Tuesday 12 July 2005
Check against delivery
Ladies and Gentlemen, we're here today to launch this year's BBC Annual
I'm going to say a few words to outline some of the major themes from
the report. The Director-General, Mark Thompson, will then join me,
and we'll be happy to take your questions.
I shall split my remarks into two areas:
First, the governance and organisational changes of the last year;
And second, the performance of programmes and services provided by
the BBC in return for the licence fee during the year under review.
May I remind you of the key commitments we made when we launched our
agenda for change - Building public value - 12 months ago.
I said then that the BBC's task over the next year was to explain
to the British public why the BBC's role in the new digital age of plenty
is both justified and necessary.
But I also said that the BBC had to become more operationally efficient
to maximise its investment in programmes and services, and thus deliver
greater public value.
And I stressed that the licence fee places a duty on the BBC to provide
distinctiveness. Now, more than ever, the BBC must be the standard bearer
of quality in everything it does.
This year's Annual Report and Accounts demonstrates how the BBC is
beginning to deliver on those promises.
I also made clear a year ago that the BBC's system of governance had
to change. Since then, it has undergone the most radical reshaping in
the Corporation's 80-year history.
I would, of course, have preferred time for our changes to bed down
and to demonstrate their worth. But the timetable of the Charter review
process did not allow for this. Policy decisions had to be made before
our reforms had been completed.
In February this year the Government set out its decision to replace
the Board of Governors with a new BBC Trust. It creates a new twin-board
structure, with clear, newly-defined responsibilities, that builds on
the behavioural change we had begun to implement. The Board of Governors
is satisfied that this new Trust model meets all the objectives and
principles that we had identified at the outset of the public debate,
especially in maintaining the independence of the BBC.
Governance of the BBC is more than simple regulation, setting minimum
standards and quotas, and checking compliance after the event. Most
of the strictly regulatory functions in fact now rest with Ofcom. The
Trust will carry the much wider responsibility of ensuring best value
for licence fee payers, both in the range and quality of the BBC's services,
and the efficiency with which they are produced. The new model is appropriate
for these purposes.
The Government's decision offers clarity and certainty so we can move
ahead. These changes are also future-proofed. They will not evaporate
12 months after the start of the new Charter and no future board appointees
can undo them. They will be enshrined in protocols that ensure the Trustees
of the future remain focussed on representing the public interest and
that the BBC delivers its public service remit.
So what has been the impact of the changes we've already implemented?
The independence of Governors from management is key and the new Governance
Unit has transformed the relationship between the two, ensuring better
scrutiny and better outcomes.
The Governance Unit provides the Board with independent advice and
analysis, and calls upon independent outside expertise when necessary.
It is entirely outside the management chain so Governors are no longer
dependent on information from management to judge the performance of
This Annual Report is evidence of that. Let me give you some examples
from the last year.
The Governors commissioned an independent report on impartiality in
BBC coverage of the European Union. The report did not make easy reading
for BBC journalists. Nevertheless it was published, and in full. It
has led to changes in the way BBC journalists are trained and organised,
resulting, we expect, in better informed coverage of European affairs.
The Governance Unit also supported the Governors in scrutinising the
Director-General's internal reviews. Our advisers, together with external
experts - PA Consulting - provided the independent detailed analysis
we needed to reach an informed and objective decision about the value-for-money
recommendations. We recognised that the impact of our decision inside
the BBC would be profound and result in some tough choices for managers
and staff. We ultimately approved the plans because we concluded they
are in licence fee payers' interests.
This has also been a year of unprecedented external scrutiny of the
BBC. In addition to Charter Review we have had Graf on online; Gardam
on digital radio services; Barwise on digital television channels; the
National Audit Office; and Ofcom's public service broadcasting review.
There is no corner of the BBC into which powerful searchlights have
not been shone.
Responding to the resulting blizzard of reports has sometimes seemed
like the main business of the BBC rather than ensuring the provision
of good programmes for the public.
But accountability is crucial to maintaining public support. And there
is no escaping the fact that there is a cost attached to the fulfilment
of these responsibilities.
We have this year, for the first time, included an estimated annual
cost of complying with the many regulatory, statutory and legal requirements
that - for the most part - apply uniquely to the BBC. In 2004/05 this
amounted to £17 million, including a subscription of £4.7m to Ofcom.
One benefit of the new system of governance once it is fully in place
will be a reduction in the number of external reviews of the BBC and
Our new tools will include service licences; the public value test;
and the new measurement framework of reach, quality, impact and value,
which has today been endorsed by the NAO in a separate report we are
In next year's Annual Report, we will include a breakdown of costs
for the Governance Unit's first full year in operation. The total cost
of the Unit and that of its predecessor department in the year 2004/05
was £8.4 million.
And so to the finance report. I don't intend to go through it in detail
- but note that the BBC's net borrowings were down to £89m from £106m
last year and the actual positive cash balance at the year end was £12m
as against £3m last year.
The BBC remains on plan to reach a broadly zero debt position by the
end of this current Charter.
The commercial subsidiaries increased their contribution by £16m to
£151m and that of course does not include the receipts of £150m from
the sale of BBC Technology during the year.
Jeremy Peat, the Scottish National Governor and Chairman of the Governors'
Audit Committee, and Zarin Patel, the Group Finance Director, are here
to answer any questions on the accounts.
The Board has also overseen important changes to the BBC's accountability
mechanisms, with changes to complaints procedures to make them quicker,
more effective, and fairer.
The Governors are considering proposals for further changes to the
BBC's complaints handling processes, to make the appeal process even
more open and transparent. We will be consulting the public on these
Connection with licence-fee payers is now a key objective for the Governors.
Initiatives include a Governors' website, and next week, an annual general
meeting where we, the Governors, will be quizzed - rigorously I'm sure
- by members of the public. This openness to direct scrutiny is an important
and necessary feature of how the BBC is changing for the better.
Finally - before I move on to programmes - the remuneration report.
We are announcing today a package of reforms that represent a significant
change to the remuneration policy for executive directors at the BBC:
most notably, a reduction in executive bonus awards.
The BBC is different from commercial broadcasters. We do not and cannot
offer share options and long term incentives and other financial rewards
which are available to our private sector competitors.
The BBC is a public sector organisation with a guaranteed income,
so this is how it should be. The BBC's policy for all staff is to pay
basic salaries based on the market median of relevant private and public
sector organisations, including broadcasters, to ensure we attract and
retain the most talented people. The median, that is not the top of
the market range, nor the bottom.
The Governors have reviewed the policy for executive bonus awards.
We decided that the bonus opportunity will be reduced from 30 per cent
of base salary to ten per cent.
We concluded that it was important to retain some element of performance-related
bonus, but that 30 per cent was too high for a public sector organisation.
Some consolidation on base salary will take place but this will be
capped at ten per cent.
Our policy of offering salaries based on the market median will be
maintained. Adjustments will be made to accrued pension entitlements
to ensure the effect of consolidation is neutral.
The Governors' Remuneration Committee received independent professional
advice, from the specialist Hay Group in July last year, that there
had been a marked erosion of some executive base salaries below market
median and some adjustment was necessary to bring them in line with
We agreed a two-stage approach, the first of which is reflected in
the salaries disclosed in this annual report. The bonus awards for 2004/05
are in recognition of performance against set criteria. The Governors
accepted Mark Thompson's decision to waive his own bonus entitlement
So, as you can see, this has been twelve months of fundamental change
in the way the BBC operates.
All of these changes are driven by a single aim: to make the BBC more
responsive to the expectations of licence fee payers. This clear purpose
is driving our commitment to change.
So let me turn now to the BBC's programmes and services, with a quick
overview of the past year.
Let me start with BBC ONE - still for many people "The BBC." BBC ONE
has had a very good year. I'll repeat that to avoid any misunderstanding
- "BBC ONE has had a very good year"!
A lot of work has been done to understand its viewers' needs better.
The Governors have noted quality output of distinction across a wide
range of genres and a successful balance between high level public service
commitment and the appeal for large audiences. These are encouraging
But there are still areas where we - on behalf of licence fee payers
- want to see improvement: fewer repeats in peaktime, more quality comedy
and drama, and more innovation and risk taking.
None of this is new - you've heard Mark Thompson himself commit to
delivering these changes and explaining how the efficiency savings he
is implementing are designed to achieve them.
Management must be equally alert to licence fee payers' needs. The
Governors - and in future the Trustees - have a unique position of influence
inside the BBC and their responsibility must be to ensure management
delivers the outcomes that audiences will value.
Over on BBC TWO, last year saw some creative success and critical
acclaim for quality and originality of its programming. The role of
BBC TWO is to offer a more challenging mix than BBC ONE and, in particular,
offer a strong and distinctive factual core. This year it has made some
But there has been some cost in audience terms. The challenge now
is to improve reach, particularly to younger audiences and in multichannel
homes, without endangering BBC TWO's distinctiveness.
That challenge is not an easy one, but we know Roly Keating, the new
Controller of BBC TWO, is committed to meeting the task.
The digital television channels are making good progress, although
we need to keep working hard to ensure they deliver value for money
to the licence fee payer.
BBC Radio has had a strong year overall. But, there is no room for
complacency and we recognise our responsibility as Governors in ensuring
that BBC Radio continues to meet its public service remit.
As we make clear in the Annual Report, the Governors are aware of concerns
expressed by commercial networks, in particular about Radios 1 and 2.
The Governors are confident both are currently offering a service that
is distinctive from their commercial rivals.
Our new system of service licences will provide greater clarity on
what audiences - and the BBC's competitors - can expect from all the
BBC's services. It will enable our successors, the Trustees, to judge
performance transparently using consistent measures.
bbc.co.uk is a clear example of the BBC responding speedily to valid
concerns. In response to the Graf Report, the Governors changed the
remit so it properly reflects the BBC's public purposes; stronger direction
and tighter boundaries for the service are now in place; and some sites
have been closed as a result.
We have also required that future investment decisions must balance
the potential to create public value against the risk of negative impact
on the market.
Elsewhere in New Media there have been lots of new developments: the
re-launched Radio Player; the birth of podcasting; trials of iMP -the
interactive media player that holds the potential of allowing downloads
of television programmes; there has been good work in developing the
potential of interactivity - most particularly during the Athens Olympics.
News. It was a year of big and challenging stories and News responded
confidently. News has also responded positively to the Neil Report and,
as I've already mentioned, the Wilson report on BBC coverage of Europe.
Note that 80 per cent of the public trust BBC News. There were some
slips-ups too, but the BBC responded frankly and honestly and made sure
the lessons were learned.
I am happy to report that the Nations and Regions are enjoying growing
viewer and listener satisfaction. And the World Service is growing its
global reach. These areas are well covered in the annual report.
The combined weekly reach of all BBC television and radio was 92.9%.
This is unchanged from last year. There were variations - some services
up, some down - but in a rapidly changing media landscape, stable reach
overall is reassuring.
And online, bbc.co.uk continues to grow.
I have only given you a flavour of the BBC's performance over the last
year. Lots of good things. Not, by any means, perfect.
Over much of its history the BBC's Governors have acted primarily
as defenders of the Corporation as an institution. Yes, the public rightly
expects us to defend the independence of the BBC. But the Governors,
and in future the Trustees, cannot act as cheerleaders for the organisation,
right or wrong.
It is now crystal clear that our fiduciary responsibility is to represent
the interests of licence fee payers. Last year they each paid £121.
Our duty is to ensure that they are getting services they value, delivered
where and when they want them, and produced as efficiently as possible
in return for their annual investment.