debate with Mark and his colleagues about how we can improve the working relationships. So there are a number of things going on at that front.

  But this is a perfectly workable way of governing the BBC—indeed, it has got many merits. I'm pleased that all parties now, and the Government in particular, seem to have accepted that it's not right to change these arrangements until the Charter renewal comes up in 2017. I would like that to have been conceded much earlier because I think some of the controversy about the Government's arrangements have made it a bit more difficult to do the job, but we've got on with it.

Q189 Dr Coffey: Do you have any advice for your successor?

  Sir Michael Lyons: They firstly have to have a sense of humour and look forward to the undoubted delights of coming to Select Committee meetings. It's a demanding job but most of all I think the job does require placing yourself firmly—whatever your views about individual programmes or indeed any matter—in the position of chairing the Trust's oversight of the BBC on behalf of the public. I think people have to feel absolutely sure that that's the basis on which they are coming to the job. No side deals or prior arrangements—you are coming to do this job under this Government's arrangement.

  Mark Thompson: It's quite interesting, one of the things we ask the public often is how accountable is the BBC to licence fee payers? It's worth saying that the number is not only, frankly, dramatically higher than it was 10 years ago; it's the highest since we've ever asked this question. Although, I know, there's a wonderful sort of accountability weekly discussion about the Government to the BBC, the public at large seem to believe the BBC is more accountable today than it has ever been. Interesting.

Q190 Dr Coffey: I was going to ask a little bit there about governance. One of the aspects of leadership is leading by example. How will the Trust be contributing to helping the cost savings of the BBC?

  Sir Michael Lyons: We have that exercise underway at this very moment. From the very beginning, and of course when you set something new up, it's always quite a challenge very soon thereafter to look at how you might reduce the size of it. We started by a sort of self-denying ordinance of saying, "The Trust will not grow in terms of a proportion of the BBC's income." We've now gone one step further and as very substantial savings are going to be required of the BBC, the Trust has already begun work on that. We'll have fewer staff; we'll work to a smaller budget in the future.

Q191 Dr Coffey: Do you think in hindsight it was unnecessary to take on the new lease at Great Portland Street rather than relocate yourself within the existing BBC estate?

Sir Michael Lyons: The decision was taken, before I arrived, to separate the Trust physically from the BBC. I can see pros and cons in that, if I'm really honest. It has been remarked on, on a number of occasions. For instance, when we, as part of the Strategic Review, invited representatives of the wider communications industry to come and talk to us, the fact that they did not come through the door of Broadcasting House I think contributed to some open and very frank discussions which are to the benefit of the BBC as a whole.

Indeed, there have been a number of occasions when people very specifically commented on the fact that the physical separation has made them feel more comfortable in their dealings with the Trust. Equally, I think there is a problem with that because it tends to reinforce for BBC staff that the Trust is somehow separate rather than being the governing body of the BBC, which it is. So there are pros and cons.

We were temporarily housed in pretty inappropriate accommodation in Marylebone High Street with a completely inappropriate entrance for visitors. What is more, it was a short term let only in as much as the BBC wanted to dispose of its interest in that site. We had no choice but to move. In that context, we took advantage of the very bottom of the commercial property market, struck an exceedingly good deal and have now very good and effective working space. I don't regret the decision in the context in which it was taken.

Q192 Dr Coffey: I understand, as you say, the cost per square foot was considerably low for central London.

Sir Michael Lyons: Yes, absolutely.

Dr Coffey: It's still an ongoing—and this is part of the challenge the BBC and Government face—that you build in cost into buildings, real estate, service charges and refurbishment of things, when perhaps there was existing utilisation of other parts of the BBC, and I don't see Government—

Sir Michael Lyons: Let me say again we did not even begin the search for a new home until we had completely exhausted the discussions. Indeed, the original proposition was that the Trust would move to a property which the BBC held on lease and it was only when it became clear that the owner of that property did not have the wherewithal to refurbish the property to any reasonable timescale—recognising this was holding up release of the Marylebone High Street property—that we then started to look elsewhere.

Our first preference would have been to find somewhere within the estate. We believe we struck a very good deal, but let me reassure you on this. The lease only continues until the end of the Charter period. Were there to be reconsideration at that time, then it's possible to make different arrangements. This is a good practical value-for-money solution to the circumstances we found ourselves in.

Q193 Dr Coffey: Do you think the Trust still needs a new Vice-Chairman in terms of perhaps a bit of saving your money—doing more for less, as we're all being called on to do rationally?

Sir Michael Lyons: There's no question of saving money here. The Trust has 12 members, one of whom is the Vice-Chairman, and let me say that I would have welcomed the existence of a Vice-Chairman over the last couple of months, both for personal and business reasons. That was a pragmatic decision of the Secretary of State which I absolutely understood and did not seek to object to, but it has been a heavier burden in a period, frankly, when we really needed all hands to the tiller. That has been a complication over that period—what is more, there were good and positive candidates.

Q194 Dr Coffey: Mark, would you have any advice for Sir Michael's successor?

Mark Thompson: I think that on my side of the fence, it's probably best to say that I think that the clarity and independence of the Trust, and the Trust's direct lines of communication with the British public, have been one of its real strengths. That's one of the reasons why I think that the public do feel the BBC is more accountable. I'd say that's something which has been established under Sir Michael's leadership and it's something to build on.

Q195 Paul Farrelly: Sir Michael, it's clearly, as you say, a challenging position and the picture you've painted of eight days of meltdown might provide a subject for Panorama or a BBC drama from this morning, but that would be remiss because you made that major announcement just after you last appeared here. It would be remiss of us not to ask the basic question: what made you change your mind about reappointment?

Sir Michael Lyons: Well—

Chair: I think we did cover that the last time you appeared.

Sir Michael Lyons: Then I don't need to add to it, do I, Chairman? Look, it's—

Chair: I'm sorry; we covered it with the Secretary of State, not with you.

Sir Michael Lyons: Oh, he knew why?

Paul Farrelly: I'm being heckled by the Chairman.

Sir Michael Lyons: Why don't I rely on his answer? It might be more precise. No, no, less of the banter.

A combination of factors. The most important one: my wife and I went on holiday this year and I realised that I need to spend a little less time in London and a bit more time with her and with other interests that I have. I made it clear when I applied for the job that it was only on the basis of the Trust role fitting into a portfolio of other activities. Those have to some extent continued, but they haven't had as much of my time as they deserve.

I have other ambitions that I would like to fulfil before I decide to retire. That all pointed towards, at the very most, a renewal for a year or two and what became very clear to me was that wasn't really a very attractive proposition either for the Trust or for the Secretary of State. In that context—and knowing that we had some pretty controversial decisions to announce, not the least of them the Trust's own decision to seek a standstill in the licence fee for the last two years of this settlement—there should be no question in my motivation in that, and so I should make it public that I wasn't seeking a further term.

Q196 Paul Farrelly: It was an entirely personal decision?

Sir Michael Lyons: Absolutely personal.

Q197 Paul Farrelly: It was never intimated to you at any stage by the Secretary of State that if you sought reappointment you—

Sir Michael Lyons: No, absolutely, there were no such discussions.

Q198 Chair: One final matter before we finish. You have defended the Panorama programme about FIFA and the World Cup, on the basis that this was investigative journalism clearly in the public interest. Do you think, though, that the timing was right? Do you not think it might have been better not to schedule it quite so close to the decision?

Mark Thompson: In my view, this investigative programme depended on information, a piece of documentary evidence, which came into Panorama's possession only a few weeks before the transmission. They took time to verify the details in the document and also gave some of the individuals about whom the programme made allegations a number of opportunities, and a very definite period of time, in which to respond to the allegations.

I'm satisfied this Monday was the first occasion on which we could have broadcast the programme, and I thought it entirely appropriate to broadcast it in the week when the very individuals and the organisation the programme was about were going to make the decision. I believe that not just the content of the programme, but the timing, were fully justified.

Q199 Chair: You don't accept that, broadcasting it a week later, you would have still been putting serious issues in the public domain, but you could not have then been accused of jeopardising a successful bid?

Mark Thompson: If I may say so, my duty, as Editor-in-Chief of the BBC, or the BBC's duty, is around reporting the truth, and reporting it essentially when we're able to broadcast it. To delay, suppress or not to put it into the public domain—there are circumstances, but you would need to have overwhelmingly powerful arguments for not doing so. There are circumstances—

Q200 Chair: The Panorama programme on Lord Ashcroft for instance?

Mark Thompson: It's an entirely different situation in the case of that Panorama. Information came to light on the proposed day of transmission that meant we wanted to reconsider the content of the programme in the light of the new information. A programme which we thought was ready for transmission was no longer ready for transmission because of new information we received.

The kind of circumstances I am talking about are when, for example, the police are dealing with a kidnap situation and ask for a temporary news blackout. On those occasions, you might, if it comes to attention that broadcasting operational information about military activities in a war zone might again lead to increased risk for British forces on the ground. But you would need to believe, in my view, that there were overwhelming interests. The basic bond of trust the BBC has with the public is that when we find out important things about the world, we broadcast them. We don't duck and dive; we don't wait a week or artificially change it. We broadcast it; that's what we do.

Q201 Chair: When you heard members of FIFA saying, "Well it's all the BBC's fault", that didn't cause you any anxiety?

Mark Thompson: If I may say so, what FIFA does, what it says and how it votes, is entirely a matter for them. My job is to make sure the BBC has got strong, independent, impartial and accurate journalism.

Chair: Thank you for what has been a marathon session. Can I wish you both happy Christmas?

Sir Michael Lyons: Thank you.

Chair: I might have said this last time, Sir Michael, but if we don't see you before the Committee again, can I wish you every success in the future?

Sir Michael Lyons: Thank you very much. Can I, Chairman, thank you once again for the courteous nature of today's proceedings? That's greatly appreciated. It hasn't always been marked in the past, but our last two meetings have been of a significantly more interesting nature for us.

Chair: Good, thank you.

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1   The BBC subsequently informed the Committee that this meeting in fact took place on Wednesday 13 October. Back

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Prepared 19 May 2011