Foreign Affairs Committee - Minutes of EvidenceHC 1618

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Evidence heard in Public

Questions 109 - 199



This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.


The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Foreign Affairs Committee

on Tuesday 22 November 2011

Members present:

Richard Ottaway (Chair)

Mr Bob Ainsworth

Mr John Baron

Sir Menzies Campbell

Ann Clwyd

Mike Gapes

Andrew Rosindell

Mr Frank Roy

Sir John Stanley

Rory Stewart

Mr Dave Watts


Examination of Witness

Witness: Lord Patten of Barnes, Chairman, BBC Trust, gave evidence.

Q109 Chair: May I welcome members of the public to this second and final evidence session of the Committee’s inquiry into FCO Performance and Finances? It is focusing on the work and performance of the FCO’s associated public bodies-namely, the BBC World Service and the British Council.

I am delighted to welcome, as our first witness, Lord Patten of Barnes, the Chairman of the BBC Trust. Lord Patten, you kindly volunteered yourself to come and speak to us today, and that is very much appreciated, because you are relatively new in the post. As the World Service is in transition, we are particularly interested in your attitude to it and your approach. Is there anything you would like to say by way of opening remarks?

Lord Patten: I would just like, very briefly and without I hope sounding too servile, to thank the Committee and its predecessors for always taking such an informed and robust interest in the well-being of the World Service. It has not always been as well treated as I would have liked, both as a Minister and subsequently, but the Committee has always been a very strong supporter of what is undoubtedly one of the most important and influential things we do around the world. So I would like to thank you very much and particularly, of course, to thank you for helping to secure the extra funding we received earlier in the year.

Q110 Chair: How do you see your role? As Chairman of the BBC Trust, how do you see your role as far as the World Service is concerned?

Lord Patten: I have probably used the World Service more than any previous holder of my office or of similar offices, so I begin with a very high personal regard for the importance and value of the World Service in helping, to quote from the public purpose of the BBC, to explain the United Kingdom, or at least its values, "to the world and the world to the UK".

The BBC licence fee payer, whom we represent at the Trust as the strategic authority for the BBC, has in the past from time to time been responsible for funding the World Service, and for the past few years that has been done by the taxpayer through the Foreign Office grant-not always with the most indulgent generosity, it has to be said. I hope that we can ensure, as a Trust, that the World Service is adequately funded in the future. Both I myself and the director-general of the BBC have made it clear that we wanted to retain the funding of the World Service. We will have to explain clearly to licence fee payers why they should be paying for the World Service, rather than that cost being met by the taxpayer. I do not myself regard that as an excessively difficult job.

We will establish an international committee in the Trust, which will be chaired by a newly appointed trustee, Lord Williams, whom members of the Committee will, I am sure, know. He is himself an ex-member of the World Service, an academic, a senior UN official and a senior adviser to Foreign Ministers and to a Prime Minister, so he is very well qualified for the task. When we become responsible financially for the World Service in 2014, we will set out an operating licence spelling out the objectives and purposes of the World Service, which we will agree with the Foreign Secretary. I am sure we will explain things from time to time to the Committee, whenever it wants to talk to us about the World Service. It is important that we should be as open as possible to this Parliament and the Assemblies and Parliaments around the United Kingdom.

Q111 Chair: On this point about the agreement with the Foreign Office, you are well disposed towards the World Service, as is the Committee, but if you were succeeded by someone less well disposed, would the agreement effectively protect the World Service? What is the shape of the agreement going to be?

Lord Patten: If I were followed-as I cannot imagine happening-by an egregious philistine, and the Trust savaged the budget of the World Service, I imagine that the Foreign Secretary and this Committee would make their views about it strongly known. In the realms of political reality, I cannot imagine that the BBC Trust and the executive would be allowed to get away with short-changing the World Service.

At the same time, I am sure that the Committee understands that, given the flatline licence fee settlement and pressures elsewhere, we cannot, hand on heart, guarantee to spend a great deal more on the World Service. However, I have made it absolutely clear that the budget in 2014 will be one we seek to maintain.

Q112 Mr Watts: Lord Patten, you say you don’t think it is a difficult task to convince the general public that it should pick up the bill. What evidence have you to support that? Might it not be the case that the public will see it as a stealth tax, and the reason, perhaps, that they have not got quality programmes on their main stations-because they are now subsidising other areas?

Lord Patten: Some may argue that we should be spending more on "Strictly Come Dancing" than shortwave Hindi services in Andhra Pradesh. However, the evidence is quite strong that, if the case is put to people, they understand the importance of the BBC World Service.

Let me give one obvious example. There was a Chatham House-YouGov poll not long ago that indicated that opinion-formers had a particularly benign view of the World Service, and thought it was the most important example of our influence around the world. Members of what is rather wretchedly called the ordinary British public, while they did not place it higher than some of our other manifestations of international influence, certainly gave it a high rating.

If you look generally at polling evidence, it suggests that one of the principal attributes that people accord the BBC is its role in explaining this country to the world, and the reverse. I think one should build on that. It will need argument, and occasionally it will require taking on some of the more populist-though not always popular-views of the tabloids, in the face of whom we should not be too cowardly on other subjects, too.

Chair: Hear, hear. Sir John Stanley.

Q113 Sir John Stanley: Lord Patten, it has always seemed to us in this Committee that one of the key protections of the World Service was that there was to be ministerial accountability to Parliament and this Committee, by virtue of funding through grant in aid from the Foreign Office. Indeed, our view was absolutely confirmed in this Parliament when, as a result of the acute pressure that this Committee brought to bear, the Government’s initial serious cuts to World Service funding were significantly reversed. How do you respond to the view that in the absence of that direct ministerial accountability, the World Service is now much more vulnerable? We can bring you in front of this Committee, but that is very different from a situation in which Ministers know that if they cut the World Service, there will be a major row on the Floor of the House and in this Committee.

Lord Patten: So there would be if a chairman of the Trust and a director-general connived at cutting World Service funding. This is not just a display of my customary modesty, but I think that the Foreign Secretary is in a much stronger position than a chairman of the Trust or a director-general. If we were to behave irresponsibly towards the World Service, this Committee and the Select Committee of the DCMS would make their views robustly clear.

I wholly acknowledge the role that the Committee played in securing additional funding, in particular for our Arabic services, earlier in the year. But I got a run of the figures-I don’t have them in front of me-for spending on the World Service over a longer period, and, as I said earlier, although the World Service has sometimes been protected from the most savage instincts of the Treasury public spending division, you could not say that it had done fantastically well over the years in the allocation of public funds.

I think that we will be careful and, I hope, appropriate guardians of the quality of the World Service. I am very happy to talk to the Committee regularly about our objectives-what we are seeking to do. Every year we will publish a report on the World Service, and every five years we will carry out a thorough review of it. I am sure that this Committee will also want to see my colleague, Lord Williams, with some regularity.

Chair: I am pretty sure that we would like to take you up on both those offers.

Q114 Sir Menzies Campbell: You mentioned "Strictly Come Dancing." On a previous occasion, the Committee concluded that one of its apprehensions was that the situation might turn into a contest between Mr Robin Lustig and Sir Bruce Forsyth. Does that not illustrate the fact that in these matters, ultimately, there will have to be a financial judgment by the Trust of which you are chairman, and that there will be a number of competing priorities and the World Service will not enjoy any special protection? It will have to compete among other parts of the BBC output to ensure that it has the funding to remain the force that you have described and that you obviously support.

Lord Patten: It is true that it will be competing to demonstrate its priority importance, but we should not kid ourselves that it has not competed in the past. I used to be the assistant Minister in negotiating the Foreign Office’s annual spending settlement. In those days, before most of you were born-

Sir Menzies Campbell: That’s very generous of you.

Lord Patten: Back in the mid-1980s, it was clearly the case that the World Service was competing with the British Council and the budget for the Foreign Office establishment. In a sense, it was in competition with the number of gardeners in Vienna or the estate elsewhere. I do not think that the BBC World Service always came out as well as it might have done from those discussions about competing priorities.

The BBC is hugely proud of the World Service. I have just come back from Washington, where, among other things, I spent a day with the World Service and our BBC bureau in Washington. In America and elsewhere in the world, the World Service is hugely well regarded, and I think that the Committee knows that in addition to the Committee being concerned about the cuts in the World Service last year, the State Department and our colleagues in America are very concerned about these matters as well. I do not think that all the Americans’ similar services, such as Voice of America, have an audience, in aggregate, as big as the World Service’s.

I think that the World Service is regarded by the BBC as a whole as one of the jewels in our crown, and as part of our objectives in the next few years-not least in order to survive the debates about the future of broadcasting in this country in reasonably good shape-one of our tasks will be to demonstrate the distinctiveness of the BBC and the particular qualities that the BBC offers, which are not just about reach. Of course it is important that people should watch our programmes as well, but, in addition to making high-quality entertainment programmes, we have to demonstrate that the BBC can do some things that the market will not do itself.

Q115 Sir Menzies Campbell: Will there be an operating licence for BBC Monitoring at Caversham?

Lord Patten: There will have to be a licence covering BBC Monitoring. I went to visit them the other day; they are in a slightly different category, and the initial task, I think, is for us to demonstrate, not least internally, the importance and value of the monitoring service to our overall journalistic activity, as well as to other branches of Government, where, of course, monitoring is extremely highly valued.

Q116 Rory Stewart: Lord Patten, would you consider putting in place real governance protection for the World Service-either putting the director of the World Service on to the executive board, as used to be the case, or ring-fencing the budget to ensure that there is a level below which World Service funding cannot drop?

Lord Patten: Would I consider those things? Well, on the second thing first, I would consider it, but I am not sure that it would be a very good idea, and I am not sure that it would be the best way of justifying our commitment to the World Service to licence fee payers as a whole. I think that if it was apparent to the Committee and to other friends of the World Service that we were not doing right by the World Service, there would probably be a great deal of pressure-indeed, probably the sort of pressure that we could not resist-for us to do that. Certainly for the time being, I would like to be able to demonstrate, without tying my own hands, that the Trust could be shown to be a sensible guardian and custodian of the World Service.

On the question of the composition of the executive committee, that is not, of course, one of my responsibilities. I think that the existing arrangements, where the head of news for the BBC takes responsibility for the World Service as well, should be sufficient, but in a moment you will doubtless want to ask the head of the World Service or the director-general what they think of that idea.

Q117 Rory Stewart: Can I come back on that one more time? We have pursued this, both in the Committee report and with Mark Thompson. There was a significant demotion of the director of the World Service off the executive board and the replacement by the director of news, so, for example, when John Tusa ran the World Service he was on the board, and the head of the World Service no longer is. Is this not an opportunity to move the head of the World Service back on to the board, to reflect its new position within the BBC and your overall responsibility for the World Service?

Lord Patten: The director-general certainly could do that, although he is facing a Trust that is insisting that he should reduce the number of senior management in the BBC and streamline senior executives. I think you should notice that we are establishing, because of our new responsibility, a new committee in the Trust and also recruiting a new trustee to chair that committee. I would have thought that the international committee in the Trust, chaired by Lord Williams and including some of my colleagues-on which the director of the World Service would have a part, I am sure-should be a sufficient institutional guarantee, but I think you could have the head of the World Service on the executive board of the BBC and still not do it justice financially. Indeed, if I had a run of figures in front of me, I could probably demonstrate that now.

Q118 Rory Stewart: What will you do to ensure that the international trustee really has teeth and power? In the past, they have not. It is not a new job; there have been international trustees in the past.

Lord Patten: No, it is a new job. It is certainly true that in the past there were members of the governing body of the BBC who had Foreign Office backgrounds, but the governing body did not have the same regulatory or strategic role as the BBC Trust, so this is a new role. I was particularly pleased by the quality of the applicants for it, and I was delighted that Lord Williams was chosen. I am sure you will know what an extremely capable man he is.

Q119 Rory Stewart: Can I just push again on the question of how you make sure they have real teeth and authority? They can be on the board and they can chair a committee, but what about when it comes to a real fight to protect the World Service? Again, this comes back to the Chairman’s first point: you are obviously very well-disposed. We agree with you that it is unlikely that your successor will, in your words, be an egregious philistine, but this seems a very good opportunity really to tighten the structures, to ensure that whatever happens in the future-whether this Committee is around, or whether you are-the World Service has more protection than what you seem to be talking about, which are largely informal protections. You are saying, "Well, the trustee is a good person. The Foreign Secretary, I am sure, will get involved. I am sure the Committee will be upset. The Foreign Secretary is more powerful than the chairman and governors", but is there nothing more that we can do at the moment to really give teeth, force and definition to protecting the World Service?

Lord Patten: It may be that I suffer from a professional deformation, having spent five years of my life in Brussels, but during that period, I became increasingly hostile to the notion that there were always institutional fixes to issues that very often were a matter of political and personal will. I will have to prove it to the Committee and its successors, although I probably just mean this Committee, but I do not think that personally I need any tightening-on this issue at least, although perhaps I do physically-or that those responsible for the World Service will find themselves having to fight me or the other members of the Trust. The proof of that will be how we operate and how the World Service operates.

I do not think there is any institutional fix that could produce a large dollop of additional cash for the BBC World Service, but I believe that we can at least retain the funding that the BBC World Service gets at present. Although that does not mean that there will not occasionally be other adjustments in services, it should enable us to continue to run a very good service and enable us fully to integrate the whole of our news gathering across the BBC. That is something that people in the Arabic service, the Persian TV service and others look forward to happening.

Q120 Mr Baron: Lord Patten, I do not think that there is anyone in this room who is not supportive of the World Service. We all know that in this increasingly pervasive information age, winning the story will be just as important as winning the conflict, if not more so. Soft and smart power will become increasingly important, to the advantage of those countries that can resource it properly. Looking at the BBC’s figures, weekly listening audiences are falling, in large part perhaps because of the cuts. That is a worry, particularly across the Arab world; in Afghanistan I understand that audiences have fallen by a third, if you believe the figures, and perhaps a little bit more in Pakistan. I put it to you, however, that for a relatively small amount of money we are losing major audiences globally.

Contrast that with one or two of the other government programmes, such as international aid, where we are sending £1.2 billion to India-a country that has its own rearmament programme, space programme and indeed aid programme-and there appears to many to be a disconnect. I am not asking you to be critical of the Government, but I am asking why you think there is that disconnect in this country. The cuts to the World Service and the Council, and to our soft power capability generally, are beyond the comprehension of friend and foe alike, not only in this country but abroad. Why is there that disconnect? What more can we do to try to repair it? As I say, I am not asking you to be critical of Government, but I am asking for some suggestions.

Lord Patten: That is, as people say when playing for time, an extremely good question. I suppose that short of government by philosopher kings we are always going to find ourselves in a situation where the allocation of spending is not always as rational an enterprise as we would like. Over the years, I have been a huge admirer of both the British Council and the World Service, and I have written and lectured about them both. It may be that I have a tin-plated tongue, but neither my eloquence-such as it is-nor that of others seems to have made much difference to what has happened to the funding of two institutions that represent, in many respects, the best of British, and which are hugely admired overseas.

The Chatham House YouGov poll that I mentioned earlier showed what informed commentators in this country think of the World Service. As the Committee has made clear to me, we have now to put the case for spending money on the World Service at a time when people will see expenditure on other services abated. Two or three members of the Committee have written to me about the funding of local radio, and while we consider those requests for additional funding we are also considering requests for more funding for the World Service. Somehow, one has to balance these things.

As far as audiences are concerned, there is an additional issue. Overall, the audience for what we are doing in radio, television and online has held up remarkably well, and in some areas-online, for example-it has been growing dramatically. Sometimes, it is our traditional services that are really making an impact, hence, I guess, those signs you see in demonstrations in Syria saying "Thank you BBC". What is also having an impact on our audiences is the fact that, in some emerging or poorer parts of the world, the audience for radio is shifting as digital technology has an impact on those countries. People-for example, in Pakistan-who might have been listening to radio in the past are now more likely to be watching television, which obviously has an impact on audiences for Urdu and Pashto in a part of the world that I guess Mr Stewart knows better than any of us. The figures will show you that the audiences have not been holding up, which is a point that I know my future colleague Lord Williams wants to deal with.

There are all sorts of explanations for what happens to the Service and, I am afraid, all sorts of reasons for why the Service has not always been given the attention it should. I hope that, although not philosopher kings, we can at least be a little more assertive in making the case for the World Service.

Q121 Mr Baron: May I briefly press you a little on the wider context? Quite understandably, you have fixed on the structures and the priorities within the BBC, but as I suggested-and I know you agree-friend and foe alike do not comprehend the apparent disconnect. You have worked in Brussels, you have been in Government and you are where you are now. Why do you think, at a government level, there is a disconnect?

Lord Patten: I think that over the years-you are encouraging me to go into areas that are beyond the scope of a BBC Trust chairman-we have lost some of our self-confidence about the importance of the values that we have not always exemplified, but tried to exemplify, to other people around the world. It has been consistently true-now you’ve got me going-of public debate in this country that it is focused on price, rather than value. The World Service and British Council have been among the victims of that. Higher education has been a victim of that as well, and it still is. There are still some things that this country does better than anybody, and to a remarkable extent we have not cherished them as much as we should. To an extraordinary degree, we keep re-examining them as though there was something wrong with them, rather than wrong with us.

May I say one further thing about the development budget? The Committee will know that the BBC World Service Trust, which is independent of the BBC Trust and the executive-it is our independent charity-has received a grant of £90 million from DFID, which is about £81 million of new money, and confirmation of another £9 million over five years. That goes to important development work, some of which I hope will be of assistance overall to what we are doing.

Yesterday I was at the Reuters Institute for the Study of Journalism in Oxford listening to a lecture by Baroness Onora O’Neill. The World Service Trust has just provided two more scholarships for journalists from poor developing countries to come to study and do research projects there. Although most of the work is developmental and does not really support our programming, about £4 million will come into our programming, which will be of some modest assistance, too.

Chair: That is a very welcome grant.

Q122 Ann Clwyd: I started my working life at the BBC, in the World Service in particular, so I am a great supporter. I am also a member of the National Union of Journalists, and I know the NUJ feels very sore about the cutbacks. They make a point about senior management perks, as they put it-just the car allowances for senior managers costs £3 million a year. They ask why those perks should continue to be paid when most of the senior managers live in central London. Some of them do not drive cars, and some of them do not have licences. At a time when journalists have been particularly hard hit by the cuts, they ask why these perks are allowed to continue unchallenged.

Lord Patten: First of all, I have spoken to representatives of the unions even though, in the Trust, we do not have executive responsibility for personnel relations, but I recognise that there will be a lot of journalists in the 2,000 or so who will lose their jobs as a result of the licence fee settlement and its implementation. That means 2,000 mortgages and 2,000 families with blighted expectations and hopes, which is a worry. It is happening elsewhere in the economy, and I think people realise why the BBC has had to pull in its belt.

Against that background, I have made it clear that we have to deal robustly, which is the usual adverb, with the whole question of senior management pay, numbers and perks. We have introduced a cap on senior pay related to median earnings, which was one of the central features of Will Hutton’s suggestions on top pay, and which is one of the proposals in the Compass pay report this morning-and I think we are the only public body to have done so-and that will be steadily reduced. It is both a cap on the pay of the director-general in relation to median earnings and a cap on the average of the senior executives in relation to median earnings. I have also argued that we should reduce the number of those who are in the senior management pool from 3.5% to 1%, and that target has been accepted.

We have also said that, for the future, there will be no further payment of private health to senior managers. It seems that it is entirely wrong that senior managers should get personal health cover and that nobody else should. The director-general has just made an announcement about car allowances, which is that no new recruits will get car allowances and that those will be gradually withdrawn as well. So I think that what has been undoubtedly a toxic issue we are dealing with pretty strongly, and I would like to think that that example would be followed by some others, too-in fact, quite a lot of others.

Q123 Chair: Lord Patten, we have already kept you beyond your scheduled time slot. Thank you very much indeed for coming along here. We will certainly take you up on your offer to come again as and when required, but in the meantime, we wish you well in your position and particularly as far as your responsibilities relate to the World Service.

Lord Patten: Thank you very much. I am sure that Michael Williams would want pretty early in his period as a trustee-like me he has become a Cross Bencher in the House of Lords, which is a new experience for both of us-to come and talk to this Committee pretty quickly.

Chair: Thank you.

Examination of Witnesses

Witnesses: Peter Horrocks, Director, Richard Thomas, Chief Operating Officer, and Jim Egan, Controller, Strategy and Distribution, BBC Global News, gave evidence.

Q124 Chair: I welcome our witnesses to our next session, which is still on the World Service: Peter Horrocks, the Director of BBC Global News, who is accompanied by Richard Thomas, the Chief Operating Officer of BBC Global News and Jim Egan, the Controller, Strategy and Distribution, at BBC Global News. I welcome you all very much indeed. Mr Horrocks, quite a lot has happened since we last saw you. Is there anything you would like to say by way of opening remarks?

Peter Horrocks: Briefly, since we last spoke in March, and as the Committee is aware, it has been a stretching year organisationally and of course editorially, given world events. I should say that we are in a somewhat better position than we were when we last spoke. I echo Lord Patten’s appreciation of the involvement of the Committee in the report that you produced, and of the subsequent debate, which led to some amelioration in the funding from the Foreign Office. There is also the role that was played in helping the circumstances of the DFID grant, which was previously discussed. Although it has modest benefit to the World Service, it is still of significant benefit to World Service audiences, so we appreciate that.

Q125 Mr Roy: Mr Horrocks, a year after the spending review, what has its impact been, and what do you think its impact will be at the end of the three-year period?

Peter Horrocks: Its most obvious impact is in the loss of audience and the loss of valued staff. I would like to pay tribute to my staff for having performed magnificently this year, given world events, when they have had to go through such an enormous change and significant loss of people. The audience level has dropped. It has not dropped as much as we originally thought it might, because we adapted the plans, but nevertheless it has dropped by about 15 million on previous years. It has actually dropped from 180 million to 166 million-that is 14 million.

Q126 Mr Roy: And the loss of staff-what were the numbers there?

Peter Horrocks: We announced 451 post closures. We announced 480 originally, and we adapted that to 451. There have been about 300 redundancies in the UK-a very significant loss of staff. However, we very deliberately carried out that redundancy programme as quickly as possible. Painful as it was, we thought that the best thing was to get through that as fast as we could, and then start to rebuild. We are looking forward next year to moving into the new headquarters at Broadcasting House, where the BBC’s domestic news and World Service operations will be coming together. As the BBC chairman indicated, that is going to be a real opportunity for World Service journalists to broadcast more widely, including into the UK. Of course, next year we have the London Olympics, which is a great opportunity for us editorially.

We are also starting to make small investments in some new services. For instance, in Pakistan and Africa, we are exploring launching low-cost television programming in partnership with local broadcasters. We hope to start to see the audience rebuilding. We have a target for the BBC’s global news services as a whole, the World Service, and the commercial services in television and online to move towards 250 million. We are 30 million short of that at the moment, but we really intend to get there. We will be rebuilding, and that is very much the message that I want to give to my staff: we have gone through a tough, stretching and difficult time, but now is the chance to rebuild.

Q127 Mr Roy: May I ask you about the recently announced funding from DFID? What will the impact be?

Peter Horrocks: The DFID funding is not for the core news services that the World Service provides. The DFID funding helps to support journalism training in the 14 countries that are within the scope of the grant, and it also provides for programming about health issues, informing people about their lives through dramas and factual programming, but not through news programming. A proportion of that programming will appear on World Service airwaves, so that will be a benefit for World Service audiences and will help to sustain those services. It does not, however, put money back into the core news services that were cut as a result of the FCO CSR.

Q128 Mr Roy: Are there any indications that the World Service will continue to receive funding from DFID, even after funding responsibility transfers to the BBC?

Peter Horrocks: Yes, because the grant from DFID is a five-year grant, so that encompasses the period when the World Service will become licence fee funded. We do not know whether that will continue beyond that, but it is welcome. It is important to understand that it does not directly put back in any of the money lost as a result of the FCO funding; it is funding separate items.

Q129 Mr Watts: The World Service will have to make another £12 million in cuts over the next two years. Where will those cuts come from?

Peter Horrocks: They will come from continued further reductions in distribution costs, some of which have been achieved through some smart procurement and contracting. They will come through savings that we can achieve through integrating our programming in our new building, which I know a number of members of the Committee have visited. We will be able to work across teams, both in the World Service languages and between the World Service and the news operation, which is currently based in Television Centre. That will create some savings.

There may need to be some adjustments in the scope of some of the services as well. We are making some savings in World Service English in the next financial year, but the rest of it will come in the following financial year. We have got a little bit of time to work through how to make those savings. We hope we might be able to bring that £12 million figure down a little bit. Nevertheless, it is important to understand that there will still be further savings that have to be made.

Q130 Mr Watts: It is a work in progress, then.

Peter Horrocks: Yes, it is. We have some definite ideas of how to do it, but we have not got finalised or announced plans yet.

Q131 Mr Watts: After that two-year period-after those cuts-do you anticipate any further cuts being made in the BBC World Service?

Peter Horrocks: The commitment that the BBC chairman has made to the sustained funding of the World Service is really important and provides some underpinning. However, we are, in that period, facing the increased costs of the BBC’s pension deficit, which will mean that there will need to be some further savings. We are looking at the period as a whole and trying to mitigate that as much as possible, but we cannot rule out the need for some further savings once we are funded by the licence fee.

Richard Thomas: The other impact is obviously inflation. The forecast over the next five, six, or however many years means that you are always having to manage inflation within a fixed licence fee or fixed income from the Government.

Q132 Mr Watts: Touching on the outside influences on your budget, the annual review said that you were able to achieve your aims, objectives and savings, partly down to the strength of the pound and the euro-their stability. How much of a problem would it be if the pound and the euro became more volatile? How dependent are you on a stable currency-both the euro and the pound?

Richard Thomas: It is always an issue, given that we have a fixed income. We spend about £20 million of our income in foreign currency-most of it the dollar or the euro. In the short term, we hedge it, so that we are protected and we know what exposure we have. Obviously, in the longer term, if the pound falls, we would have to make additional savings to manage within a fixed income.

Q133 Mr Watts: This year, the World Service has incurred £20 million of exceptional restructuring costs. What do those costs comprise?

Richard Thomas: Those are the costs of the redundancies that Peter talked about. Obviously, every year, because of inflation or whatever, we often make a certain amount of redundancies. As this was such a large announcement, we classed them as exceptional in the accounts and made a provision of about £20 million.

Q134 Mr Watts: How much of that is redundancy costs?

Richard Thomas: Practically all of it-about 99% of it. The rest is the odd training scheme for people who are leaving and that sort of thing.

Q135 Mr Watts: Will the "Delivering Quality First" programme impact on the World Service? Will that initiative have an impact?

Peter Horrocks: It does not directly impact on it, because our funding envelope was determined for the current period by the comprehensive spending review, and was then determined as Lord Patten indicated. However, some of the proposals in "Delivering Quality First" are for greater integration. In a way, it is the reverse side of the savings that the World Service is expecting to make by integrating across the new BBC news group. For instance, through the language service journalists working in English and delivering to UK as well as international audiences. It is linking together those two things. There will be further changes as a result of it, but "Delivering Quality First" does not reduce the funding level for the World Service.

Chair: Thank you. Ann Clwyd?

Q136 Ann Clwyd: May I ask you for a breakdown on the redundancies? Where are they? I know that journalists have been particularly badly hit.

Peter Horrocks: Do you mean in terms of which services and which languages are being supported? Or do you mean the different categories of people?

Ann Clwyd: Categories of people.

Peter Horrocks: Between journalists and marketers and back office? My recollection is that approximately two thirds were journalists. Richard, can you help me on that?

Richard Thomas: Yes, I think that is about right. We can obviously give you a full breakdown and send that to you, but in the other third, there are probably about another 50 studio managers and about 30, I would guess, support staff in finance or marketing-places like that. They are particularly in the language services, because they did a lot of their changes up front, and, as Peter said, the closure of another 19 posts in World Service English was announced last month. We will give you a proper breakdown, but it is roughly in that sort of proportion.

Q137 Ann Clwyd: On those who had to return to their home countries because their visas had expired, have you had any feedback as to what has happened to those who have gone, particularly to countries that they may not have wanted to return to?

Peter Horrocks: We absolutely share the Committee’s anxiety about the potential position of those journalists if they were here in exile, or if they might be subject to any kind of mistreatment if they went back. We worked very hard on each of those individual cases, and I am happy to report to the Committee that no one has been forced to go back to a country to which they did not wish to return. There were five people who were made compulsorily redundant and who returned to their country of origin, but all absolutely happily. For instance, one went back to Mozambique and one to Barbados. They were all individuals who were happy to return, so we have no one who is in a position where they might need to apply for special leave to remain. That is a very positive outcome from what was a potentially difficult position.

Q138 Ann Clwyd: I wonder if you have any concept of the relationship that will exist between Lord Williams-the new trustee-and yourselves, because he will have some kind of oversight role, particularly over the World Service.

Peter Horrocks: Yes. He has not yet taken up his position, so we will wait to see how Lord Williams wishes to shape it, but I think you had some indications from Lord Patten about how it will work. I think it is worth saying, on the arrangement that the BBC Trust is putting in place, in which a committee looks at international services, that is, as far as I am aware, the only sub-committee of the Trust that is looking at a specific part of the BBC’s delivery of its services. Lord Williams knows the World Service well already, so he will not need too much time to be brought up to speed, but exactly how he wishes to use those mechanisms in setting the objectives, priorities and targets, and how that interaction with the Foreign Office will work in future is clearly for Lord Williams. I look forward to hearing his suggestions.

Q139 Ann Clwyd: When do you expect him to start work?

Peter Horrocks: He starts on 1 December.

Q140 Ann Clwyd: How confident are you that, following the transfer of funding responsibility, the announced governance changes will prevent the loss of the World Service’s individual identity?

Peter Horrocks: As I think I said, the governance arrangements that have been put in place are more extensive and substantial than those for any other part of the BBC’s services, so that is a mark of the importance that is placed by the BBC on the World Service. As Lord Patten said, it is that governance at the highest level by the BBC Trust, with that overall strategic responsibility, that is the most important thing.

However, it is also clearly important that the culture and identity of the World Service is retained while working in a much more integrated way, because that integration, for me, is not about diluting or diminishing the importance of the World Service. The fact that World Service language service journalists in Pashto or Urdu, for example, will be appearing more often on our global English and UK English output is a real advantage for the World Service. It is an advantage for the career development of those individuals, but most importantly, it is an advantage for audiences, because they are going to be hearing a wider range of perspectives.

For me, the advantage of the strong governance mechanisms that are being put in place is that it should not mean that the World Service needs to be as separate from the rest of the BBC as it has been. It can integrate to its advantage, and the advantage of the wider BBC.

Q141 Mr Baron: You were in the audience earlier when we discussed with Lord Patten decreasing audience numbers and so forth, which is obviously a concern for everyone. Looking at the figures, a back-of-an-envelope analysis would suggest that you are losing audiences at a rate faster than that implied by the cuts. Take Afghanistan, for example, where I think your audiences are down by a third. According to the last survey in 2008, your audience in Pakistan is down by as much as 70% to 75%. Meanwhile, in Iraq there seems to be a growing view that your competitors are rated higher on awareness, reach, objectivity, relevance and so on. One accepts that there have been cuts, and you will be fully aware of the Committee’s views on those cuts, but putting the cuts to one side, I put it to you that there perhaps seems to be a bigger problem here. Is that a fair comment?

Peter Horrocks: Let me deal with the generality and then ask Jim Egan, who has specific responsibility in this area, to pick up. Our analysis shows that if it had not been for the cuts, the audience would have gone up. You are, of course, right that there have been falls, but you are not taking into account the increase in audience in other areas. For instance, there has been growth in the audience for our Russian online service; there has been growth in our Arabic television audiences; and there has been substantial growth for World Service English across the globe, but particularly in the United States. You have to offset those reductions, which are usually to do with changes in audiences’ technological use-listening to other devices or watching television. Mr Egan might want to pick up some of those specifics.

Jim Egan: It is certainly the case that audiences went down last year by 14 million, as Mr Horrocks has indicated. I am not sure that that is a disproportionate decline in audience size. In fact, if you were to remove some of the changes we had to make because of the reduced budget, we actually experienced growth in our audiences in other areas, but certainly within some services, including both Pashtu and Urdu, we have experienced falls of about a third over the recent period. More than anything else, that is to do with ongoing decline in shortwave listening, as different forms of media are available to people.

We seek, within the reduced budget that we have, to respond to that not just by persisting with the services that we have, but by making the difficult decision to reallocate some money for investment in new areas. Our Persian television channel has increased audiences by a quarter over the past year, despite extreme difficulties in getting that signal into Iran, which is a very, very significant operational problem that we have.

There are definitely changes within services. I would not pretend that we do not have problems in some individual services in our audience, but overall, we continue to deliver twice the audience for every pound invested than the American broadcasters, for example, and much more than that compared with the budgets for the Dutch, German and French international broadcasters.

Q142 Mr Baron: Okay, point taken. Perhaps I am being devil’s advocate unfairly, but you look at what is happening to your listening numbers across North Africa and the Middle East, and there seems to be a picture emerging that you are losing-dare I use the terminology?-market share. Nobody has come back to me questioning the drop in the figures-a three-quarter drop in Pakistan, a 75% drop in your listening audience, or the drop in Afghanistan. You focused on the cuts, but these drops in audience would suggest that there is a bigger issue here. You have talked about the cuts, but are there other issues at stake, for example the competition? Is al-Jazeera gaining on you, so to speak?

Jim Egan: Al-Jazeera has performed extremely strongly, particularly over the past few years and during the events in the Arab-speaking world. There is growing competitive intensity on the supply side, which comes from both the established international broadcasters I mentioned, plus new Government-funded broadcasters, with whom, frankly, we do not have the resources to compete. Part of my role involves seeking to place BBC programming on domestic radio stations, and we are just unable to respond to initiatives by the Chinese in particular. They will pay very significantly for their programming to be carried, rather than BBC programming, which we will never pay to have carried, because we believe in the underlying quality.

Those supply-side issues are significant and add to the issues that we have on the demand-side to do with the changing way that people consume media and so on. In the Arab-speaking world, shortwave listening is now lower in Egypt than listening to radio by satellite. In other words, it is very, very small.

Q143 Mr Baron: Okay. If I may, let us just broaden this out slightly and focus on Iraq, Afghanistan and Pakistan. To what extent are the BBC World Service’s fortunes linked to the perception on the ground of what is actually happening with the interventions? It seems to be a bit of a coincidence-perhaps I am reading too much into this-that in Iraq, Afghanistan and Pakistan the BBC seems to be struggling, and al-Jazeera seems to be gaining on you. Is there a connection there with what is happening on the ground? Are you picking that up?

Peter Horrocks: You mean a political reason for it?

Mr Baron: Yes.

Peter Horrocks: Or the relationship that the audience might have to the UK?

Mr Baron: Yes, because your black holes seem to be in those three countries.

Peter Horrocks: I think that is a coincidence, rather than causation. That would be my judgment. We could certainly go and look into that. We certainly have not picked up anything in terms of how our brand is perceived that is specific to Britain at all. We are seen as being independent of that, because of our editorial track record-when we cover those stories, we reflect all perspectives. I think it is much more to do with changes in technology and the fact that people are listening less on shortwave. In some of those places, it is harder to get alternative signals to people. We have an extensive network of FM transmitters in Afghanistan. In Pakistan, we have a number of partners, but there are difficulties with the regulator there. We are dependent on business relationships within Pakistan, so that may have some impact at the regulatory level. It is certainly not the case from any evidence that I have seen that it is about audiences turning away from the BBC, either because of our editorial record or because of any perception of a relationship with the UK more generally. It is to do with specific broadcasting issues.

Q144 Mr Baron: Final question, briefly. Do you believe that the measures you have put in place, which you have touched on in answering these questions, will now arrest the decline relative to the competition? Have we reached the bottom now? I know it is a difficult question, peering into the future, but do you have confidence now that your decline in audience numbers, particularly across this region, has been arrested?

Peter Horrocks: It is very hard to judge, but if the partnerships that we outlined earlier-television partnerships in particular-come off, we should be able to arrest that decline. Of course, it is not as ambitious or strategic a plan as the one that we put forward to the Foreign Office before the comprehensive spending review. The Committee might remember that we had aspirations to launch a full Urdu television service, but we cannot afford that with the funding that we have. We wanted to do the same in sub-Saharan Africa. The offerings that we will be creating will be high quality, but they will not be as extensive as the channels that we launched for Arabic and Persian. Nevertheless, we think that we can arrest that decline and really start to drive forward with these new services. Of course, on online and mobile, which is growing very fast, we are in a very good position to take advantage of the very significant uptake in smartphone and mobile phone usage that is happening in developing parts of the world.

Mr Baron: Thank you.

Q145 Mr Ainsworth: In your most recent annual report for 2010–11, you show a very slight increase in staff, or at least in full-time equivalent staff, but your staff costs decreased by £4.5 million. Why was there that increase, and how on earth did you manage it with £4.5 million less?

Peter Horrocks: Presumably because of our hiring policy and the mix of staff that we had. We were also using our staffing more effectively by recruiting more people around the world and moving staff from London, which is obviously a higher cost, to lower-cost operations internationally. That reflected that shift.

Q146 Mr Ainsworth: There are two questions. First, you knew that some kind of cuts programme was coming, so why was any increase encouraged or allowed? Secondly, surely you could not have managed to sustain that slight increase and that lowering of staff costs without considerable reductions in hourly rates.

Richard Thomas: There is also a definition question. We had to include-I may have got this figure wrong-about 150 people who were on freelance contracts, who previously were not included in the staff definition in the annual report but who are now in. They are people who were probably always working for the World Service, but they were formally classed as staff in this year’s report.

Q147 Mr Ainsworth: I see, so it is a structural issue. Has there been a reduction in packages for entry-level staff?

Richard Thomas: No. It is a definition question about who is included in the staff numbers. There was a change compared with the previous year, but I can check on that for you and give you the numbers.

Mr Ainsworth: Can you give us the detail, please?

Richard Thomas: Yes.

Q148 Mr Ainsworth: And can you also give us something on staff conditions for entry-level people and the trend there?

Richard Thomas: You mean salaries?

Mr Ainsworth: I mean that lots of media organisations are paying people peanuts, which is having a strange impact on the kind of people who come into journalism. I wonder whether the BBC is, to the same extent, doing the same thing.

Richard Thomas: Obviously, we have not been recruiting many people; we have been losing them, as we have already discussed. But, yes, I will give you something on starting salaries.

Q149 Mr Ainsworth: Okay. One of my colleagues raised the issue of the exceptional restructuring costs. How on earth do you justify Mr Hugh Saxby receiving £229,000 in compensation on his way out the door and Mr Jeremy Timmins receiving £313,000? Those are fairly substantial multiples of their salaries.

Richard Thomas: That is the BBC terms, or at least it was-it is something that is being looked at at the moment. They had very long service, which gets computed into their payment on leaving the BBC.

Q150 Mr Ainsworth: How does that compare with the terms of ordinary employees of the World Service?

Peter Horrocks: The same formula is applied. There are similar formulas in other parts of public service. The Committee will be aware that that is being debated both for the civil service and for other public services. As Mr Thomas has indicated, the BBC is looking at that as well, because they are substantial costs that do not go to benefiting our audiences. That is something that we want to address. Equally, these are agreements and terms that have been offered to staff over a long period. One has to think carefully about how to change them, but there is no question that they are high costs.

Q151 Mr Ainsworth: How can they be standard when one of them is 6.5 times base salary and the other is 5.2 times base salary?

Peter Horrocks: We will need to come back to you on the detail, but they are all numbers with a standard formula. There will be reasons to do with the specific circumstances-how long their pay in lieu of notice was, or whatever it might be-that have created that, but they are all done according to a standard formula.

Q152 Mr Ainsworth: Some grand negotiation that takes place with mates at the top of the organisation at the public’s expense, because all of that came from the grant in aid from the FCO, didn’t it?

Peter Horrocks: Yes. It is all done according to a standard formula, but we will come back to you with the detail.

Q153 Mr Ainsworth: You received some money from the FCO with regard to the pension fund deficit, and the FCO then agreed that, if the deficit was dealt with for a lower figure, you could keep the additional money and use it for the World Service. I think that was £9 million over the three-year period. How is that £9 million being spent?

Richard Thomas: We did not receive extra money. The extra money from the FCO was the £2.2 million a year for three years for Arabic, and they gave us an extra £3 million towards restructuring costs in March this year. That may be the £9 million that-

Q154 Mr Ainsworth: In January this year, they said that you were to receive £13 million per annum to help with the deficit in the BBC pension fund.

Richard Thomas: That is within the settlement; it is not an extra. It is within the 16% real-terms reduction.

Mr Ainsworth: They then said that, if your contribution to the deficit was less than £13 million, they would not claw back that £13 million.

Richard Thomas: Yes.

Mr Ainsworth: And your contribution to the deficit was only £4 million.

Peter Horrocks: No, that is not right.

Mr Ainsworth: Is that not right?

Peter Horrocks: It is correct that the pension deficit contributions are lower than we thought they were going to be, and so the £9 million that you referred to is the amount across the three years of grant in aid; that is the improvement in the position. So the savings that we need to achieve, originally announced as being £46 million over the three-year period, now sit at £42 million. So we are better off than we would have been. We still have to make the £12 million of further savings that was referred to before.

Q155 Mr Ainsworth: And that better-than-expected position has resulted in what?

Peter Horrocks: Well, it means that the savings that we still have to find are lower than they would otherwise be. So, rather than £12 million, we would have been finding £16 million of further savings. So that is probably lower levels of editorial cuts than there would otherwise have been.

Q156 Mr Ainsworth: But you are not able to tell us what was saved that would otherwise have been lost?

Peter Horrocks: It would probably be predominantly journalists’ jobs, I would say, because we are making the maximum savings that we can on the distribution side and the maximum saving in back office and marketing and finance and those kinds of areas. So the main area that is left is journalists’ jobs, so we are better off to the tune of £4 million a year at the end of the grant-in-aid period than we would have been because of some of these financial shifts that we have been discussing.

Q157 Mr Ainsworth: Is there a particular service that as a result of that better-than-expected position has been saved?

Peter Horrocks: No. The only identified alterations are the ones to do with the £2.2 million that the Foreign Office provided, which helped us to be able to rescind some of the changes to the schedule for Arabic, and also the funding that we put in to restore the Hindi shortwave service and also to fund part of the output for Somalia. Those were all specific things that we altered, compared with the originally announced plan. This improvement in the longer-term financial position, as I have said, helps to improve the future position. It does not relate to things that we have specifically announced as cuts here.

Q158 Mr Watts: Mr Egan, you mentioned in answer to Mr Baron’s question that there are some areas where you are losing audience. You obviously monitor that. Would it be possible to provide the Committee with the details of where the biggest drop is and what is happening to your competitors, so that we can see who the competitors were and how their audience was either dropping or increasing to give us some idea about the key areas of influence that perhaps we need to concentrate on?

Jim Egan: Certainly on a service-by-service basis I can give you a breakdown of increases and decreases over the year. I can also tell you how we go about measuring audiences. I can generally give you an indication of what we think some of the explanations might be for those audience losses, where we have dropped audience, but I won’t be able to attribute that directly to other competitors.

Q159 Mr Watts: You can’t do that? They don’t publish the figures?

Jim Egan: I don’t think so, no. We are not able to trace where audience members may have gone and what they may now be listening to or watching on a specific basis, but for the bigger markets where we are experiencing particular competitive challenges I can give you a general breakdown.

Q160 Ann Clwyd: I was interested in why you were being outperformed by your competitors in Iraq, because there was always very great support for the BBC in Iraq from 2003 onwards. What is the reason for this, because Al-Jazeera was kicked out of Iraq for a period? Is that something that you could address?

Jim Egan: The audience loss in Iraq is primarily a radio audience reduction, so that won’t be down to Al-Jazeera directly because we are not competing with them on radio. It is down to the general significance of competition-that Iraq, like many other markets around the world, is going through a process of rapid licensing of radio stations which people domestically may prefer to listen to at times for their news and current affairs, rather than to what the BBC, the Americans, the French or others have to offer. So it is generally to do with domestic competition and also ongoing changes in the way that people consume their media. It is not an Al-Jazeera specific situation in Iraq.

Peter Horrocks: I might just add that it could be useful for the Committee to be aware of some information that has been published by the Broadcasting Board of Governors, the body that is responsible for international broadcasting in the US. Although they performed less well than us, they suffered from similar trends and then improvements, largely to do with changes in shortwave and radio listening habits. Although we tend to think of our competitors as the other international broadcasters, in practice the listener will probably turn to a local music or talk station that is talking about their local vicinity. That is the real competition that we face, which is why working with those partners and rebroadcasting our news on those services is so important as fewer people access the BBC directly for radio. In television and online, we are broadcasting more often directly to people, and that is obviously preferable, but when we are not getting audiences in that way, we have to be smart about how we try to access those audiences.

Q161 Mr Baron: Mr Horrocks, may I just return to a point Lord Patten briefly touched on? It was about the World Service Trust grant of £90 million made from DFID. The reaction to it has been mixed. Obviously, the International Development Secretary is extolling its virtues and so forth, but the bottom line is-correct me if I am wrong-that the World Service will only get some £4 million of that. You may be able to correct me on that figure. Then, we have had a Government reprieve of £2.2 million for the Arabic service. Those are still, I would suggest, crumbs from the table, given the cuts you have had to endure. Do you think you should be doing more as an organisation to bang the drum about the importance of the role you are playing in the Arabic service, or at the very least, getting more of this grant, rather than just £4 million from £90 million?

Peter Horrocks: The £4 million is a minimum, and we intend to maximise the benefit of that grant to the World Service’s audiences as far as we can. That is the amount that we already know will go into World Service output.

Q162 Mr Baron: It is still relatively small, isn’t it?

Peter Horrocks: It is still relatively small and, as you say, the £2.2 million, compared with the original announcement of £46 million of savings, is also relatively small, but those are important improvements and they make the position slightly easier than it was. We still have significant further savings to make and we have some structural shifts, but we are starting to see those improvements and those new services being developed, and partners willing to take those. It has undoubtedly been a very difficult period, and next year is the year when I really hope we can start to turn the corner, and that things will lift off.

Q163 Mr Baron: Very briefly, can I perhaps push you a little further? We have tried as a Committee to do what we can and we have had some effect. Do you think the World Service should be doing more itself to lobby within the organisation to get more money? You say the £4 million out of the £90 million is a minimum, and we will be interested to see what the figure ends up at, but those are still breadcrumbs from the table, in what we all recognise to be a terribly important service, particularly in North Africa and the Middle East at the moment. The figure is too small, I would suggest to you-you know it is too small. What will the World Service do to do more and lobby harder on this matter? Can it do any more?

Peter Horrocks: Within the BBC-you have had the discussion with Lord Patten-the underwriting of our funding for the years when we come into the licence fee is clear. We will be working with DFID to maximise, as far as we can, as much of the benefit of that grant to the World Service’s audiences as possible. The last area in which we can certainly help ourselves is through commercial activity. The BBC Trust has now approved some initial proposals to introduce advertising on World Service language websites. That should bring in some income in the future, so there are things we can do to help ourselves. We are in an extremely tight public funding environment and we have stressed, as have the Committee and Lord Patten, the importance of the World Service. That message has come through very clearly. We have to face the realities of the funding position we are in, maximise the sources of funding that we have, and use our ingenuity and the efforts of our staff, who have been brilliant in these adverse circumstances, to really build for the future.

Chair: Mr Horrocks, Mr Thomas and Mr Egan, thank you all very much indeed for coming along. As you know, we are supporters of the World Service, but, as you gathered from the questioning, we want to know where the money is going. We will continue our robust oversight of the World Service but, in the meantime, you have our best wishes, and thank you very much for coming along.

Peter Horrocks: That is appreciated, Chair, and thanks to the Committee as well.

Examination of Witnesses

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

Q164 Chair: I welcome our witnesses from the British Council for the third and final session of the morning. They are Sir Vernon Ellis, the Chairman, and Martin Davidson, the Chief Executive. A lot has happened since we last saw you. We have on our travels made a point of visiting British Council offices overseas, but we would very much like to hear from you. Sir Vernon, would you like to make some opening remarks?

Sir Vernon Ellis: If I may, briefly, as it might help frame a few questions. This is my second appearance here as I have been in the role for 18 months, having come to it anew. I have to say at the beginning that I am more impressed than ever by the importance of our work and the impact it makes. I believe we make a real impact on the agendas of prosperity, security and international influence in the UK. Moreover, I think we provide very good value for money.

It is interesting because globally there seems to be an increased recognition of the importance of cultural relations, particularly by the emerging powers. For example, the Confucius institutes of China have now grown to 300 centres in 90 countries since 2004. They aim to have 1,000 centres by 2020. In my view, there is a need for us to do even more, and that would provide an even greater return for Britain.

As you know, we faced overall a 26% cut in this spending round. We responded with a step change in efficiency and focus. On efficiency, there has already been an impressive amount of cutting of costs in anticipation of the cuts, even before I started. That process will continue and further savings are locked in through the plan to 2015. However, I think by 2015 we will reach the end of savings that can be made just through improving our efficiency. I think we can only fund future growth after that by growing considerably more our income from income-producing activities. It is worth noting that by 2015 there will be a ratio of £6 million earned income to £1 million grant income.

On focus, we have worked hard in two areas: the focus of our organisation, where we have simplified to concentrate on those core areas of English education and the arts; and geographically on those areas where we can most make an impact, while also retaining our basic structure of 110 countries. Obviously, we have to concentrate on areas such as emerging markets, but we cannot always forecast where will be important. For example, who would have thought, with the Arab Spring, how important it was that we had a location in Tunisia just a year ago? Right now, I think there is an overall alignment of our priorities with the national interest. It works quite well despite all the stresses and strains, but I think it will be hard to retain that alignment if the level of grant were reduced still further.

I will end with a quote. The Libyan Transitional Council Chairman Abdul-Jalil told the Prime Minister that the "Libyan people will never forget British Council officers within Libyan territory and its effective role in spreading culture among the Libyan people." I think that is a good reminder of what we are about.

Q165 Chair: We are under no illusion about that on this Committee. You believe that you have effectively coped with the reduction in the budget. Have you had to close any posts at all?

Sir Vernon Ellis: We have had no net decrease. We have closed two locations in Africa, but we have also opened two new ones.

Martin Davidson: We are, however, looking very carefully at the nature of our network, and our expectation is that for a number of our smaller operations we will become a very much smaller organisation-probably down to one or maybe only two people in some of the smaller countries. However, we do believe that it is critically important that we maintain a presence, because once you are out of a country, going back in is very much more difficult. As Sir Vernon said, a year ago, we probably would have talked about potentially closing Tunisia. Clearly, in retrospect that would not have been a very good idea.

Sir Vernon Ellis: There are new models that we are implementing-a sort of hub and spoke to ensure that we have the coverage in the smaller countries, but albeit with a smaller presence on the ground.

Q166 Chair: I am grateful to Frank Roy for reminding me about the situation in Afghanistan and Kabul. What is the position there? Is the office functioning all right? Are they getting themselves back on their feet?

Martin Davidson: Yes, and thank you, Chairman. Clearly it was a traumatic and vicious attack on the British Council’s offices. The compound where we were located has essentially been completely destroyed, and we have therefore moved our offices back into the embassy. The ambassador there has been extremely generous in giving us space, and we are now negotiating with the Foreign Office to try to take permanent space within the confines of the international group of embassies around the British embassy. We are committed, however, to maintaining our presence there, and, indeed, one of the young teachers who was actually under attack in our compound has returned to Kabul and has taken up her job again. She is extremely committed to staying there.

Chair: Great. When we were there, we had a good visit to the offices, and please convey our best wishes to them.

Q167 Mike Gapes: Can I take you back to your opening remarks? You said that, for every pound invested by the UK taxpayer, £6 would be generated by British Council activities. The written memo you have sent us gives the impression that that is already the case. Can you clarify that? How do you calculate that figure?

Sir Vernon Ellis: From memory, in 2014–15 16% of our revenues will be from grant in aid, and the remaining 84% would be from income-producing activities-contracts, English language teaching, etc. If I recall, I may have noticed that there are two different figures in the memorandum. It says 5:1 at one point, which I think is the current ratio, and later on it infers 6:1; but the correct figures are 5:1 now and 6:1 in 2014–15.

Q168 Mike Gapes: At the start of this financial period, according to my calculation of the figures I have seen, 29% of your total spending was coming from the taxpayer, but it is going to reduce to 16% by 2014–15. Is that correct?

Martin Davidson: That is correct. Looking over the five or six-year period, it was about 33% or 34% three years ago. This year, it will be about 26% or 27%. By the end of the spending review period, we expect it to be 16% if we are able to make the income growth we are planning for.

Q169 Mike Gapes: Sir Vernon alluded to the fact that if this figure reduced further, there might be a problem with regard to presumably the branding or the influence of the UK. How can the impact of the role of the UK Government, through the Foreign and Commonwealth Office, be maintained if you are basically raising your funding overwhelmingly, and by an increasing amount, from commercial activities?

Sir Vernon Ellis: That is, if I may say so, a good question. Of course, this change in ratio arises from two things: one, the reduction of grant and the other, the increase in income. That income is already absolutely essential to keep us going in Europe, to where we basically have to shift to cover our costs. You have to couple with this also a question about the increasing proportion of our grant which goes to ODA1 activities. Whether it is by excellent planning by the executive or a bit of luck as well, it sort of works at the moment. My feeling of strain is not so much from branding or image, although that is a consideration, but from whether the geographical coverage will follow and whether the whole emphasis of the organisation has to be even more dedicated to raising money, rather than to some of our fundamental operations, which are putting a cultural relations wrapper around what we do around the world.

Q170 Mike Gapes: From what I have seen here, your income from commercial activity barely increased in the past year, yet you have a target to increase it from 9% to 15% per year. Are you then putting yourselves into a very vulnerable position if you are not able necessarily to sustain that?

Sir Vernon Ellis: There are risks. There were some particular reasons-the ending of some contracts-why it did not go up last year. At the moment we are reasonably confident of doing it, but I think you are right to say that this is an area of risk.

Martin Davidson: There are some technical reasons why the total turnover of the organisation dropped last year, which involve the way in which we recognise contracts within our accounts. On a like-for-like basis, the total turnover rose, but only by a small amount.

Q171 Mike Gapes: Could you give us more information on that?

Martin Davidson: Certainly.

Q172 Mike Gapes: Related to that, is there not a danger that you might end up compromising the reputation of the British Council because of commercial associations or because you are seen to be basically a high quality English language organisation, rather than a UK plc organisation?

Sir Vernon Ellis: I think that is something to be aware of, but I would want to emphasise something: not all our income is of the nature of, say, commercial English language teaching. For example, the work we do in India-Project English, which is a massive amount of work teaching master trainers who then teach teachers and have a huge reach in India-is funded under contracts with individual Indian state governments. Some of the work we do-for example, on DFID projects for the social justice system in Nigeria-consists of income-producing activities, but they are well aligned with pursuing the kind of image of Britain, the values we stand for and the promulgation of what we do, even though the income comes from a different source. That is not to deny the underlying tenor of your question, which is a risk.

Martin Davidson: Could I perhaps add that one of the things that is very important is that we also take income that we earn from the commercial activities and apply it very directly into the cultural relations wraparound. This year we expect to take £11 million from income generated and apply it directly into what previously would have been FCO grant activity. We are planning at this stage to take some £7 million or £8 million next year to do the same thing.

Q173 Mike Gapes: You are getting less grant from the Government for spending in the developed world?

Sir Vernon Ellis: Correct.

Q174 Mike Gapes: So you are reducing your footprint in Europe and East Asia on that basis, but you are presumably then generating income in those same areas?

Sir Vernon Ellis: Correct.

Q175 Mike Gapes: Is that just to fund the activities in those areas or is it to fund activities in other parts of the world?

Martin Davidson: The impact of the ODA denomination of a significant proportion of our grant means that virtually the full weight of the loss of FCO grant will fall on the developed world. That means we will have to change the shape of our operations, as you say, in western Europe and in East Asia. What we are planning to do is to build an effective income-generating set of activities, wrapped around with cultural relations activity of the kind that would previously have been funded through the FCO grant. If we are successful, we will of course also wish to take some of the money and apply it to other parts of the world. I think it is critically important, if we are going to avoid the challenge that you have made-not to be seen as purely a commercial teaching organisation-that we have the wraparound.

Q176 Mike Gapes: This is my final question. We visited the British Council operation in Turkey two or three weeks ago. I was struck, first, that there was only one UK-based person working there. All the staff were locally recruited, predominantly from the Turkish population, although some, I suspect, were British people living in Turkey. I was also struck by the branding-there was a lot of branding about the Olympics, but I did not notice any branding about the UK as such or the British Council as such. Is there not a danger that as we move to situations where we have very few British personnel, and we have overwhelmingly an educational, English-language focused, commercial generating organisation, we might lose that branding?

Martin Davidson: The point that you are making is very important. In Turkey, part of the reason why you perhaps got that impression was that, because of the security situation we were required to retreat back into a back-office environment, which meant that there was not a great deal of public visiting. The opportunity we very much identify is to move out of that and have an effective public presence again. We will need to think about how we begin to brand that, so that it becomes clearly a British Council, and a British cultural entity, not simply a commercial one.

Sir Vernon Ellis: Can I add a couple of comments very quickly? On my travels, I have been to Turkey as well, and I know exactly what you mean. I think elsewhere that would be less typical, however, because there is a lot of British Council branding on the building, in the offices and at the front desk. I think that is all good; I think we should keep that right up there and, in fact, increase it.

The second question related to non-UK staff, and here of course there is a balance to be struck both on cost and on local understanding. I do not see necessarily that that is in conflict with branding. I have worked with a company in which we increasingly moved from expats to local staff, and those local staff will promulgate the brand just as aggressively as the previous home-country staff did.

Q177 Sir Menzies Campbell: Mention of India draws my attention back to the fact that you intended to move back-office functions from London to India-I think you told us that last year-and that you expected to save some 35% of the savings required by the spending review. I have a series of questions. Has that begun? How far has it progressed? How many British-based posts have gone as a result? How does the quality of the back-office provision compare with when it was locally based here in London?

Martin Davidson: The business support service centre in Noida in India was opened in May last year, and it has been working extremely effectively. It is important to recognise that it is not just replacing staff here in the UK, but it is actually replacing staff in five regional centres around the world. It is centralising all the accounting support for the whole organisation, so the savings are considerable. At the moment, the centre is working effectively but probably not delivering the full set of savings that we want it to over the coming period. We felt it was absolutely critical that we maintained the safety and security of our accounts first of all in making that shift. We believe we have been able to do that effectively. We will now be looking to begin generating further savings in the organisation. Those savings will largely be from reductions in our accounting and support staff in the global network, rather than here in the UK.

As far as the impact on the UK is concerned, we made 448 job reductions here in the UK in the period from 2009 through to the beginning of this year, of which approximately 50%-I will need to write to give you the exact figure-were within our accounting and support services, principally from staff here in the UK and staff in Manchester. The wider reduction is, of course, through reductions in other support service centres in other parts of the world.

Q178 Sir Menzies Campbell: Can you remind us of those other support service centres? London-

Martin Davidson: We had London, Poland, Beijing, Mexico City and Delhi. Essentially, Delhi had the global centre.

Q179 Sir Menzies Campbell: All in, how many posts have gone from those centres?

Martin Davidson: I do not have the figure immediately. I will be able to let you have it, however.

Q180 Sir Menzies Campbell: I presume an assessment has been made of efficiency. Has any external assessment been made of that?

Martin Davidson: The NAO has visited a couple of times. They have obviously been very concerned about the effectiveness of the operation. We are planning to look at the efficiency of the actual savings in the early part of the new year.

Q181 Sir Menzies Campbell: You say that you have not reached 35%, or at least I infer from what you say that you haven’t reached 35%.

Martin Davidson: It would be true to say that we have not yet reached 35%.

Q182 Sir Menzies Campbell: Can you give us a rough indication of where you may be?

Martin Davidson: I cannot immediately, but our forward plans are to reduce our platform costs by a further amount over the next three years, very much based on this. At the moment, the service centre is focused on accounting and IT, but we will be looking to move other functions into that. Indeed, we are beginning to look at whether we can offer services to other organisations through that.

Q183 Mr Watts: Mr Davidson, does that make sense for UK business? Because of the cuts that have been driven by the Government, we now have 224 posts being deleted at a time of high unemployment. Quite frankly, the Government has made savings in one area but increased costs in others by paying benefits to people who do not need to be paid benefits. Is there any discussion on the rationale going on between you and other departments? How do you view the fact that you are adding to the massive increase in unemployment that we are seeing?

Martin Davidson: Obviously, we recognise the point that you are making. We are faced with a very challenging financial environment. We were essentially employing some relatively expensive staff to sit in Trafalgar Square and do accounts receivable work.

Q184 Sir Menzies Campbell: Doing a very good job, I have no doubt.

Martin Davidson: They were doing a fantastic job, and I would not wish to say anything to undermine that, but it was an extremely expensive way of delivering that. As an organisation, we would like to focus on offering jobs for young British people that will be able to deliver much more centrally to our core purpose. For example, at the beginning of this year we established an English-language teacher training course to train young British graduates. We supported that training and then we assisted them in finding jobs. That is something that we would like to repeat.

We have, for the first time, introduced an internship programme. I recognise there is quite a lot of controversy around intern programmes, but we took some young graduates for six to eight weeks over the summer period to give them an effective understanding of the sort of work that we do. There is something important that the British Council can do to support employment opportunities for young British people, but we will be able to do that more effectively if we continue to grow our English-language teaching work, build a demand for young British graduates to take those jobs and provide support in training them.

Q185 Rory Stewart: Not very long ago, nearly half your budget came from the Government. We are now moving to a situation where five sixths of it is not going to come from Government. Have you a way of differentiating between the pot of money you get from the Government and your commercial activity in terms of how you spend it? In other words, are you able to keep the Government money for particularly non-profitable enterprises and finance the rest off the back of commercial activity?

Martin Davidson: That is something we are very conscious of. As we continue to grow our income from other sources, we have to be careful that we do not allow there to be a mix of those two sources of money. First, obviously for Fairtrade purposes, but also to ensure that we use the Government money for the purpose for which it was granted. We have a clear firewall between our uses of money.

We are also developing a policy that is now available publicly on our website for fair competition and state aid, to ensure that we do not compete unfairly. Our expectation is that in the next period our investment in what would traditionally perhaps have been Government-funded English language work should increasingly come from our retained income, from our activity. If we don’t do that there is always the perception that we are somehow subsidising our commercial activity from the Government grant. Keeping that separation is going to be very important, and, of course, being able to inform both the Foreign Office and the Committee what we are doing with the public money we receive.

Q186 Rory Stewart: If you are going to go to more locally engaged staff, one of the challenges is to ensure that they can act genuinely as people promoting the United Kingdom. One solution might be to ensure that your locally engaged staff are guaranteed more time in the United Kingdom, so that those 40-odd people we met in Ankara have at least visited the UK and can credibly talk about it and represent it to you. Are you able to put any money towards that, guaranteeing that more of your locally engaged staff come back to the UK?

Martin Davidson: One thing we are doing as part of the reform of the organisation is building what we call global teams. Our arts team, our English language team or education team is not simply those people sitting in Manchester or London, but also includes those people sitting in Ankara, Kabul or Paris, wherever it might be. So there is a much closer connection between those individuals and the work that we do globally. We also draw on their expertise. That will, of course, include visits to the UK, more meetings and activities involving those staff. They become much less deliverers of a set of programmes designed elsewhere and much more central to the design of those programmes themselves.

Q187 Rory Stewart: Is there anything you can do to formalise it? Let’s say you were able to save money by replacing UK-based for locally engaged staff, could you, in making that financial calculation, set aside a budget to ensure that that locally engaged member of staff had a guaranteed visit to the UK within the first 12 months of their contract, or something of that sort?

Martin Davidson: I don’t think we have done that in precisely that form. We would certainly expect that of our more senior staff-not the entire cadre-who increasingly have professional qualifications and are delivering a professional role within the organisation. I would be very surprised if the vast majority of those was not having at least one visit, if not more, to the UK a year.

Sir Vernon Ellis: That is an interesting point, because I grew up in a company in which we kept going a centralised physical training presence-even though some viewed it as hideously expensive-purely for the social reasons of bringing them to a headquarters function and meeting each other. That is good. It does happen: there was a meeting of the global arts team quite recently in Britain, which I visited. Of course, in this world of electronic communications there is a lot of communication. I was on a conference call yesterday with China about UK Now, our UK arts festival next year. There is a lot of very active live collaboration between the team in China, which includes local as well as British people, and the team in Britain.

Q188 Rory Stewart: My final point begins with a real tribute to Paul Smith who has done incredible work in Kabul; he is a very impressive man. What is the British Council able to do more formally to support the promotion of UK education? We talk all the time about growth. People are obsessed with the idea that British higher education in particular is something that could generate an enormous amount for the country. It could almost be the economic future. Are you really able to put the resources towards reinforcing that multi-billion pound venture?

Martin Davidson: It is one of our absolute core areas of work around the promotion of the UK-particularly the UK’s higher education system. The nature of international higher education is changing. It is about not just attracting people to study in this country, critically important though that is, but building links that allow universities to deliver courses overseas and potentially to establish centres or, in one or two cases, campuses overseas. We are working very closely with Universities UK, UKTI and BIS to get the focus right. The demand is absolutely enormous. I have recently come back from Kurdistan and Palestine and, even in those places, the demand for a British contribution to the development of their own higher education system is very high indeed. Ensuring that the British universities are able to respond adequately to that is a challenge. Of course they are themselves faced with some significant financial challenges at the moment. Certainly, the higher education institutions in this country are very seized by both the opportunity and the expectation of a greater level of involvement, which is placed on them from overseas. The challenge for us is: can we actually meet the huge demand? That demand is growing very rapidly indeed at the moment.

Sir Vernon Ellis: So, "Can we do more?" is the question.

Martin Davidson: The answer is yes, and we are putting more resources into it in the coming period, which is why we are focusing on education, particularly higher education, as one of the three key areas.

Sir Vernon Ellis: And we recruited someone to head that area up from outside with a very good track record in both higher education and working overseas-South Africa in this instance.

Q189 Mr Baron: Your corporate scoreboard, according to your annual report, at least, is looking good. Most indicators are on a par, if not improvements. One of the more important ones, global reach-people met and so forth-which is presumably the bread and butter of your business at the end of the day, has shown a decline of some 11% globally. Why is that?

Sir Vernon Ellis: You have to look at this over a trend basis. There are two measures here. One is engagement and the other is reach. The engagement is people we physically deal with, and that has gone up 60% in one year. The reach, digital radio and TV broadcast, has gone down 11%, although it is up on the year before. That figure will go up and down. When I first arrived I said that we should be careful about measuring like this because it could be very influenced by a major television programme in China or a big campaign like the Darwin thing in the Middle East, and indeed it was. At the fringe of this, you get a one-off broadcast that inflates the thing and that can go up and down. It is useful to have, and we should have it over a period. If, over a period, the figure is not going up, we are losing part of our reach and I would like to see it keep going up. It would be quite dangerous to look at it in too much detail in one year. The two specific reasons that I mentioned were both the reasons for that. If we came along next year and it went down again, you would be right to probe on it.

Q190 Mr Baron: Would that account for the quite dramatic drop in reach in your own figures in North Africa and the Middle East? It was something like 25 million down to 6.5 million in just over a year.

Sir Vernon Ellis: That was a very specific thing to do with the Darwin programme.

Q191 Mr Baron: Does the Darwin programme account for all of that?

Sir Vernon Ellis: I don’t know about all of it. We might want to give you detailed figures-Martin, do you know?

Martin Davidson: The Darwin Now programme is a significant proportion of that. But equally, towards the last quarter of the financial year, it became much more difficult to broadcast in that part of the world. Those two reasons together account for the reduction.

Q192 Mr Baron: Before you came in, we were questioning the World Service, because it has had a dramatic drop in its audience in North Africa and the Middle East, which it thinks is purely an issue of coincidence. Are you reading anything more into your loss of reach?

Martin Davidson: I don’t think so. Obviously, this is something that we keep a track on. The key measure that we tend to look at first is engagement, because that is face to face and the heart of what we, as an organisation, do. Reach and the broadcast are critically important.

Taking the Near East and North Africa as a case in point, we are clear that the demand for English language teaching materials through broadcast is rising rapidly. We have programmes such as "English by radio" for students, and "teach by radio", which is aimed at teachers. Both those programmes are getting increased pick-up, as is our music programme, Selector. So there are good signs that those very specific programmes are working. Also, our collaboration with the BBC on television English was initially aimed at Iran, but is now being picked up by other countries in the region, which indicates that there is a very healthy demand.

The issue for much of the reach is when domestic broadcasters pick up and relay some of the other activity that is going on. I am not aware of a feeling that there is a systemic drop in that, but it is obviously something that we are looking at.

Sir Vernon Ellis: If I can expand, direct engagement is up 60% in that region. We were listening to the questions on that issue, and they were good questions. On English, as Martin mentioned, we aim to reach 8 million people through that programme. Under the Education and Society project, we have a programme to widen opportunities for employability, which has a social media and TV broadcast element, and through which we aim to reach 12 million people.

This is terribly important. We have to find ways of scaling our reach. There is no doubt about the tremendous demand on the ground for English language and other programmes in places like Syria and Egypt. But we can leverage that and make an impact through these new-well, not so new now-media, and we have to do it. Here are some figures, let’s see if we can make it. We should be looking at an uptake, and if we are not doing so, you are right to ask us why.

Q193 Mr Baron: In other words, those drops are one-offs rather than anything endemic on the ground, the politics or anything like that?

Martin Davidson: We don’t see anything systemic at the moment.

Q194 Mr Baron: Moving on, in your annual report, overall satisfaction with the British Council was more than 80%, yet fewer than 60% of people would recommend it. Is that something that worries you? Why is there that disconnect?

Martin Davidson: Those are slightly different figures. The recommendation is the net promoter score, which, as you are probably aware, is a standard score in the outside world. The two figures are broadly the same in effect, because the net promoter is the difference between those who would not and those who would. We obviously benchmark this, and the recommendation score is within the range of what we understand to be world-class performers. For example, the Apple iPhone has 69%, Amazon has 70%, the banks have 0%, and insurance companies are rather below 0%.

Q195 Chair: What about Parliament?

Martin Davidson: We haven’t asked that question.

Mr Baron: I suggest you don’t.

Martin Davidson: Within those very technical terms, these are good; they are not absolutely top of the range, but they are well within the good to excellent area.

Q196 Mr Baron: Finally, Sir Vernon, you talked about the importance of monitoring engagement rather than reach. Engagement in East Asia has risen quite substantially according to your figures, and yet-correct me if I am wrong-you are planning to reduce the amount of Government grant to that area. What is the logic behind that?

Sir Vernon Ellis: I think that is an example of the increasing strain, to be honest, in trying to balance the need to balance the grant-to increase the portion of ODA and say, "Where can we spend it?" I think that East Asia is an element where that strain might be beginning to show, but you may be able to give a more precise answer, Martin.

Martin Davidson: There continues to be a huge demand for English language across East Asia and I think much of the significant engagement will come from that. Perhaps an important point on which we have not touched is that we are also premising much of our increase on partnership, which is not simply sponsorship, but also working with other organisations on working together in some of those areas. For example, we are working with BP on an education programme in Indonesia and we have just signed a new agreement with Microsoft on ICT and education-those terms focus perhaps on sub-Saharan Africa, rather than East Asia. Our engagement figures and our figures on growth of engagement are premised upon our success in both income generation and partnership.

Q197 Mr Baron: Finally, would it not make good sense to run with your winners, as well as to try to tackle those areas where you are seeing quite a sharp decline in reach? Here you have a winner-you have talked about the importance of English and so forth-and yet you seem to be cutting back your resources.

Martin Davidson: The problem we have is that, as an increasing proportion of our grant is focused on ODA, particularly in East Asia, it requires us to reduce the level of Government grant. We simply do not have the grant that we can put in at the same level, so we will have to find alternative ways to boost our work there through that development of income.

Q198 Ann Clwyd: You told us in May that the desire to learn English was very high among young Palestinians.

Martin Davidson: Yes.

Q199 Ann Clwyd: You also have difficulties operating in Gaza, particularly. Could you tell us the situation now?

Martin Davidson: I came back from Palestine last week. I was in Jerusalem and Ramallah. Unfortunately, I was not able to get to Gaza. I was opening our public presence in Ramallah, which you might recall we closed when it was burned down about five years ago. For me, it was tremendous to be back there and present. We are discussing, at the moment, opening our English language teaching, and I hope that we will have English language teaching reopened in both Jerusalem and Ramallah, and potentially other parts of the West Bank, by April. That is the focus we have at the moment.

Gaza is significantly more difficult. We do not have ease of access there, but one thing we did do while I was there was have a reception for British alumni. We had a physical reception in Ramallah, where something like 120 people turned up, and we also had a reception in Gaza, where about 100 people turned up, and the two were linked by video conference. For me, it was a very important moment to see those 100 people who had studied in the UK and wanted to be associated with the UK-who were prepared to turn out and be publicly seen. I think that there is a huge opportunity. I am pressing my colleagues to look at reopening the public presence in Gaza. At the moment, we still feel that there are probably security problems which would make that very difficult, but we still have the back office there, we still have our staff there and we are continuing to work there.

Chair: Sir Vernon, Mr Davidson, thank you very much indeed. We value the work that you are doing and thank you very much for coming along and explaining it. We look forward to seeing you again in future.

[1] Overseas Development Assistance

Prepared 12th April 2012