7 Governance, regulation and accountability
I think it is a bit of a snare and a delusion
that is part of the BBC DNA, to say whenever anything goes wrong
that it is the governance that has gone wrong.Lord
270. In recent years all major public bodies, including
the NHS and Parliament itself, have become subject to scrutiny
by independent regulators. The extent to which the BBC Trust has
been an effective, rigorous and independent overseer of the BBC
is a matter of much debate. In recent years, the mistakes made
over Savile, the Digital Media Initiative and severance pay have
dominated the headlines, and the BBC's acceptance of additional
costs and responsibilities following its privately negotiated
licence fee settlement with the Government in 2010 has had ongoing
strategic and budgetary ramifications. We heard from a number
of witnesses that the BBC Trust was not working well in terms
of either governing or regulating the BBC or acting as an effective
advocate for the public and licence fee payers.
271. At best it has appeared a critical friend but
to many it has seemed to be an apologist for the BBC when mistakes
have surfaced. However, Dame Tessa Jowell explained that the role
of the Trust had been quite seriously misrepresented. She explained
that the "cheerleading" function was for the BBC [Executive]
itself and the Trust had always been there to represent the licence
The role of the Trust is to represent the public
interest in the collection and the expenditure of more than £3.5
billion year on year. I hope that we can write out of the argument,
in critiquing the Trust, the idea that somehow it was created
to be both cheerleader and regulator. It never was, it should
not be, and in the future the cheerleading role should be very
clearly attached to the BBC [Executive] itself.
272. Frayed relations were exposed during the appearances
of directors general, chairmen, and trustees, past and present,
at the Committee of Public Accounts hearings in 2013 following
the exposure of excessive severance payments to senior executives
and the poor management of the Digital Media Initiative, leading
that Committee to describe a "dysfunctional relationship
between the BBC Executive and the BBC Trust that casts doubt on
the effectiveness of the BBC's governance model", which it
considered as "broken".
During these occasions the public had seen different arms of the
BBC appearing before parliamentary committees taking different
positions which, in the opinion of David Liddiment, a founding
member of the Trust, had not been in the interest of the BBC and
had not shown good governance.
What was also exposed at this time was the BBC Trust Unit's
failure to identify problems that were occurring at the BBC Executive
and to bring the problems to the attention of the Trustees. There
appeared to be a breakdown in effective communications between
the two boards, and on the Trust's part, a lack of alertness to
indications of possible underlying problems at the BBC with organisational
protocols being too rigidly adhered to.
273. Prior to 2007, successive BBC Boards of Governors,
who had governed the BBC since 1927, had performed a dual role
in which they were responsible for leading and promoting the success
of the BBC by directing and supervising its affairs, and representing
and defending the institution, as well as judging its performance
and representing licence fee payers and the public interest. This
was a model widely seen as unsustainable in the run-up to the
2006 Charter review as the Governors could not continue to be
both the regulator and "cheerleader" of the BBC. There
was a strong belief that the Governors had, in effect, identified
with the management of the BBC, leading to a perception that the
BBC had been run in the pursuit of its own interests, rather than
those of the licence fee payer, and that the governance arrangements
lacked transparency, accountability and openness.
274. In 2005, the Independent Panel on Charter Review
appointed by the then Government and chaired by Lord Burns, recommended
that the Board of Governors be replaced with a new independent
body, a Public Service Broadcasting Commission (PSBC). This commission
would have been independent of Ofcom, comprising Government-appointed
non-executive commissioners, and would have taken over the BBC
Governors' regulatory responsibilities including making sure the
Corporation met its public service remit and provided value for
money. It would have also advised Ministers on the level of the
licence fee and would have allocated funding to the BBC and potentially
some funding to others to produce public service content.
275. The Panel had also recommended that the BBC
be governed by a unitary board of executive and non-executive
directors in line with best practice in corporate governance,
with a non-executive Chairman at the helm. The board would have
been responsible for deciding and delivering the BBC's programming
output, subject to the oversight of the Public Service Broadcasting
Commission, within its allocation of the licence fee. It would
have been the BBC Board's responsibility to champion the BBC and
be answerable to its critics.
276. There was surprise when Tessa Jowell, as Secretary
of State, chose not to follow the recommendation of the Independent
Panel which she had established. Instead, she opted for the model
of the BBC Trust which more or less followed a structure that
had been recommended by the BBC Governors, incorporating many
features that had been outlined in their 2004 strategy paper,
Building Public Value. Reflecting on her decision, Dame
Tessa Jowell explained that she had found the Panel's proposed
structure had insufficiently represented the public interest and
for that reason she pursued what had been a middle course of three
options, i.e. neither to continue with the BBC's Board of Governors
nor to move to an external regulator.
Creation of the BBC Trust
277. The two-tier structure of a BBC Trust and a
BBC Executive board came into being in January 2007 and since
then they have been the oversight and delivery institutions of
the BBC. The Trust's 12 non-executive trustees and the Executive
Board's seven executive and six non-executive directors together
have the power to determine what the BBC does and does not do.
Their respective roles and responsibilities are set out in the
BBC's Royal Charter and Framework Agreement.
278. The BBC Trust is the sovereign body; it is responsible
for approving the overall strategic direction of the BBC and for
holding the Executive to account for delivering the BBC's services
in accordance with its priorities. The BBC Trust sets 'purpose
remits' for each of the public purposes laid down in the Charter,
indicating the priorities it has set the Executive Board and how
it will assess the performance of them. It also sets a service
licence for every BBC service stating the scope, aims, objectives,
headline budget and other important features of each service and
how performance will be assessed by the Trust. The Trust also
agrees the BBC's editorial guidelines and protects the BBC's independence.
It is responsible for monitoring performance to ensure that the
BBC provides value for money while staying true to its public
purposes. The Trust is the final arbiter of complaints in respect
of the impartiality and accuracy of the BBC's content. The BBC
is also subject to Ofcom oversight in various areas.
279. We heard that a fundamental flaw of the BBC
Trust, like the BBC Board of Governors which preceded it, is essentially
that it is impossible for the Trust to be the BBC's defender and
champion whilst also providing independent regulation and scrutiny.
Lord Burns told us that he continued to support his original proposal
for a clear separation between the BBC and its regulator and believed
that problems which had occurred since his report demonstrated
that the BBC Trust system had not worked well.
A former member of his independent panel, Sir Howard Davies, was
more forthright in recent comments:
The confusion of roles enshrined in the Jowell
proposals, were put into effect in the last Charter, is at the
heart of the problems we have seen. It was an accident waiting
to happen. This is not an observation informed by hindsight. When
the then-government put these proposals to Parliament they were
The system was well understood to be flawed from
the start, has failed in exactly the way knowledgeable observers
said it would fail, and therefore must be reformed in a structural
280. According to Lord Burns, there needed to be
one body which made sure the licence fee was spent in a way that
fulfilled the requirements of the Charter and a totally separate
body to run the BBC. Several other witnesses shared his view.
Greg Dyke told us that the "BBC Chairman" should not
be the chairman of the regulator. In his opinion, the creation
of the Trust had been a 'terrible fudge' that had not worked:
You saw the disaster over Jimmy Savile, over
the appointment of a director-general and the rest of it. That
was because I do not think anyone was quite clear in that whole
system who was responsible for what.
What they did was they
half-divorced and did not do it properly. What you need is the
full divorce. Therefore, you need the regulator to be outside
the BBC. It is either Ofcom or [OfBeeb]. I would have always gone
with Ofcom personally. But [Ofbeeb] was the compromise that then
was not acceptable to anybody.
281. Lord Birt supported the idea of the BBC having
a management board that learnt from private sector practice, through
input from non-executive directors, but who were there not necessarily
to examine whether the BBC was properly addressing the interests
of every group of licence fee payers, but looking to ensure that
the organisation was well run, that it had the right talent, that
the right processes were in place, and that it was spending money
Grade pointed out that, although the object of establishing the
Trust had been to create separation between those running the
organisation and those overseeing it, there was a case that general
responsibility for the oversight of the BBC's income from the
licence fee should be located inside the Corporation so that a
check to ensure the proper use of public money could be applied
from the start.
282. Gavyn Davies told us that he had liked the role
of the "BBC Chairman" as it was in the 1980s and 90s,
especially the fact that the Governors had been independent of
Government, the whole industry, and other regulators. In his mind,
the establishment of the Trust had generated unrealistic expectations
of what the Chairman of the Trust could do.
He supported the idea of the role of "BBC Chairman"
being returned to the main BBC. This would far more clearly mark
out the Trust as representing licence fee payers, which would
be a better solution. Greg Dyke also pointed out that the relationship
between the Chairman and the Director General was key and that
this had broken down to a degree during the BBC's handling of
the Savile affair:
The relationship between the chairman and the
chief executive is all-important in any organisation. It is the
most important relationship probably in the organisation. I thought
at the stage at which George Entwistle was clearly in difficulty,
he needed significantly more support than he had.
283. On the other hand, Professor Barnett believed
that it was too early to make changes to the BBC's governance
structure. In his view, there would always be a learning curve
to any new governance system, and so the Trust should be afforded
a little more time to get things right:
Of course there have been mistakes, as there
always will be. These are human beings involved. It is not an
easy job. There is no counsel of perfection in terms of governance
of the BBC. It is a public institution. It is part of the market
and it is part of the state, but it is separate from both. It
is complicated. There will always be tensions. I think it is important
to give the Trust a little bit of time to get things right.
Nonetheless, Professor Barnett could see the case
for establishing a non-executive chairman of the BBC, 'whose job
would be a lightning conductor, to take some of the flak', and
also be able to stand up for the BBC, rather than principally
for the licence fee payers.
284. In respect of his role as Director General,
Lord Hall told us he was responsible to the Trust for the overall
direction, operation, and spending of the BBC. The Executive and
the Trust jointly agreed the overall strategy for BBC but it was
the Trust's role to hold the Executive to account for delivery.
Since 2011, there have been two internal reviews which have looked
at how effectively the BBC's governance has operated.,
 The second,
in 2013, was a joint review between the Trust and the Executive,
instigated as a consequence of the excessive severance payouts
and other high-profile management failings. Whilst the review
concluded that much of the arrangement worked well, it found that
there was still confusion over which body was responsible for
what in certain key operational areas and this had undermined
confidence in the governance and operation of the BBC. As a result,
several actions were taken to clarify respective roles and responsibilities
and to make the oversight of the BBC more transparent. For instance,
the Executive has strengthened the non-executive representation
on its Boardalthough it still has a majority of BBC executivesand
it has been made clear that the Trust should not involve itself
in operational decision-making.
285. Sir Howard Davies described the Trust's 2013
governance review conclusions as trying "to apply sticking
plaster to the wound". He noted, for instance, that one of
the outcome actions of the Trust, to "not involve itself
in operational decision-making", meant that it indeed had
been involving itself in this way before, betraying "a remarkable
lack of confidence in the executive", and foresaw that "A
mere undertaking to be good boys and girls in future, and to say
please and thank-you to each other, will not do the trick."
286. According to Lord Hall, it would be possible
to adapt all sorts of models for the BBC's governance and regulation
but he found that since the clarification of their respective
roles in the 2013 review, the BBC Trust and Executive were making
the current model work.
Given that Lord Hall spent eight years as a non-executive director
on the Channel 4 Board, we asked him whether a unitary board structure
could work for the BBC.
He pointed out that Channel 4 was a much smaller and less
complex organisation than the BBC, not only in terms of how its
income was earned but also in the way it was spent. He added:
"The right way to govern something that is so fundamental
to the UK and bigger in size than Channel 4 is that you end up
with something that is very akin to a trust and executive board."
287. In our opinion, when failings have occurred
at the BBC in the present Charter period the Trust has not demonstrated
the institutional independence necessary to scrutinise the problems
at hand or be a candid critic of the Corporation and its executives.
The Trust is, after all, part of the BBC: the Chairman of the
Trust is entitled to be called the Chairman of the BBC and, unlike
other regulators, it appoints the chief executive (in this instance,
the director general) of the body it is intended to regulate and
whose performance it is intended to judge objectively.
288. In respect of regulation, Lord Birt told us
that he wanted to see the BBC being regulated much more in the
tradition of Ofcom, where it was overseen by a "more beady"
regulator with staff more experienced in that field.
A question which arises is whether some of the Trust's oversight
roles and responsibilities should transfer to Ofcom or whether
it should pass to a separate external body with oversight of the
money that was spent by the BBC and more generally to support
public service content, as had been envisaged by Lord Burns' independent
panel. Lord Birt told us:
I am more attracted to the notion of a stand-alone
regulator. Why? Because of the scale and importance of the BBC
in our national life. Do I think it would be a disaster if it
went to Ofcom? No, because Ofcom has been an especially effective
regulator, in my judgment, but it regulates an awful lot of stuff.
I would start to be nervous that bringing in something that was
so big, of such importance and, of course, has strong public policy
purposesOfcom would then have the job of holding the ring,
which, in the end, I would rather politicians do than delegate
the holding of the ring between the public sector and the private
sector in broadcasting to a regulatory body.
289. Lord Burns continues to prefer a separate body
rather than passing regulatory responsibility for the BBC entirely
to Ofcom, for the same reasons. Yet he told us he could easily
envisage a situation where what was now the Trust became a subsidiary
of Ofcom, where it undertook a different type of job to the one
carried out for commercial PSBs because the BBC required detailed
oversight of how the licence fee was spent and whether its Charter
objectives were being met:
The issue to me is I think Ofcom could do the
job, but it would be a much bigger addition to their role than
it is to do that job for Channel 4, which is why I would still
on balance be in favour of the proposal that we put forward 10
years ago, which was to have a separate organisation to do this.
But I certainly think that having it in Ofcom would be an improvement
over the ambiguity that we have under the present arrangement.
As I say, it is the ambiguity that I see as the biggest problem
to be resolved here. The question of where it goes to is a bit
more finely balanced.
290. Despite the problems that had occurred, Lord
Burns told us that the Trust had done some "very good work"
in introducing purpose remits for each BBC service and public
value tests for assessing new and existing services.
Many witnesses told us they thought these mechanisms were valuable
and wanted them preserved. For instance, David Liddiment pointed
to the way the Trust had monitored the BBC's distinctiveness and
impact on the commercial sector. The Trust has been in a position
to make adjustments to BBC service licences where it found them
overstepping the mark. According to Mr Liddiment, the last thing
that the BBC needed was light touch regulation:
[The BBC] is a big beast and it is operating
in markets, so part of its instinct is to be competitive. That
is a good thing but it does mean from time to time it is not always
as focused on its public purposes or as being distinctive as it
needs to be, and you need a body that keeps it in line. Do not
get me wrong; not to tell it what to do but to give the appropriate
tension between its public values and the efficiency and competitiveness
of the entity itself. We want it to be efficient. We want it to
be competitive. We want it to be well run, but we want it to be
focused on the public purposes, on the public values.
291. We see three key requirements for effective
stewardship of the licence fee income, giving assurance that the
money passed to the BBC is well spent in meeting its public purposes.
First, the BBC must have robust internal governance and compliance
mechanisms to ensure that its management determine and deliver
BBC services to the high standards expected of the Corporation
and within its funding limits. The BBC's governance must also
ensure that the Corporation has the correct resources in place
to meet its objectives in accordance with its strategic aims.
Second, there needs to be independent regulatory oversight to
ensure the BBC is complying with its statutory obligations and
achieving set quotas, adhering to its editorial guidelines and
broadcasting codes, and that its activities are conducted fairly
in a way that does not impact adversely on its commercial counterparts.
Third, given that the BBC is in receipt of over £3.7 billion
of public money, it must be scrutinised and held accountableinternally
and externallyfor meeting the strategic aims which have
been set for the Corporation to achieve its PSB obligations, and
ensuring that its activities secure the best value for money,
and satisfy the expectations of those who pay for its services.
This will involve consulting licence fee payers regularly to find
out what is expected of the BBC and how well the BBC is serving
292. A number of our witnesses held the view that
the Trust has neither acted as a fully effective governor nor
a regulator of the BBC and consequently we consider the status
quo is not an option.
While views on the best form of governance varied, there was general
agreement with the principle of making a clear distinction between
internal corporate governance and independent external regulation
and oversight of licence fee payers' interests. To achieve this,
there needed to be a unitary board of the BBC headed by a non-executive
Chairman, as well as an independent external regulator. We consider
options for this below.
293. We believe
that the establishment in the 2007 Charter of an oversight and
regulatory Trust within the BBC has led to it being too close
to the BBC Executive and it being seen on many occasions as being
far too protective of the BBC as an institution, rather than acting
as an effective and objective regulator and advocate of the licence
fee payer and wider public interest. Incidents like its handling
of the Savile affair, oversight of the Digital Media Initiative,
and its representation of licence fee payers in the 2010 settlement
have demonstrated that the BBC Trust has not lived up to its name
and we believe it was a mistake not to accept Lord Burns' independent
panel's recommendation at the time of the last Charter renewal
for fully independent external oversight of the BBC. We believe
that the BBC Trust should be abolished and new arrangements made
for both the regulation of the BBC and for the BBC to be held
accountable to licence fee payers.
294. We have set out our own preferred model for
governance and regulation of the BBC which, although based on
external, independent oversight of the BBC, deviates from Lord
Burns' 2005 model. The main difference between our proposals and
his panel's is that we do not consider the oversight body should
have a formal role in approving the BBC's overall strategy nor
should it formally set the BBC's spending priorities. It will
have an advisory role. If it were formally to approve strategies
and service budgets this would confuse and undermine lines of
accountability and give the BBC Board less control over its activities.
If the BBC is to be properly held accountable then the body overseeing
it must be completely separated from the BBC so that it is placed
to appraise the Corporation objectively and recommend a strategic
direction in line with licence fee payers' interests and wishes
and in accordance with the needs of public service broadcasting.
A unitary BBC Board
295. It is our view that the separate entities of
a BBC Trust and an Executive Board of the BBC should be replaced
by a unitary board comprising a non-executive Chairman, a majority
of non-executive directors, and a small number of executive directors
including the Director General. As previously proposed by the
Burns' Panel, the board would follow the best corporate governance
practice of other large and complex organisations as set out in
the Combined Code on Corporate Governance, whilst recognising
the BBC's uniqueness and the lack of obvious parallels. The Board's
functions would include collective responsibility for promoting
the success of the BBC by directing and supervising its affairs;
leadership of the BBC, within a framework of prudent and effective
controls enabling risk to be assessed and managed; determining
the BBC's strategic aims, ensuring that the necessary financial
and human resources were in place for the BBC to meet its objectives,
and reviewing management performance. This would include formulating
the strategic business plan with supporting detailed financial
information to be scrutinised by an independent external body,
the Public Service Broadcasting Commission (PSBC), and monitoring
progress against that plan. The unitary board would also define
the BBC's values and standards and ensure that they were met.
The board would also maintain committees covering key matters
including nominations (advising the board on recruitment of the
Director General and other executive directors), remuneration
(to advise the board on compensation arrangements for executive
directors), audit (to further the highest standards of financial
accountability), and complaints (with appeals to be referred to
Ofcom on content code matters).
296. Such a structure for the BBC should enable the
Corporation to be more agile and dynamic in undertaking corporate
governance and taking strategic decisions on priorities in line
with its public purposes. It would also restore the "critical
friend" support role of a Chairman and non-executive directors
that was removed in 2007. The non-executives would be at closer
hand and be able more effectively to challenge and contribute
to the development of strategy, scrutinise management, satisfy
themselves that financial information was accurate and that financial
controls and systems of risk management were robust and defensible,
and determine appropriate levels of remuneration of executive
directors, as well as have a stronger role in appointing and,
where appropriate, removing senior management and in succession
297. A unitary board, which we refer to from now
on as the "BBC Board", should be the body accountable
for the BBC's management and delivery of the BBC's strategic aims.
If this were the case, then the BBC Board should set, agree and
own its overall strategy. Others would contribute to the process
through expressing views about the shape of BBC services and scrutinising
the BBC's performance, but the BBC must approve its own strategy
otherwise lines of accountability are obscured. We note, however,
that in its advice the Burns Panel proposed that the Public Service
Broadcasting Commission not only subject to open and transparent
scrutiny the strategic plan for the BBC prepared by the BBC board,
but also "approve it or reject it in response to that scrutiny
and to oversee its execution". The strategic plan agreed
between the PSBC and the BBC, it suggested, might cover such issues
as the number and broad objectives of television and radio channels,
online and other services, including commercial services; the
broad allocation of expenditure by service, audiences and genre
to meet the needs of all licence fee payers; specific targets
for each channel in terms of type of content and measures of success
(along the lines of service Licences); and arrangements for the
periodic review of channels and other activities of the BBC, whether
commercial or funded by the licence fee. We consider this further
298. Similarly, a BBC Board committed to fulfilling
its Charter and Agreement obligations, with effective internal
compliance mechanisms, which could be set out in the Agreement,
should be the body setting the BBC's priorities and agreeing the
parameters and remits of individual services, taking into account
the input and recommendations of the external oversight body and
licence fee payers. It should be required to do so in a clear
and transparent way so that others may judge performance. In addition,
the Board must be wholly in control of its spending.
299. The Director General, as the BBC's chief executive
officer and editor-in-chief, should be responsible to the BBC
Board for the BBC's content. He or she should be answerable to
the Board in respect of the BBC's delivery, but it should be the
Board that owns the BBC's business plan and editorial guidelines
and it should be ultimately responsible for the BBC's performance,
and be held to account when mistakes or problems occur. Finally,
the BBC Board must through all of its efforts ensure that the
BBC secures value for money, irrespective of the additional role
of external oversight in this area, and it should be answerable
for the BBC's expenditure of the licence fee.
300. Under the BBC's Board there would be a management
team responsible for the operational delivery of the BBC's services.
Through the Director General and the other executive directors
who sat ex-officio on the BBC Board, the management team
would be held accountable for its performance.
Licence fee payers' interests:
Public Service Broadcasting Commission
301. We envisage the establishment of a new Public
Service Broadcasting Commission (PSBC) to hold the BBC Board to
account for its performance, although it would also have wider
duties in relation to public service broadcasting. The principal
role of the PSBC would be to represent the public interest in
public service broadcasting to which the BBC is expected to make
the most significant contribution. A high-level responsibility
of the PSBC would be to scrutinise the BBC to make sure the nearly
£4 billion of public money it received each year was being
well spent. The PSBC would be independent of Government and Parliament
but answerable to both. The PSBC would be there to represent and
champion licence fee payers' interests.
302. As noted above, the Burns Panel proposed a formal
role for the PSBC in not only subjecting to open and transparent
scrutiny the strategic plan prepared by the BBC board, but in
formulating that plan, approving or rejecting it, and overseeing
its execution. Our view is that this risks the re-creation of
something very similar to the BBC Trust, including reintroducing
additional layers of decision making and working counter to the
objective of a more agile and dynamic BBC board able to make decisions
and act more effectively. Our preference is that the PSBC not
have a formal role in approving the BBC's overall strategy: its
duty in the first instance would be to scrutinise the BBC's strategy
in a very public way, publishing its views on the BBC Board's
performance and future priorities. Similarly, the PSBC would scrutinise
individual services against their purpose remits, as has happened
with service licence agreements under the Trust, holding the BBC
to account for performance and making recommendations on spending
priorities and for changes to service remits. The PSBC would not
formally set individual budgets nor would it have a role in formally
approving service remits.
303. In respect of the BBC's commercial counterparts,
it would be at the Commission's discretion to carry out public
value tests on BBC services. The BBC would be expected to submit
proposals for new services or closure of services to the Commission.
The PSBC's appraisal on these occasions would be informed by market
impact assessments conducted by Ofcom, as before. There would
be an expectation on the BBC to follow the PSBC's conclusions
by either abandoning a proposal or making adjustments to existing
services, to avoid adverse impact and to assure public value.
304. A further role of the PSBC would be to conduct
public consultations on the BBC's services and to make recommendations
as a consequence. The PSBC would advise the BBC Board, in a similar
way to how Ofcom currently advises the Channel 4 Board, on its
performance and strategies in serving audiences and meeting its
public service remit. Mr Liddiment told us that even after eight
years of its existence, he would have thought that not many people
knew what the Trust was for.
This must not be the case with the new Commission: it would need
to establish a much more prominent and meaningful relationship
with the public who pay for the BBC and its PSB content.
305. In terms of public funding for PSB, it would
remain a responsibility of the Government to set the licence fee
(or its replacement), following negotiations with the BBC, and
through consultations and debates in Parliament, and taking into
account the advice of the Commission. In advising the Government
on this, the PSBC would take into consideration past performance
of the BBC and others, future PSB requirements and importantly
those of the BBC. The PSBC could be given a role in allocating
a proportion of the licence fee (or its replacement) on a competitive
basis to the BBC and others for production of PSB content.
306. In the course of its work, we would expect the
chairman of the PSBC to produce an annual report for Parliament
and for him or her to appear before parliamentary committees such
as ours to account for their work and to assess the performance
of the BBC and any other recipients of public money in producing
public service type content.
307. Ofcom would carry out all other regulation of
the BBC as it does for the commercial PSBs. Ofcom would also oversee
production and statutory quotas related to the BBC, as well as
take on responsibility for complaints over fair trading. A significant
change would be that Ofcom would take on all content regulation
for the BBC; we consider this change in further detail below.
We believe that Ofcom, given its responsibility for the whole
broadcasting sector, would probably remain best placed to carrying
out PSB reviews of the entire sector, which would also significantly
inform the PSBC, but this arrangement could be reviewed.
Transparency in appointments
308. Currently, the Chairman of the BBC Trust is
appointed by Government following an open competition and then
subject to a pre-appointment hearing by our Committee. The Chairman
of the Trust is responsible for appointing the Director General,
under a process that should be open and fair. This did not happen
last time, following the resignation of George Entwistle. It was
also the case that two other members of the Executive board were
directly recruited by Lord Hall without the posts being advertised.
We were told by the Trust that Lord Hall's appointment had been
made under "exceptional circumstances".
Similarly, in the case of the direct appointments made by the
Director General himself, again we were told there were exceptional
circumstances that had led him to bypass an open recruitment process.
Lord Hall explained:
When I was constructing the team and thinking
about constructing the team, I felt that the BBC was in some crisis.
I wanted to move quickly to get the top team in place, and so,
in those exceptional circumstances, a mixture of direct appointments
of people who are stars in their world was right, as well as moving
some people and also having an open competition for some of the
309. We do not think that it is appropriate under
the present system that the regulator appoints the Chief Executive
and Chair of the body it oversees. Under our preferred structure,
the Chairman of the BBC would be appointed by the Government,
as now happens with the Chairman of the Trust. In all other appointments
there must be a duty to operate in a fair and transparent manner,
especially given the BBC is a public sector organisation. As we
have stated, the Chairman of the BBC would appoint the Director
General after an open recruitment process had taken place, in
line with advice of the Board's nomination committee, which would
be chaired by non-executive directors as usually happens on a
310. During our questioning of the BBC Executive,
we were not convinced that the current challenge to BBC executives
has been as robust as we would expect. The BBC Board would need
to recruit non-executive directors who were likely to give a tough
challenge to the BBC Executives and whose corporate governance
experience and skills were suitable to the BBC's public service
remit and its public sector position.
Chairman of the BBC
311. The new Chairman of the BBC would be ultimately
accountable for the BBC's performance. He would be answerable
for the BBC's actions, be champion of its creative endeavours,
and be the guardian of the BBC's independence, supported, of course,
by the BBC's constitutional protections and a strong board. Whilst
the PSBC would help secure the BBC's independence given its role
in overseeing the BBC as an institution and representing the public
interest in the Corporation, it would ultimately be the responsibility
of the Chairman of the BBC to defend the broadcaster's position
from political or other challenges which might be a threat to
312. It would be likely that the type of character
profile and experience needed for the Chairman of the BBC post
would be different from the requirements sought for the head of
the Public Service Broadcasting Commission. Both would be demanding
positions and attract a significant amount of media attention,
but the former would require someone with considerable management
experience at board level of a large public or private sector
organisation whereas the latter would be likely to require a person
who had come from a regulatory background.
Composition of the PSBC
313. The Commission would consist of a small number
of Commissioners. They would be non-executive and be of the type,
experience and skills that would be expected in a role of public
interest oversight of a broadcasting/communications sector. The
Commission would be supported by a small administrative staff
and professional advisers (as it would be scrutinising, rather
than shadowing, the working of the BBC, it is likely that the
Commission would be a smaller and less expensive body than the
Trust). The Government, following best practice on public appointments,
would appoint the Commissioners, including the chairman of the
314. The PSBC would be a separate entity to Ofcom
but it would have close ties to the main regulator. We believe
it will be important that there is a distinction in approach between
the BBC and the commercial public service broadcasters given the
need to scrutinise the amount of public money spent by the BBC
and to evaluate the Corporation's success in achieving its remit
across all its services. However, the PSBC could be established
on a similar footing to Ofcom's Content Board where it has its
own Chair, board and identity. We see the Commission's staff coming
from similar backgrounds to those in Ofcom, rather than from the
BBC, and perhaps being seconded from the main regulator.
315. The following table illustrates our preferred
division of roles for the oversight of the BBC.
Oversight of BBC performance
The BBC Board would be responsible for:
· Promoting the success of the BBC by directing and supervising its affairs.
· Determining and setting the BBC's strategic aims, ensuring that the necessary financial and human resources were in place for the BBC to meet its objectives and reviewing management performance.
· Deciding and delivering the BBC output in line with its funding allocation and borrowing limits and public purposes.
· Defining adequate systems to define and maintain editorial standards, ensuring value for money and dealing with complaints in the first instance.
· Defining the BBC values and standards and ensuring they were met.
· Maintain the BBC's editorial independence.
· Conduct regulation of the BBC's commercial activities in respect of competition and fair trading.
· Conduct market impact assessments (for the PSBC) on the BBC's proposals for new services or closure of existing services.
· Oversee quotas for: hours of news and currents affairs programming, regional programming, original production and regional production.
· Carry out periodic PSB reviews for the whole PSB sector.
· Carry out content regulation of the BBC and be the final arbiter of complaints about BBC content, including matters of impartiality and accuracy.
The Public Service Broadcasting Commission would be accountable to Parliament and Government. It would:
· Scrutinise the BBC's strategic plan and delivery against its objectives and public purpose remit.
· Represent licence fee/broadcasting levy payers views and consult and engagement with them on BBC services.
· Review and report on BBC service remits.
· Initiate public value tests of BBC services and review proposals for new services and closures.
· Recommend to Government and Parliament the overall level of the licence fee.
· Advise on the allocation of the licence fee between the BBC and others.
The NAO would:
· Have unfettered access to the BBC in carrying out value for money investigations.
316. We would envisage the PSBC having a significant power in
its scrutiny over the BBC in a comparable way to that of select
committees and their scrutiny of Government. The power of publicity
should allow the PSBC to draw attention to matters of concern
or to recommend alternative options that needed to be explored.
We would see the PSBC working in conjunction with Parliament in
a way similar to that of regulators such as Ofcom. The establishment
of a PSBC would not negate the BBC's production of annual reports
to Parliament and its accountability to Committees such as ours.
317. Clearly, our model for oversight of the BBC represents a
departure from Lords Burns' panel's recommendation in 2005. Whilst
we consider the BBC must have ability to manage its affairs, Charter
Review would need to give careful consideration over what ex
post sanctions and backstop powers might be necessary, in
extremis, for the PSBC vis-à-vis the BBC. We note that
in the case of S4C, the Trust has a backstop power, that as a
last resort, it has the ability to reduce or withdraw funding
from the broadcaster should it be in dispute over a breach of
the operating agreement between the two bodies. A similar power
could be at the disposal of the PSBC in the case of its oversight
of the BBC. As we have stated, we would envisage the BBC being
in a position of advising on the level of the BBC's future funding
as well as managing a fund which would be allocated on contestable
basis for certain PSB content and genres to which the BBC would
be a potential recipient. Such control and facilities would afford
the Commission certain influence over the BBC and others and encourage
adherence to its directions and recommendations. We have set out
a comparison showing the Trust, Lord Burns' and our own proposed
models for oversight of the BBC as annex A below.
318. We recommend
that the BBC should have a unitary board with a non-executive
Chair, on which the Director General and executive and non-executive
directors sit, where the Board has complete responsibility for
the BBC's corporate governance and operations. The Board should
comprise a majority of non-executive members.
319. We recommend
that the non-executive Chair of the BBC Board be known as the
BBC Chairman. The Board should have the power to hire and fire
the Director General in line with the advice of a nomination committee
of the BBC Board.
320. We believe
that a Public Service Broadcasting Commission should take on the
role of scrutinising the BBC's strategic plan, assessing its overall
performance, making recommendations to the BBC in line with its
assessments, and advising Government and Parliament on the BBC's
and other PSB funding requirements.
321. We recommend
that the non-executive Chairman of the Board be appointed under
the same process that currently operates for the Chairman of the
BBC Trust. That is to say a process led by Government, overseen
by the Commissioner for Public Appointments and subject to a pre-appointment
hearing of our Committee. A similar process should be run for
the Chair of the Public Service Broadcasting Commission.
322. The Public
Service Broadcasting Commission will need to engender a much more
direct and meaningful engagement with licence fee/broadcasting
levy payers than its predecessor on BBC services and PSB more
generally including through web technologies and social media.
Beyond 2016, we would expect the PSBC to commission research on
viewers' and listeners' attitudes, willingness to pay, and for
greater independent and critical assessment of the BBC's services
than has happened before.
323. We recommend
that as an ultimate sanction, the PSBC should have at its disposal
a backstop power where it could recommend withholding some funding
from the BBC in cases where there was a persistent disregard for
the views of licence fee (broadcasting levy) payers as represented
through PSBC recommendations on BBC services and activities. We
consider the PSBC would have influence over the BBC by virtue
of its role in advising on the level of the BBC's future funding
requirement as well as through managing a contestable fund for
certain PSB content and genres. The independent panel should consider
the design and scale of an appropriate sanction mechanism.
324. We recognise
that very careful consideration must be given in the Charter Review
process as to where some of the functions of the unitary BBC Board
and the external regulator/public interest oversight body best
sit. We recommend that the independent panel consider which elements
of BBC oversight and governance should be exclusively in the unitary
board and which ones must be transferred to the external, oversight
body in its role of providing independent scrutiny of the BBC.
Ensuring value for money
325. The National Audit Office has been conducting
value for money examinations at the BBC for a number of years,
both on behalf the BBC Trust and, before it, the BBC Governors.
Unlike its reports on central government, these examinations are
not performed under the statutory powers but are provided for
by a framework agreement between the Secretary of State for Culture,
Media and Sport and the BBC.
326. The coalition's programme for Government included
a commitment to "give the NAO full access to the BBC's accounts
to ensure transparency" by November 2011. In a letter to
the then Secretary of State in September 2010, Amyas Morse, Comptroller
and Auditor General, set out what the NAO needed in order to be
able to do an effective job on behalf of Parliament examining
value for money at the BBC.
He said that the NAO needed:
ability to decide on its programme of value for money work;
access to information held by the BBC; and
ability to report independently to Parliament.
327. Amyas Morse went on to say that the NAO's value
for money work would be strengthened if it were to become the
auditor of the BBC's accounts. He said the case for the NAO to
audit the BBC's accounts stood on its own merits as the BBC's
funding was the only significant block of money voted by Parliament
that was not audited by the Comptroller and Auditor General. However,
the CAG made it quite clear that just as the NAO did not question
the merits of government policy objectives, it should not question
the BBC's editorial judgements.
328. In a further letter to the Secretary of State
in October 2010, Amyas Morse said that he was disappointed that
it remained the Government's view that any NAO reports should
reach Parliament via the BBC Trust and the Secretary of State.
This meant that the CAG could not control the timing of publication.
This raises the possibility that the BBC Trust or the Secretary
of State could redact material or indeed not publish the report
under the current arrangements. It also meant that the BBC, unlike
other organisations, responded to the issues raised by any reports
before they had been considered in Parliament.
329. Four years later, the CAG had still not obtained
the access to the BBC he believed the NAO required and on occasions
his officers still encountered lengthy delays in their requests
The CAG pointed out that, although the situation had improved
in recent years, in certain situations the BBC could still be
I would still say that I think it is possible,
particularly in difficult areas, to find that the BBC does not
provide evidence where, in their judgment, it is covered by commercial
and confidentiality grounds or, indeed, information privilege
grounds, privacy grounds. While those are in themselves not invalid,
you get the sense of how widely those principles are being applied,
and I have never seen them more widely applied.
Sir Amyas Morse told us that he continued to want
statutory access to the BBC for his work. This could be achieved
by either specifying the NAO's right of access to the BBC in the
BBC's Charter and Framework Agreement or by making the NAO the
BBC's official auditor. Sir Amyas explained:
There are various ways that could be achieved,
but I would like to have statutory access rather than access by
agreement. A lot of things I have talked to you about, which are
less obstructions than they used to be but still potentially there
and actually there in some cases, [they] would not be there if
I had a statutory right to do the work. So, for whatever means
that I could get that, that would really transform our ability
to do our work properly.
330. As it stands, Sajid Javid, the Secretary of
State, told us that he considered NAO access to the BBC was an
important issue that should be looked at but the current arrangements
could not change without going through the Charter review process.
In our view, given the BBC's willingness to compete and compare
and benchmark its costs in a more transparent way we see no reason
for maintaining restrictions on the NAO access to the BBC accounts.
As the BBC is looking to move its production operation to a more
commercial footing there is an even greater need for opening up
the BBC to NAO value-for-money investigations where there is a
culture of openness and co-operation.
We recommend that the BBC Charter and Framework Agreement are
amended to allow the NAO to have statutory access to the BBC accounts.
Clearly, if the BBC Trust is no longer in existence the process
for publishing the NAO reports on the BBC will need to be revised.
We see no strong reason why the NAO should not adopt the same
publishing regime for the BBC as it has in place for its reports
on Government departments and agencies.
Regulation of BBC content
331. The regulation of the BBC, and the roles for
Ofcom and the BBC Trust, are currently set out in the Communications
Act 2003 and in the BBC Charter and the BBC Agreement. Ofcom sets
the Broadcasting Code for the whole broadcasting industry and
the Code's rules apply to the BBC's public services, except for
matters of impartiality and accuracy. The exclusion of 'impartiality
and accuracy' from Ofcom's remit for the BBC is not set in the
BBC Charter or the 2003 Communications Act but in the Framework
Agreement between the BBC and the Secretary of State.
Ofcom's Code applies to the BBC in the following areas:
of inciting crime or disorder;
approach to religious content;
of use of images of very brief duration; and
332. Currently, the Trust approves the BBC's Editorial
Guidelines against which the BBC must operate and judges the BBC's
delivery against them. The BBC Editorial Guidelines provide the
way in which BBC should meet Ofcom codes but are more demanding
in terms of the standards expected. Where the Trust finds BBC
content in breach of the Guidelines it can sanction (but not fine)
the BBC and can ask for an 'on-air apology'. The public can complain
to Ofcom about BBC editorial matters if they wish, except in relation
to impartiality and accuracy. Ultimately, where Ofcom considers
that its Code has been breached "seriously, deliberately,
repeatedly, or recklessly", it can impose sanctions, which
range from a requirement to broadcast a correction or statement
of a finding to a fine of no more than £250,000.
333. Clearly, at the very heart of the BBC is its
role as an impartial news provider. In carrying out this function,
it is essential that the BBC has complete freedom from any political
or commercial pressures. The Trust has been positioned to defend
and protect the BBC's independence, a role that we see passing
to a new BBC Board and BBC Chairman.
334. Our inquiry did not examine the way complaints
about BBC's output are handled in any depth but a significant
amount of correspondence that we receive as a Committee relates
to the BBC and its output and also the way complaints are handled
by the BBC and the Trust. Given the importance of the BBC's impartiality,
it is nearly always the case that it is inappropriate for us to
intervene in individual cases. Nevertheless, a common theme we
have noted is that members of the public who believe they have
reason to complain are often dissatisfied that their complaint
or point of view has not been considered independently. For many
the BBC Trust is essentially part of the BBC and as such the Corporation
is seen as a self-regulating body and there is great dissatisfaction
that there is no option for an impartial adjudication of a complaint
about the BBC by an independent body.
Number of editorial and general complaints in 2013/14
· The BBC received 192,459 editorial and general complaints: of which 485 went on to the BBC's Editorial Complaints Unit (the second tier of the BBC's complaints process) and 277 of these complainants appealed to the Trust for a third-tier review.
· Ofcom dealt with 12,774 complaints (6,337 cases) about broadcasting standards. Of these 11,732 complaints (6,804 cases) did not require further investigation or fell outside Ofcom's remit: 1,012 complaints (253 cases) raised substantial issues that warranted further investigation.
Source: BBC Annual Report and Account 2013/14 and Ofcom Annual Report 2013/14
335. Richard Hooper and Philip Graf, both former Deputy Chairmen
at Ofcom and former chairs of the Ofcom Content Board, told us
that they favoured all content regulation of the BBC transferring
from the BBC Trust to Ofcom. Mr Hooper believed that if this were
to happen, it would have the effect of strengthening the BBC's
independence. He explained:
I think it is in the BBC's interests for [responsibility for
all content regulation] to move to Ofcom because when the right-wing
press say the BBC is full of lefties and the BBC Trust has to
adjudicate that, there is always a difficulty because you have
the Mandy Rice-Davies issue of, "They would say that, wouldn't
they?" Whereas if you give it to Ofcom
on whether the BBC is full of lefties would have some independent
Ed Richards, former Chief Executive of Ofcom, believed that it
was a "red herring" that the Trust was somehow more
independent of Government than Ofcom:
I regard this as a complete red herring and a poor argument,
and let me tell you why. The essential point of interaction between
the Government and Ofcom is the appointment of the chairman. The
Government appoints the chairman, exactly the same as is the case
with the BBC Trust. That is the primary point of interaction.
After that, the BBC Trust's independence is secured through the
Royal Charter but even in that territory, as we know from the
post-Leveson debate, there are plenty of people who feel that
that model itself is prone to and could be subject to political
manipulation. In [Ofcom's] case, our independence is secured not
only through primary legislation here but also our independence
is legally protected in European law
I can tell you from
very personal experience there has not been a single occasion
in which we have been subject to inappropriate political pressure
in relation to what we are talking about here, which is broadcasting,
by a Minister of the Conservatives, the Labour Party or the Liberal
Democrats. I think that is because there is a very widespread
and accepted understanding that those things should be dealt with
completely independently by the independent regulator, and that
has been the case.
336. If Ofcom were to take on all final complaints on BBC contentthose
that appealed the BBC Board's decisionit would be important
that there was a level playing field in respect of its investigations.
We believe that Ofcom's Content Board would need to be given extra
resources commensurate with this new responsibility. The BBC would
continue to consider all complaints in the first instance, and
attempt to resolve matters internally. The final level of review
within the BBC would be to the BBC Board but in most cases such
appeals would be delegated to an editorial complaints unit, as
is the case now.
337. We recommend
that Ofcom become the final arbiter of complaints over BBC content
including matters concerning impartiality and accuracy, but that
complaints should be considered by the BBC in the first instance.
Ofcom should be given additional resources for taking on this
role which are commensurate with the responsibility and estimated
workload. We believe this transfer of responsibility will, if
anything, strengthen the independence of the BBC, and also make
the complaints process simpler, and appear more transparent and
338. S4C is a public service broadcaster, established
by statute, which provides a Welsh language television channel
both within Wales and across the UK. The Secretary of State for
Culture, Media and Sport has a statutory duty to ensure sufficient
funding for S4C. Under the terms of the licence fee settlement
of October 2010, responsibility for the majority of S4C funding
transferred from the DCMS to the BBC Trust through the licence
fee. From 1 April 2013, 90% of S4C's funding (£76 million)
derived from the licence fee with 8% (£6.787 million) maintained
by DCMS until March 2016. The DCMS contribution for 2016-17 is
not yet known. The remaining 2% comes from commercial income.
S4C values highly the duality of its funding, and see it as helping
secure its independence. The statutory duty to ensure sufficient
funding for S4C is now enshrined in section 31 of the Public Bodies
339. S4C maintains editorial, operational and managerial
independence. It is overseen by the S4C Authority. In 2011, the
BBC Trust and S4C Authority agreed a governance and accountability
position in respect of S4C. The agreement lasts for the period
up to the end of the current BBC Charter and is intended to ensure
the editorial and managerial independence of the S4C service.
It states that the BBC Trust will undertake and publish an annual
performance assessment of S4C, measuring performance against the
terms of an operating agreement. There is, in extremis,
the ability of the BBC Trust to reduce or withdraw funding from
S4C if the terms of the operating agreement are not being met.
340. Ian Jones, Chief Executive of S4C, told us that
the status of the S4C Authority as an independent statutory corporation
should not be adversely affected or undermined by the granting
of a new Royal Charter to the BBC.
We agree. We recommend that
the Trust's current oversight of S4C's licence fee funding passes
to the Public Service Broadcasting Commission in 2017 should the
majority of S4C's income continue to come through the licence
fee (or a new broadcasting levy). It will be important that S4C
remains independent operationally and managerially over its affairs
and editorially over its content.
333 Oral evidence take before
the Culture, Media and Sport Committee on 22 October 2013, Q1,
HC 730-i Back
Committee of Public Accounts, Thirty-Third Report of Session
2013-14, BBC severance packages, HC 476, para 7 Back
Staff of the Trust Unit support the Chairman and Trustees in
their work by providing independent advice and administrative
support. The Trust Unit is made up of the Director and five teams
and currently employs about 70 staff. In 2013/14, direct Trust
expenditure was £9.3 million and it paid a further £2.7
million to Ofcom in regulatory fees. Back
See: Oral Evidence taken before the Committee of Public Accounts
on 9 September 2013, Severance payments and wider benefits
for senior BBC managers, HC 476-ii, Qq277-302 and Qq360-64
Further advice from the Independent Panel, Letter from the Lord
Burns to Rt Hon. Tessa Jowell MP, Secretary of State for Culture,
Media and Sport, dated 27 January 2005 Back
Lord Burn's independent panel's preferred option was called Ofbeeb.
See: paras 334-340 Back
Sir Howard Davies, writing on "Need for clarity at the Corporation
for who is responsible for what", in "Is the BBC in
Crisis?", published in 2014 by Abramis academic publishing.
Q116 (Greg Dyke) Back
Q199 (Greg Dyke) Back
Q277 (Professor Barnett) Back
Review of BBC Governance, BBC Trust, July 2011 Back
Review of BBC Internal Governance, a joint review by the
BBC Trust and the Executive Board, December 2013 Back
Howard Davies, writing on "Need for clarity at the Corporation
on who is responsible for what", in "Is the BBC in Crisis?",
published in 2014, Abramis academic publishing Back
Lord Hall was Deputy Chair of Channel 4 between 2012 to March
Article 10 of the BBC Charter states that the Chairman of the
Trust may also be known as Chairman of the BBC, although in view
of Article 8 this is an honorary title, as the members of the
BBC (all the members of the BBC Trust and the Executive Board)
"will never act as a single corporate body, but only as members
of the Trust or Board to which they belong." Back
Q285 (Lord Burns) Back
Lord Burns (Q284); Professor Beckett (FBB0022), para 4.2; Lord
Birt, (Q145); BSkyB (Qq388-89); Channel 4 (FBB0067); Commercial
Broadcasters Association (Qq389 & 396); Greg Dyke (Q199);
David Elstein (FBB0104); Global Radio (Q169); Philip Graf (Q296);
Richard Hooper (Q285); Lis Howell (Q277); ITV plc (Q346); KM Group
(Qq192 & 226); Newspaper Society (Qq225 & 227); National
Union of Journalists (FBB0079), para 35; RadioCentre (FBB0086),
para 15. Back
Oral evidence taken before the Culture, Media and Sport Committee
on 25 April 2013, HC1099-I, Q10 Back
See page 127 Back
See NAO website: Letter from CAG to the Secretary of State for Culture, Media and Sport, 17 September 2010 Back
See NAO website: Letter from CAG to the Secretary of State for Culture, Media and Sport. 22 October 2010 Back
Cm 6872, Schedule 46 (2)(b) Back
Ofcom (FBB0085), para 3.27 Back
Individual complaints received by Ofcom are assigned cases. A
case is opened when Ofcom is assessing a specific programme or
issue and may consist of one or more complaints. Back
Q285 (Richard Hooper) Back