UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 476-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

BBC SEVERANCE PACKAGES

WEDNESDAY 10 JULY 2013

LUCY ADAMS, LORD PATTEN OF BARNES, LORD HALL OF BIRKENHEAD and ANTHONY FRY

Evidence heard in Public

Questions 1 - 209

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Public Accounts Committee

on Wednesday 10 July 2013

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Guto Bebb

Chris Heaton-Harris

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Ian Swales

Justin Tomlinson

Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Peter Gray, Director, National Audit Officer and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

Examination of Witnesses

Witnesses: Lucy Adams, HR Director, BBC, Lord Patten of Barnes, Chairman, BBC Trust, Lord Hall of Birkenhead, Director General, BBC and Anthony Fry, BBC Trustee gave evidence.

Chair: Welcome to you all. I start by declaring an interest: I have a daughter who works for the BBC. Do any other Members have relatives who work there?

Mr Bacon: I should declare an interest, as my wife used to work for the BBC. I also once took a payment from the BBC when I took part in a general election rehearsal when I was a parliamentary candidate in Vauxhall. I succeeded in doubling my opponent’s majority, and I was paid £50.

Lord Patten of Barnes: I hope it was my election.

Q1 Chair: You were paid for doubling your opponent’s majority?

We have an awful lot to get through, so I would be immensely grateful to you all if you could be succinct in your answers; if I interrupt you, it is because I think that you are going away from the purpose of the question that has been asked. Thank you all for attending.

I will start with the Trust, so this is to you, Lord Patten. Did you know about all these severance payments to BBC staff?

Lord Patten of Barnes: We knew that severance payments were being made. We assumed, and were told regarding two specific cases-this was the only time, I think, when the director general talked to us about them-that they were being made on contractual terms. If I may say so, without contradicting what you have just suggested we should do, we asked for the Report because we were concerned about the overall size of severance payments, and wanted to see if we could reduce them, albeit that they were contractual. It was a question of shock and dismay for us to discover how many had been beyond contractual and had therefore been even higher than they needed to be.

Q2 Chair: It is the shock-the size of them and the fact that they are non-contractual-that is exercising the Committee and the public. I know that you strike a balance between your proper duties and those of the executive, but you have overall responsibility for value for money, and your constitutional duties include stewardship of the licence fee and upholding the public interest-we can agree on that. Do you feel that you failed in this regard properly to exercise your overview of the executive and, if so, why do you think that happened?

Lord Patten of Barnes: I do not think-you would probably expect me to give this answer-that this is a problem of the overall structure of governance at the BBC. I think that problems arose in the way that policies were delivered by the executive, but let me make a very obvious point at the outset: there is plainly a dilemma if you are responsible for value for money, but the charter, Ministers and White Papers make it absolutely clear that you are not responsible for running things.

Operationally or, on the other side of the sheet, editorially, the charter is absolutely explicit about where responsibility for executive pay, remuneration and numbers lies. Since 2007, and particularly since 2009, the Trust has been pressing for a reduction in pay overall at the BBC and of numbers of senior staff at the BBC. That has had some pretty good results, but at a price that was greater than should have been the case.

Q3 Chair: In your response to this particular NAO Report, you explicitly say that the executive should implement the recommendations of the NAO and that it should "report back to us on progress". So you do see a legitimate role on monitoring the implementation of a strategic policy set by the Trust, or set by the Trust in concert with the executive, as being part of your function.

Lord Patten of Barnes: Certainly, and I understand that, before I became chairman, there were five different meetings in 2009 between our remuneration committee, the Trust and the BBC about the implementation of the policy on pay. There were three meetings in each of the following years, so we have had a continuous dialogue with the executive about the implementation of the policy. We have had regular presentations of figures that have shown what purported to be value-for-money studies of each stage of the redundancy and severance programmes.

As I said earlier, there was one case involving two of the people who are covered in case studies. The then director general contacted the Trust about two people who were being made redundant under "contractual terms", as it said in his letter. I totally agree with the findings of the NAO on both those cases, which seems to me to be clear and helpful to the Committee, and helpful to us.

Q4 Chair: So you think that you should have known. I completely understand that those within contractual obligations are an executive decision but, where they exceed contractual obligations, should the Trust have known?

Lord Patten of Barnes: Yes, and if you call a previous director general of the BBC in due course, I will be as interested as you in why we didn’t know.

Q5 Fiona Mactaggart: Did you think to ask any questions on those memos when they said "in contractual terms"?

Lord Patten of Barnes: I am not trying to cop out of answering the question, but the two cases that I am talking about were before I became chairman of the Trust.

Q6 Fiona Mactaggart: Perhaps Mr Fry should answer.

Anthony Fry: I would be happy to. Those cases were put to us. We were assured that they were within contractual terms. We were told that they had been signed off in the proper fashion by the remuneration committee of the BBC executive board which, as you know, comprises solely non-executive directors.

Q7 Fiona Mactaggart: Actually, you got those notes before the remuneration committee signed them off.

Anthony Fry: Absolutely, and specifically we were told about them for information, because it was recognised in those notes that we had no power to intervene. It was a matter for the executive remuneration committee, made up of a set of non-executive directors from outside the BBC, and we were assured that they had signed them off as being appropriate payments.

Q8 Chair: This is a very simple thing. The note of 7 October 2010 refers to Mark Byford, and you are told that it is within contractual obligations. You are then told at the end that he has to stay for another eight months because there are critical functions that he must deal with and there is no one better placed to advise on the design of a failsafe new system, so there is a further four months to do that. You know all that from reading this letter. You also know, because you were told, that he was going to get a year’s pay in lieu of notice, although the decision to part company with him was made at this time.

I cannot understand why you did not spot it, Mr Fry. I cannot understand. This is the third time that you have been before us and, with the greatest respect-you are a very credible witness-you come and excuse yourself on Entwistle, you come and excuse yourself on the DMI, and you are going to come and excuse yourself today on these things. One begins to wonder: what on earth have you been doing? Why haven’t you picked up these outrageous-to us and to the general public-wastes of licence fee payers’ money?

Anthony Fry: Without going into ancient history, it is fair to say that I did not come to excuse myself on Entwistle; I came to tell you how we had reached the conclusion that we had reached-

Q9 Chair: No, you always come and say, "This is terrible; I am really sorry."

Anthony Fry: To be fair, on George Entwistle, I did not come and say, "This is terrible; I am very sorry." I said to you, "I am coming here to explain to you why we reached the decision we took on that particular evening and that weekend," which is very different. In regard to this particular case-

Chair: With respect, that was not how you said it, but we will let that go.

Q10 Fiona Mactaggart: You said: "Did I feel good about it? Absolutely not. Do I feel good about it now? No."

Anthony Fry: But, if I may say, I did finish by saying that it was still the right decision to take. There is a difference between, "Do I feel good about spending large amounts of licence fee payers’ money? Absolutely not"-I made that consistently clear to the Committee-and whether I would take the same decision if I was asked to do it again, to which the answer is yes.

Going back to the question you asked in regard to October 2010, The Trust has no locus in regard to setting remuneration for people other than the director general. That is the fact. We were informed, and we were informed on two bases: first, "This is within contractual terms," and, secondly, "It has been approved by the body that is designated to approve remuneration."

Q11 Chair: Did you look at the details?

Anthony Fry: We are not in a position, as the Trust, to examine the individual details of the executive remuneration. There is nothing we can do about it. We are not authorised under the role-

Q12 Chair: Did you look? I am just asking a monitoring question.

Anthony Fry: We did not look. If you are asking me whether I read the contractual letter that passed between Mr Byford and the BBC, no, I did not.

Q13 Fiona Mactaggart: But the problem is that article 33(7) of the charter says that the "strategy" for executive payment that the remuneration committee has to fulfil must be "approved by the Trust".

Anthony Fry: The strategy does.

Q14 Fiona Mactaggart: So you approve the strategy, but I think what you are trying to suggest to us is that you do not have any responsibility for making sure that the strategy that you agree is carried out. We find that hard to believe. We think that if you approve a strategy, you have to make sure that it happens.

Anthony Fry: Okay. I actually think there is a difference. The BBC executive was under considerable pressure from the Trust, for a period of nearly two years, to address the fundamental issue of the number of senior managers and the total cost of the payroll. The papers that were presented to us in regard to the strategy going forward, when we got to 2009, therefore looked at the planned reduction in the total number of senior managers, the total costs involved in making those reductions and the impact of that on the overall finances of the BBC.

The NAO Report makes it very clear that, in strategic terms, that direction of travel was implemented and represented in terms of the reduction in the number of mangers, and was an appropriate strategy to be adopted. You may be asking me, as a strategic body, whether you then go down into the individual weeds. If the numbers that you are getting collectively add up to the numbers that you have approved in terms of the overall strategy document, I do not believe that that is the job of the strategic authority. Indeed, I think we are specifically barred-and should be-from getting involved, not least because one of the reasons this was set up under the royal charter was to exclude the governing body of the BBC from the sort of detailed involvement that had been around during the time of the governors, which was why the remuneration was extracted-

Chair: It is one thing to be involved in decisions; doing monitoring is another thing. I would suggest that monitoring to protect the interests of the licence fee payer-exercising proper oversight-did not occur.

Q15 Mr Bacon: I don’t understand how you can comply. Ms Mactaggart mentioned article 33(7) of the charter. The second sentence states: "The terms on which such members are appointed"-executive members-"must be compatible with this requirement", which is the requirement of the remuneration committee to "determine the remuneration of executive members in accordance with a strategy approved by the Trust." How can you evaluate whether that has happened? How can you evaluate whether members are appointed in a way that is compatible with the requirement if you do not check?

Anthony Fry: Because, as you will be aware, if you are a member of the executive board of the BBC, your remuneration, and terms and conditions, will be set out clearly in the annual report of accounts, among other places.

Q16 Mr Bacon: You are just saying that putting it in an annual report of accounts means that you have fulfilled-

Anthony Fry: We, by definition, see the information that will go into the annual report of accounts. That is public information available to anyone sitting in this room and anyone sitting outside. Licence fee payers can see how much members of the executive board are paid in exactly the same way as you would in a public company. The responsibility for setting those terms and conditions, like with a public company, are set by the executive board remuneration committee comprising non-executive directors.

The questions about the terms and conditions, with respect, could as easily, and probably as appropriately, be directed to those non-executive directors as to members of the Trust. They are the people who are ultimately responsible and ultimately accountable.

Q17 Chair: Article 23(f) of the charter states that the BBC should observe the highest standards "of openness and transparency." If we look at the Mark Byford case, was it part of his contract that he take pay in lieu of holiday for seven years previously? Was it part of his contract that he got payment in lieu of notice when he was actually working for another eight months? Was that in his contract? Why was that not open? Why didn’t the Trust meet its obligations on public accountability and transparency? I think, Mr Fry, with the greatest respect, that you have failed.

Stephen Barclay: Could we just have an answer to that point? Were those two points within the contractual entitlement to Mr Byford?

Anthony Fry: I have not seen Mr Byford’s contract. I cannot comment on that.

Q18 Stephen Barclay: Did you ask the director general whether the payment to Mr Byford was on contractual terms?

Anthony Fry: Yes, and that was confirmed by the director general and by the executive remuneration committee.

Q19 Mr Bacon: Can you confirm which director general you are talking about?

Anthony Fry: Mr Thompson.

Q20 Chair: And who else worked with him, Ms Adams? Were you involved in that?

Lucy Adams: I was involved in that.

Q21 Chair: Why did you agree it outside the contract? Why did you write a letter? Presumably you were part of writing a letter that states these redundancies will take place on the basis of the terms set out in their contracts, and then proceeded to ignore it?

Lucy Adams: Mr Byford had a letter confirming that he would receive 12 months’ redundancy-

Q22 Chair: Everybody now accepts that you settled outside the terms of the contract. Why, in this letter that went to the BBC Trust, did you say that you did a settlement in the terms of the contract when you absolutely blatantly did not?

Lucy Adams: What we did was to provide Mark Byford with 12 months’ redundancy entitlement, which he was entitled to, and payment in lieu of notice.

Chair: But he worked for eight months.

Fiona Mactaggart: He got paid twice.

Q23 Mr Bacon: With respect, the question was: why did you allow a letter to go to the Trust saying that it was in accordance with the contractual terms?

Lucy Adams: Forgive me; I am not aware of the letter that went to the Trust. I did not actually write that letter. What I am trying to explain to you is that-

Q24 Mr Bacon: Who did?

Lucy Adams: I believe it was Mr Thompson who wrote that letter.

Mr Bacon: Mr Thompson wrote that letter. It is all coming back to Mr Thompson, isn’t it?

Lucy Adams: And this was an arrangement that was signed off by the executive remuneration committee chaired by Marcus Agius, with two other non-executives on it.

Q25 Mr Bacon: For HR matters, wouldn’t the director general have relied on you?

Lucy Adams: Yes.

Q26 Mr Bacon: Didn’t you have a hand in drafting the letter? How would Mr Thompson have known whether it was in contractual terms?

Lucy Adams: Can I just answer your question? In terms of actually providing the arrangement for Mr Byford to leave the organisation, I was involved in advising Mr Thompson. I don’t think, as the NAO pointed out, that it was acceptable for him to get such a large payment in lieu of notice. I am not trying to defend that; I am trying to explain that the situation at the time was that Mr Byford was aware of custom and practice with regard to other executives. We wanted to enable a smooth transition with minimum disruption. Mr Thompson was very keen that Mr Byford stayed on to cover the royal wedding and so on but, as the NAO pointed out, this was eight months’ notice that could have been avoided.

Q27 Chair: Ms Adams, are you telling us that you never saw the memo dated 7 October 2010? You never saw it?

Lucy Adams: I don’t believe so, but what I did do is provide-

Q28 Chair: You don’t believe so? Either you did or you didn’t.

Lucy Adams: I don’t believe so. I can’t say with absolute certainty.

Q29 Chair: I can’t believe, knowing how organisations work, that it didn’t go around as a draft and wasn’t shared with you, as director of HR. I find that incredibly difficult to believe. I don’t believe it.

Lucy Adams: But I did put forward advice on drafting the arrangement with Mr Byford that we put forward to the executive remuneration committee.

Chair: Okay. I’ve been hogging it. Stewart, then Austin, then Justin, then Fiona wants to come back.

Q30 Mr Jackson: The director general has written to us today, and it is an astonishing letter in many respects. It makes the point that poor procedures and a lack of central oversight took place in the period we are looking at. Particularly striking is the fourth paragraph on page 2: "This serves to underline that this was an institutional rather than an individual failing. It also demonstrates the need for more rigorous Executive oversight and simpler processes going forward." Lord Patten, I would like to ask you some questions relating to George Entwistle. Was George Entwistle your favourite candidate to become director general?

Lord Patten of Barnes: He was the unanimous choice of the Trust.

Q31 Mr Jackson: That is not an answer to my question. Was he your favourite for appointment to director general? Was he your preferred choice?

Lord Patten of Barnes: By the time we had interviewed all the other candidates, clearly. He was the unanimous choice.

Q32 Mr Jackson: How much did the BBC spend on consultants to obtain his eventual employment as director general?

Lord Patten of Barnes: We had two exercises. First, we had a trawl of who might be available in the marketplace, then we had a specific effort to secure candidates from outside as well as inside the BBC. As I recall-if I have got this figure wrong, I will correct it as soon as possible-we spent about £180,000 with Egon Zehnder.

Q33 Mr Jackson: For a candidate who was already potentially identified?

Lord Patten of Barnes: No, for one of scores who applied. He was one of four from inside the BBC who got to the shortlist, and one of eight from inside and outside the BBC who got to the shortlist.

Q34 Mr Jackson: Do you regret your decision to refuse the National Audit Office permission to audit the Entwistle pay-off at the time?

Lord Patten of Barnes: No.

Q35 Mr Jackson: Why not?

Lord Patten of Barnes: I will explain. The National Audit Office came to us. We thought that since Anthony Fry was appearing in front of this Committee, since I was appearing in front of the Select Committee on Culture, Media and Sport in the next couple of weeks, since we were going to make all the literature available to this Committee, which we duly did, it was better to ask the NAO to look at severance payments in general, including George Entwistle’s. They did that, and I think the report is excellent.

Q36 Mr Jackson: Did your decision in that respect have anything to do with the fact that-I think this is on the public record-at the time of Entwistle’s resignation, or just before, you had had a conversation with him about the rather tumultuous circumstances that led to his resignation. He asked you, it is alleged, whether he should resign as director general, and you said, "We are not urging you to go but we are not urging you to stay, either."

The importance of that, if it is true-I would like you to confirm whether it is true or not-is that he was then in a position to engage expensive lawyers to possibly move forward with a constructive dismissal case against the BBC as a direct result of your comments. Therefore, you are principally responsible for the fact that he was paid £25,000 extra for the 20 days that he did not work. That was money that should not have been paid out, and was certainly above any contractual obligation to Mr Entwistle.

Lord Patten of Barnes: I hope you won’t regard this as an unfair comment, but I find it difficult to follow the logic of that argument. Let me straight away confirm that I did have that conversation with him. Indeed, there were other trustees present. As I suspect Mr Fry has told this Committee, because I read all of his evidence on Entwistle, and as I certainly told the CMS Committee, we had that conversation during a teleconference call that we had with George Entwistle on the day that he left. I think that encapsulated the position in which we found ourselves with George Entwistle. I do not think that that conversation led to any expectation on his part that he would be able to proceed straight away to a constructive dismissal or unfair dismissal scenario with lawyers.

It is, of course, perfectly true that if we had not reached a compromise agreement, as the Baker-McKenzie letter which I gave to the Committee makes pretty clear, the likelihood is that we would have got landed with a constructive dismissal case, and with an unfair dismissal case, and would have fetched up paying more than in fact we had to pay him. Therefore, I do not think that those things follow.

The other issue about the £25,000 is a separate point on which I think Mr Fry has written to the Committee. We never hid from the Committee the fact that George Entwistle was paid until the end of November, although Mr Fry has said-and I accept this-that perhaps we should have been more explicit in drawing that to the attention of the Committee. On behalf of Mr Fry and myself, I want to apologise for the fact that we were not more explicit about the fact that the pay-off started from the end of November.

Q37 Mr Jackson: I think it reveals a casual disregard for public money. One could say that there was an element of disingenuous grandstanding here in that you resisted his request for £30,000 and yet you were not very clear about the £25,000 that you did pay him.

Lord Patten of Barnes: I think that you would agree, Mr Jackson, that we at no stage hid that fact from the Public Accounts Committee. I have said that we apologise that we were not more explicit in drawing it to the attention of the Public Accounts Committee. I would not suggest that the fact that the Public Accounts Committee or the NAO were surprised by the figure suggested that people had not done their homework and looked at the figures themselves. It was an oversight on our part in not making that figure explicit, and perhaps an oversight by others.

Q38 Mr Jackson: Lord Patten, you seem to be coping admirably with my logic in answering my questions very clearly. May I ask you about the £107,000 paid in legal and related costs as a result of being a Pollard review witness to George Entwistle. Do you think that was appropriate and good value for money?

Lord Patten of Barnes: What it represents is, first of all, the payment that was made to lawyers and secondly, the fact that HMRC regards such a payment, we understand, as a taxable benefit. I think, perfectly reasonably, we met the cost of that tax plus VAT. If I am asked whether I think that lawyers are well paid in this country, then the answer is yes. If we had done what some people suggested we should do and gone for a full-scale public inquiry led by a judge, I think that the lawyers’ fees would have been even higher.

Q39 Mr Jackson: That would be a compelling answer were it not for the fact that you have not published the full cost of the Pollard review. We cannot see within the context of how that £107,000 was spent or whether it was good value for money. That is a point that you have not actually answered.

Lord Patten of Barnes: I can be helpful. We will publish those figures in full in the annual report and accounts next Tuesday, and I can probably let the Committee have them before the end of this meeting if you would like.

Q40 Mr Jackson: Okay. Please do.

Two quick questions if I may. For doing 20 days work above his contractual obligations, Entwistle was paid more or less the equivalent of what one of my constituents earns as an average annual salary. What did he actually do in those 20 days? You said in your letter that the "few days between stepping down as director general and finishing his employment with the BBC enabled him to undertake these tasks." How many hours did he work?

Lord Patten of Barnes: Very little. We started the clock from the end of the month because we were worried that there might be issues during the period of handover to Tim Davie, who was acting director general. But the fact of the matter is that Tim Davie coped brilliantly on his own, and within 12 days we had appointed the next director general, Lord Hall, whose appointment was extremely well received, I think.

Q41 Mr Jackson: So he did not do anything?

Lord Patten of Barnes: As it happened, he was not required to do anything, but I thought it was-

Q42 Mr Jackson: So you paid the outgoing director general £25,000 of public money to sit on his backside and do nothing for 20 days, and you are quite happy that that is a satisfactory and appropriate use of licence payers’ funds?

Lord Patten of Barnes: I think that the whole package that we negotiated as a compromise agreement with George Entwistle was-I was not unaware that this was not going to be the most popular thing I have ever done in my life. I am not that naïve. But I thought-and as far as I know the legal advice has never, ever been challenged-that the alternative would have been more expensive and would have left a gap at the top of the BBC, which would have been extremely embarrassing and awkward.

Q43 Nick Smith: Have you asked for that money to be returned?

Lord Patten of Barnes: No.

Q44 Mr Jackson: My final question: are you going to seek a second term as chairman of the Trust?

Lord Patten of Barnes: So that I can enjoy appearing in front of the Public Accounts Committee more regularly? I have not even considered going beyond the next couple of years.

Q45 Austin Mitchell (Great Grimsby) (Lab): I want to ask Mr Fry about the point that the Chair initially raised. Today’s issue of Private Eye, which is a document I read almost as avidly as I read the National Audit Office’s Reports, says that you, Mr Fry, were there from 2008. You were billed, we are told, as having more than 20 years’ experience of advising companies and Government, both in the UK and internationally. The Trust approves the remuneration strategy for executive directors, and I make the further point that the Trust is there to manage relations between the wider public and the BBC. You must have had some idea of the stink that would be produced when it emerged that people such as Mark Byford were being paid a million quid to go. Why did you not raise this earlier? You raised it with the NAO, that is true, and we are grateful to you for that. But why did you not raise it earlier?

Anthony Fry: I think there are two separate issues. The first is the question of quantum, and the second is the question of process. I would like to separate them out. It is absolutely the case that from the time I joined the Trust I was in the vanguard of people within the Trust, and more importantly the executive board, arguing that the size of contractual obligations, including pay, was simply totally out of kilter with what the public and licence fee payers expected. It is fair to say that there were a series of particularly unpleasant discussions that took place with members of the remuneration committee of the Trust, including myself, and members of the executive remuneration committee-the non-executive directors. Frankly, not to put too fine a point on it, I thought they were completely out to lunch in regards to what they thought was acceptable pay in a public body. I make no bones about that. I was extremely vociferous.

The fact of the matter is that there are two separate issues. I thought that the level of pay-and remember that the new director general is paid nearly half of what Mr Thompson was being paid when I joined the Trust-in the public sector broadcaster was unreasonable. I was absolutely convinced that, regardless of whether or not these payments were in line with contract or outside of contract, these were numbers that were completely unacceptable to people outside of this room, and indeed in this room. I think huge moves have been made to reduce the scale of the salaries and the scale of payments. Now, that is one whole issue. If you ask me whether I expected that when people like Mr Byford and others left the BBC, the scale of payments they received would cause considerable public comment: absolutely. Did I expect to find out that in addition to what were already huge payments, payments above contractual obligations were paid on this sort of scale? No, I did not. Frankly, the BBC and the policy that was being adopted to reduce senior managers were already in the context of considerable pressure on the finances.

Q46 Chair: Did Mark Thompson lie to you?

Anthony Fry: That is a question that you would have to-

Q47 Chair: Did Mark Thompson lie to you?

Anthony Fry: All I can say is that on the basis of the information provided in the letter to the trust on 7 October, and the terms of that letter, which we have discussed earlier, and what emerged subsequently, there is some disconnect which has never been explained to me-

Q48 Chair: Did Mark Thompson lie to you, Mr Fry?

Anthony Fry: I can’t say he lied. I am just saying what I know happened and what I have seen in the letter.

Q49 Chair: Did he lie to you? We just want a straight answer because then we might begin to undercover-we are about responsibility and accountability. Did Mark Thompson lie to you or were you negligent?

Anthony Fry: I have a copy of the letter or note that came to the trust and I have the information in the National Audit Office Report. Those two do not connect.

Q50 Chair: So Mark Thompson lied to you?

Anthony Fry: I am not going to make a comment about whether somebody lied. That is a matter for you to address to him.

Q51 Stephen Barclay: But, Mr Fry, in essence your evidence has. Paragraph 3 of that letter dated 7 October 2010 says: "These redundancies"-the deputy director general-"will take place on the basis of the terms set out in their contracts". Your evidence says that they didn’t take place like that.

Anthony Fry: It is not my evidence. It is the National Audit Office evidence, with respect. It is not my evidence.

Q52 Stephen Barclay: Therefore what your evidence is saying is the Mr Thompson gave false information to the Trust. Ms Adam’s evidence is saying that he wrote this letter without even sharing the details with the head of HR. That suggests Mr Thompson was incompetent.

Anthony Fry: I suggest that when he comes in front of you, which I believe he has agreed to do-I don’t know, but I believe he has-I am sure that that and other matters will be among those you want to ask him about.

Q53 Chair: Let me just ask you another question. It is really frustrating. We get this a lot in a range of civil service departments. I don’t want to get it in relation to the BBC, which is an institution I really believe in. Lord Patten, you said in your evidence to the Culture, Media and Sport Committee, "I think that you can’t on the one hand argue the case for public service broadcasting, and the public paying for the BBC, and at the same time assert the ambition of BBC employees to be paid almost the same as if you were working for Barclays."

Lord Patten of Barnes: That went down well with the senior independent director of the BBC.

Q54 Chair: I was going to come to the ex-CEO of Barclays, Marcus Agius-sorry, chairman. He was the non-executive director who signed off not just the Byford settlement but all these excessive, over-the-top severance settlements. So is he culpable?

Lord Patten of Barnes: Well he was chairman of the committee that signed them off.

Q55 Chair: So is he culpable?

Lord Patten of Barnes: And before my time. My principal discussions with the non-executive directors of the BBC when I became chairman of the Trust were about the proposal I had to introduce the Will Hutton idea of capping the multiple of senior pay to median pay. I have to say that, initially, that went down like a cold rice pudding. But we made it stick and we also dealt, as the Committee knows, with the car allowance for new senior members and private health insurance and senior members. But those weren’t easy discussions. But the non-executive directors, who have all changed since then, eventually went along with what we were proposing.

Q56 Chair: Everybody has conveniently changed. I accept that. I have no doubt when we talk to Lord Hall we will want to talk a little bit more about those private health and car allowances. I am asking both of you direct questions because it would help us in trying to understand the story. These severance payments that the NAO looked at, in the sample of 60 they looked at a quarter were in excess of the contractual obligations. They were signed off by Marcus Agius, who I have never met. Was he therefore culpable? Who is accountable? Who is accountable to us? Who is accountable for the licence fee payers’ money?

Lord Patten of Barnes: Well, the non-executive directors should be publicly accountable to licence fee payers and to us. So if you are asking who was responsible for making these payments, the responsibility is for the senior members of the executive and for the executive remuneration board.

Q57 Stephen Barclay: But they weren’t signed off by the Trust, were they? I thought-

Anthony Fry: They were signed off by the executive remuneration committee, which has non-executives. They were the people who were responsible.

Chair: Which was chaired by Mr Agius.

Lord Patten of Barnes: Can I make one point now, which I promise not to make again and which I did not make at the outset? I have half an hour of quotes from charters, from White Papers, from the excellent speeches of the former Secretary of State, who decided on this system of governance, and from Select Committees about the role of the Trust, about how we should not be involved in remuneration and about how there must be no sharing of roles between the Trust and the executive. I will not go through all those, but there is a real issue about the distinction between oversight, and delivery and implementation. Maybe you can’t make it work.

Q58 Mr Bacon: The trouble with that, Lord Patten, is that the alternative of giving it to Ofcom is even more unpalatable, given its performance and ability to lard its own budgets and hide things. We have looked at it specifically. If that is not going to work, and this present arrangement is not going to work, what would you suggest?

Lord Patten of Barnes: Can I address that? I am sure there will be opportunities in a "post-chairman of the Trust" role for me to offer observations about the governance of the BBC. Clearly, a unitary board is not necessarily the answer, because it was the board of governors at the BBC that helped to produce the culture in which some of these huge payments were being made.

I think what is absolutely imperative is to have a chairman of the Trust and a director general who trust one another. I believe that I have that relationship with Tony Hall, who I think understands all these issues.

I also think that it may be that in the future, when Parliament looks at the terms of the charter, you need to look at whether there should be more involvement on the part of the strategic oversight body on issues such as senior executive pay. I do not think that you would want the Trust or the oversight body dealing with every issue of pay and remuneration, but maybe it should at least deal with the pay of the executive board.

Q59 Chair: But you did say when you came in that you would do a root-and-branch review of governance, didn’t you? Two years ago, you said that. I just wonder where on earth that had landed, or ended up.

Lord Patten of Barnes: It landed with trying to distinguish, among other things, between the role of the non-executive directors and the role of the Trust. I am extremely pleased with the relationship we have with Fiona Reynolds, the new senior independent director of the BBC, and her colleagues among the non-executive directors.

Q60 Chair: But you can’t build institutions just around personal relationships.

Lord Patten of Barnes: No, you can’t.

Q61 Chair: You have to have institutional structures that will survive beyond personalities.

Lord Patten of Barnes: Yes and no. I spent five years of my life in Brussels-

Chair: That’s even worse.

Lord Patten of Barnes: So I have a certain amount of belief in individuals, not just institutions.

Q62 Austin Mitchell: Thank you, Chair, for your intervention. I am afraid that, by asking my haymaker question, you have deprived me of the Paxperson award as the most persistent, populist prober on the PAC and relegated me to obscurity. Chris Patten has emphasised the importance of trust in the director general. The impression I would get from the correspondence of 7 October is that the Trust was not told the truth about contractual arrangements. Would that be your impression?

Lord Patten of Barnes: I would ask Sir Michael Lyons, if I were you.

May I remind the Committee of two other things, which have not come up in relation to that correspondence? The first is that the correspondence was triggered because the Trust’s endorsement is required not of the pay of the executive board, but of its structure. What the then director general was doing was proposing to drop two members of the executive board, which was why he wrote to the Trust. I am advised that, following that letter, the Trust contacted the director general to confirm that the executive board remuneration committee was happy with the figures, which apparently were included in the contractual terms. Those are both quite significant points in distinguishing between the role of the Trust and the role of the executive.

Q63 Austin Mitchell: Can I summarise it like this? The Trust had been put in a difficult position. An agreement had been reached with the Government in those five days in August for a cut in the licence fee and for the BBC to take on various other services. As part of that, the director general was under a duty and a responsibility-an inevitability-to fire a considerable proportion of the management staff, whether useful or useless. It was therefore a situation in which desperate and quick action had to be taken to get rid of managers, so everybody was prepared to sanction more than usually high payments-payments above the normal contractual arrangements-just to accomplish that as quickly as possible. The calculation was made that the savings in salary would more than outweigh the outgoings in compensation. Is that an accurate portrayal of the picture you faced?

Lord Patten of Barnes: Not entirely-actually, not. I think the issue is a bit more complicated than that. The Committee may want to look at bit more at the history, but I understand that when the Trust first insisted on 25% cuts in numbers of senior managers and pay, the executive came back with proposals that back-loaded the cuts in numbers and pay. I think that, in the Trust’s view, rather like years four and five in public spending rounds, the last years never come. I think I am right in saying that Tony Fry and his colleagues on the committee insisted that, far from being back-loaded, the figures should be front-loaded and that we should get on with this reduction.

It may be that in pursuing that, the executive thought, "The big game is to get the numbers down and to get the bill down," and it did that, in many respects admirably. However, the NAO Report shows that corners were cut in doing that, and that the whole process did not lead to as big savings as should have been achieved if people had simply stuck to contractual terms.

What worried us when we first asked the NAO to deal with this is that in light of my experience in dealing with the George Entwistle payment, and in view of the payment to his deputy director general, I was worried about the quantum size of pay, which Anthony mentioned earlier. We did not realise that when you looked at the quantum, you would come up with real and serious problems about the process and the extent to which the quantum had been increased unnecessarily in order to get people out of the door.

Q64 Austin Mitchell: Can I ask a final question which relates to historical experience? I am one of the few great television personalities of the 1970s who has not yet been arrested by the police. I have vivid memories of walking up and down a picket line outside Yorkshire Television with a sign that read "We demand parity with the BBC". Frankly, I am appalled by the scale of these payments. Some of these people have already got well-paid jobs, and yet they claim massive redundancies. Nearly a million quid went to Mark Byford. This discredits the licence fee, because we are facing a situation in which a lot of people-it is very high now, at 145 quid, or whatever it is.

Chair: You can take this as a comment, because we are going to come back to the-

Austin Mitchell: Some people are in prison for not paying it, and yet it is doled out through such massive sums-that is so many licence fees. Lord Patten, would you condemn the scale of these payments out of the licence fee to BBC executives?

Lord Patten of Barnes: Yes, and it is not only the licence fee payer who has been shocked by what has happened; it is people who work for the BBC and have been told for the past couple of years that they have not got money to make this or that programme that they want to make, and that they cannot get a pay rise for this year. Then they read this Report and see some of the payoffs that people were given. That is why I so strongly endorse the decisions that Tony Hall took from the outset, because it is terribly important for us to be aware of our responsibilities towards people who work within the organisation to demonstrate to them that it is not only efficiently run, but run with a sense of fairness.

Chair: We have to move on and ask Lucy Adams some questions. I have Justin, Fiona, Ian, Guto and Richard, and then we must move to Lucy after that.

Justin Tomlinson: I was going to lead into that.

Chair: Okay, I promise I will come back to you. Does anyone else have questions for the Trust?

Q65 Stephen Barclay: Can I just get something on the record? The payment to Byford was more than £1 million, if you include the payment for holiday from seven years earlier, so he was actually paid £1.22 million, not less than £1 million. Is that correct?

Anthony Fry: I do not have the figure in front of me, but perhaps we can send a note.

Q66 Fiona Mactaggart: I am still trying to nail the responsibility here. Mr Fry has said, "We didn’t have the power," and so on, but the issue that we really have to address is responsibility. We have heard it is possible that the director general did not tell the Trust the truth. We have heard that the approval of the detail of these settlements was through the remuneration committee, which was chaired by Marcus Agius. When he had to stand down from Barclays in July 2012, did it occur to you, Lord Patten, to ask him to stand down from the BBC at the same time?

Lord Patten of Barnes: He did stand down from the BBC-

Fiona Mactaggart: No, he continued-

Lord Patten of Barnes: Shortly afterwards.

Q67 Fiona Mactaggart: He continued until November. His term of office ran out in November. I have not heard that he stood down before the end of his term of office.

Lord Patten of Barnes: All right: he stood down four months afterwards. I think I am right in saying that we are consulted about the appointment of non-executive directors, but we do not decide who non-executive directors should be.

Q68 Fiona Mactaggart: That was exactly why I asked whether you thought to ask him. I understand that you probably did not have the power to sack him, but I am certain that someone in that role who was asked by the chairman to retire-

Lord Patten of Barnes: What I did do was to make it clear that we thought his successor should be somebody who had experience of working in the public sector and knew some of the pressures within the public sector on issues such as pay and overall expenditure.

Q69 Fiona Mactaggart: You suggested that the National Audit Office Report was a response to the Trust itself seeing a crisis, but wasn’t it actually a response, Mr Fry, to this Committee’s recommendation that that should be done? I don’t think you took the initiative; I think we were pushing you rather hard to take it, were we not?

Anthony Fry: I think the actual sequence of events was that after the George Entwistle resignation-whatever we want to call it-there was a discussion. At the time I came in front of this Committee, we discussed the role of the National Audit Office. I think we said that we would welcome this, but the reason we had suggested that there should not be a National Audit Office review of George Entwistle alone was that there should be a broad look at severance within the BBC, and that George Entwistle should be seen in that context.

Frankly, from my viewpoint, it does not really matter whether it was due to pressure from you, pressure from me or pressure from anyone else. The good thing, in my view, is that this is precisely what the National Audit Office should be doing. The Report is very helpful and I am delighted that the recommendations are going to be adopted in full by the executive.

Q70 Fiona Mactaggart: I think it provides for the future, but I am still looking at the issue of accountability. We have had you before us-since before I was on the Committee-telling us, "I’ll be hot on this issue." You must be a very worried organisation, because if you look at the NAO Report and your introduction to it, you talk about how the Trust is worried about these issues. You were worried in November 2012 in evidence to this Committee: "I am deeply worried and concerned, and I remain deeply worried and concerned." On the digital media issues, you have been very worried. We don’t want worry; we want clarity of action.

I accept Lord Patten’s suggestions that there are flaws in the construction of the royal charter, potentially, and I am happy to follow them up, but what were the initiatives taken by the Trust to ensure value for money in executive pay and redundancy?

Anthony Fry: If you read the National Audit Office Report, it absolutely confirms that the strategy set down by the Trust to reduce to the number of senior managers was the right thing to do and, of itself-

Chair: Nobody is arguing that.

Anthony Fry: The question is the scale of value for money. The idea that this whole programme ended up being a loss of value to the licence fee payer is simply the wrong characterisation. Could the licence fee payer have got more benefit? There is no question. The question you asked-

Q71 Chair: I am going to have to interrupt you because this issue is at the heart of our work. Value for money does not mean that you are spending less today than you were doing yesterday.

Anthony Fry: Absolutely right.

Chair: Value for money means that, in the actions you take, you get the best value for, in this case, the licence fee payers’ pound. The accusation that you face today is that, whether it is the executive or the Trust, there is a failure in the severance payments, as analysed by the NAO, in securing the best value for the licence fee payers’ pound.

Anthony Fry: And in the comments made by the Trust we have not disagreed with that.

On the broader question I have been asked about the position of the Trust and value for money generally, I would contest the accusation. If you take the totality of the Reports produced over the last five years-for some of that period I have been directly responsible to this Committee on value for money for licence fee payers, and on other times I have sat on the finance committee, the strategic accounts committee and the remuneration committee-I would argue that, as I have said before at this Committee, in an organisation of the size and scale of the BBC, you will not solve all the issues outstanding from the past in one go. The direction of travel, particularly around financial management, as demonstrated in the NAO Report last year on financial management, has been positive.

Is there more work to do? Of course there is. When I leave the Trust, the work will not stop; somebody else will be sitting in front of you. They will bring up issues and you will be dissatisfied with stuff. You are doing your job and I believe that the Trust is doing its job. If you look at the condition of the BBC today across a whole raft of areas, it is massively improved from the position that existed even five years ago.

Q72 Fiona Mactaggart: The issue before us today is the way in which executive severance pay was negotiated. It took the Trust more than six years to get a handle on that and, indeed, as far as I can see, it was not until the appointment of the new director general that a plan for the future was developed. It took this body to press the Trust to take action.

Your excuse that you have provided good value for money elsewhere is good-we welcome that and we are glad of that-but it sounds a little like some of those companies that we are concerned have not been paying their corporation tax telling us how much VAT and national insurance they pay. Frankly, we are glad of that, too, but at the moment we are looking at how you settle severance. We cannot understand why it took six years to get to a situation where there was proper oversight and grip on this issue. During that time, we were told that it was someone else’s fault. Have you got an answer to that?

Chair: And it does damage the reputation of the BBC.

Lord Patten of Barnes: Yes, of course it does. I am not going to go back on my promise to avoid reading chunks of the charter at you, but the charter is absolutely clear about what our responsibilities are. I come back to a background in which, before my time, the Trust, with Sir Michael Lyons, started the business of reducing numbers and pay. That was speeded up in 2009. We have continued to have success on that front, albeit-this is a very big albeit-still paying more than we should have paid to get severance of employees.

Q73 Justin Tomlinson: I have a few general things and then I will gently move it on because we need to drill a bit beneath the Trust board. Just so that I am absolutely clear in my mind, you are not meant to deal with things operationally, are you?

Lord Patten of Barnes: That is true.

Q74 Justin Tomlinson: But you rely on organisations such as the National Audit Office to do drilling for you.

Lord Patten of Barnes: And others.

Q75 Justin Tomlinson: Ms Mactaggart made a good point that perhaps six years to investigate this was probably a little too slow. But then who is responsible? The licence fee payers are in theory relying on you and would presume that you get access to everything. If you do not, because you get access to certain information only if a report is commissioned, we would then presume that we have full transparency, yet it is clear from point 13 that much of the severance pay comes under confidentiality clauses. We have the two case studies, but we cannot look at the others today and presumably you do not look at them because you are not involved operationally. Who holds to account the professional advice that you are given?

Lord Patten of Barnes: We got regular reports-Anthony may like to add to this-on the progress that was being made in reducing numbers and in reducing the overall pay bill. We did not get involved in individual cases except in those two incidents in 2010-Mark Byford and Sharon Baylay-because the executive board was being restructured. That is why we were involved on that occasion.

Q76 Justin Tomlinson: You keep referring back to the fact that things could have been done better, but that you were ahead of target in the grand scheme of things in terms of the savings that were set. Did that mean that you had your foot off the pedal and you did not need to keep pressing, because you had a busy board meeting, the pressure was on, you were keen to get home and there were other items on the agenda? This potential minefield was fine, because you were ahead of schedule. Is that what could have happened?

Anthony Fry: I think that is mischaracterising it. The Trust has been extraordinarily aware that of all the issues that could be regarded as toxic in the public service generally the question of pay is one of them. Lord Patten is right to highlight this. At one level, it was precisely the Trust insisting strategically that larger numbers were taken out earlier in the programme that actually caused some of these problems. I freely admit that. Do I think it was the right thing to do? Absolutely. Was I very worried about proposals that back-ended all of this to years four and five? Do I regret that? No. It is very difficult when you have a group of external people who are non-executive directors and run a committee, and who are directly responsible under the charter for doing that for the Trust. When you are assured that they are following policies and doing the right thing to achieve the strategic objective, there is a very difficult balance as to the extent to which you watch the watchers and spend your whole time revisiting all the work.

I will be absolutely honest with you. I would be delighted if you had the former director general in here actually to talk about this issue for the very simple reason that there were a number of occasions when-not to put too fine a point on it-people like me were asked in not particularly pleasant terms to get back into our box, because these were not matters that were appropriate for us to be dealing with under the royal charter. There is a very difficult balancing act when you are trying to achieve big strategic objectives. At some point, you have to believe that people are going to do what they say they are doing. You have to believe that.

Q77 Justin Tomlinson: I am just coming to that. Just to be clear, because you are not meant to be dealing with operational issues-I absolutely understand that, but there is a question mark as to whether there is a gap; but that is a debate for another day-why did you not object to getting involved with the Sharon Baylay and Mark Byford cases? Why did you not put your hand up and say, "This is operational"?

Anthony Fry: Because, as the chairman has already said, the only reason we were consulted was not the subject of the pay, but rather because it was a restructuring of the executive board. That is something that, in terms of the overall structure of the executive board, they were consulting about. There was a division about what they were consulting on, which was, "We are proposing to do this. Do you have a view?" and "This will have the following impact in value-for-money terms and this is what we will save over x amount of time."

Q78 Justin Tomlinson: Obviously, those things came forward and alarm bells rang, because, as you said, one of the things that you keep an eye on is severance pay and pay in general, as they are what the media are interested in. As you said, however, you are relying on the professional advice that you are given. We are hoping that Mark Thompson will come and answer some very serious questions on that. We accept all that, whether it was lies and you were hoodwinked or whether there were professional mistakes. This is where I begin to get worried.

Lucy, I will turn to you. Earlier, you said there was a debate about whether the letter said that everything was fine in terms of the contract terms. The Trust therefore would have ticked it off, although it might have thought, "That’s not very good, but those are the contract terms." You are saying you didn’t see that letter. What conversations did you have with Mark Thompson about the deal that was being done? Presumably, as the highly paid director of human resources who was ultimately responsible for making sure you were abiding by the legal contracts, you must have given advice.

Lucy Adams: We were having many conversations about the way in which we could reduce not just all senior managers, but the very highest level of senior managers. The restructuring of the journalism group that removing Mark Byford’s post presented was a real target for us. It enabled us to save about £1.37 million per annum, when you take into account the office-

Q79 Chair: Can you stick to the severance payments, Ms Adams? We are here to talk about the severance payments.

Lucy Adams: I understand that, Madam Chairman. I am just trying to explain the context.

Chair: We have a lot to get through, so it is much more helpful to stick to the issues.

Q80Justin Tomlinson: He would have come to you, and he would have said, "This is what I am proposing to do." You are highly paid, you have expertise, and you would have given professional advice about whether that was acceptable or not and whether it would have cause and effect. Did those conversations take place?

Lucy Adams: Yes, they did. The conversations went along the lines of saying that Mark was entitled to 12 months’ severance for redundancy. He had an expectation-I appreciate that is not the same as a contractual term-of a payment in lieu of notice of 12 months, because of the custom and practice with other executives. Mark Thompson was very keen.

Q81 Mr Bacon: Can you repeat that last bit? There was an expectation, not a contractual entitlement, that he would get 12 months in lieu of notice-is that what you said?

Lucy Adams: Yes, I did. There was very much a prevailing culture that payment in lieu of notice was an acceptable way of managing severance arrangements.

Q82 Mr Bacon: Even if they didn’t actually leave at that point, you could still give them pay in lieu of notice?

Lucy Adams: There was custom and practice at that time to suggest that that was a good approach.

Q83 Chair: Custom and practice that you, as head of HR, had some responsibility for.

Lucy Adams: Yes, I absolutely accept that my role was to challenge and-

Q84 Justin Tomlinson: That is the point. To what extent did you challenge that? It was not in the contract, so what was your advice?

Lucy Adams: My advice was that the important thing was to get Mark Byford out of the organisation. He had 31 years’ service. We wanted to take the benefit of the restructuring as early as possible. In conversations with Mark Thompson, he was very keen that Mark stayed to deliver the royal wedding and the restructuring of the journalism board. What I was trying to do was to find a way, with Mark, to enable a negotiated settlement with Mark Byford to enable him to leave with minimum disruption, and to deliver the savings as quickly as possible.

Q85Chair: Did he threaten to take you to a tribunal?

Lucy Adams: No.

Chair: So it wasn’t much of a negotiation.

Q86 Justin Tomlinson: Your professional advice was that it was acceptable to go outside the contractual terms?

Lucy Adams: My advice was that he would be entitled to 12 months’ contractual entitlement for redundancy, that there was custom and practice around payment in lieu of notice, and although it was uncomfortable, there was custom and practice to suggest that this could be acceptable.

Q87 Justin Tomlinson: So you were supportive of what Mark Thompson ultimately did?

Lucy Adams: What I was supportive of was getting Mark Byford out of the organisation after 31 years’ service to enable us to take advantage of the savings.

Q88 Justin Tomlinson: Yes, but you could have done that within the contract terms. You were happy to go beyond the contract terms. It wasn’t that you were saying to Mark Thompson, "Don’t do that"-

Lucy Adams: Sorry to interrupt. I absolutely accept that looking at that deal with hindsight, there were eight months that we could have asked Mark to work.

Q89 Justin Tomlinson: Putting that to one side, why were you so busy that you were happy to delegate anything up to £500,000 of severance pay, and allow people who do not have your expertise to make the final decision on them being signed off. You are paid a considerable sum of money, and you have expertise. Why was it acceptable that people without your expertise and knowledge were in a position to sign off severance payments of up to £500,000? The Trust, as was made clear, were relying on professional advice. You are the most professional person in this area, and it was delegated. Why did that happen?

Lucy Adams: If I could, I will explain the way in which restructuring and redundancy cases are approved within the BBC. Up to £250,000 can be approved at a local level-a head of department, a head of finance and a head of HR. Up to £500,000 requires not just myself to sign it off, but the CFO as well. Anything over that goes to the finance committee. One thing that the NAO has highlighted-it is an absolutely valid criticism-is that the level of delegated authority was too high.

Q90 Justin Tomlinson: Did you not think that was the case before the recommendations? Presumably, with your professional knowledge, you would have been uncomfortable that people were making serious legal decisions and negotiations of sorts without necessarily passing your desk.

Lucy Adams: It is a valid criticism that the NAO makes: in the finance committee approval and the financial approval process for restructuring and redundancy, there was too much delegated authority.

Q91 Mr Jackson: Why didn’t you seek legal advice? Did you seek legal advice on this particular case?

Lucy Adams: On Mark Byford?

Mr Jackson: Yes.

Lucy Adams: We obviously discussed it with the in-house lawyers at the BBC. They provide advice about what we are contractually entitled to pay. As I said, there was an eight-month period in which Mark Byford was paid in lieu of notice when he could have been working. I accept that.

Q92 Mr Jackson: In what other organisation in the public or private sector does the director of human resources sanction double redundancies for senior officials as "custom and practice"? Do you not think it was a dereliction of your duty on value for money? You used the word "challenge". You did not challenge at all. You did not even sign it off. There is no audit trail, as far as the evidence shows, between you and Mark Thompson. That was £500,000 in public money. Don’t you think that is pretty appalling? Given that you will have had a hand in suspending the chief technology officer over DMI, don’t you think you should consider your own position?

Lucy Adams: In terms of the answer to your first question on whether I should have challenged harder and whether it is acceptable for an HR director to go along with custom and practice, there is something around going into an organisation where you have to take into account the way that things have been done-

Q93 Mr Jackson: No, that is HR flim-flam. That is not the issue. I am asking you specifically: you are in a position, as a responsible person, to challenge a culture when it is not in the best interests of taxpayers. You did not challenge it. You ticked a box, passed it on to someone else and allowed someone to take twice what they were contractually entitled to receive in public money. That is a serious issue.

Q94 Justin Tomlinson: I wanted your answer to be: "With my professional advice, I advised Mark Thompson that this was the incorrect way to do it. That is why I was paid that money, but ultimately it was his decision. He would have come to that hearing." It seems you were every bit as much in agreement as he was.

Lucy Adams: If I can come to the question about challenging, over the last four years that I have been at the BBC, I have tried incredibly hard to reduce the amount of money spent on senior managers. Over 30% reductions have been made, in terms of both salary and senior management numbers. I have also been involved in leading a raft of changes around the removal of cars, removal of private health care for new joiners, taking away pension supplements for senior people, and putting in place pay freezes for executives and senior managers.

Mr Jackson: Yes, but you have also-

Lucy Adams: Let me finish the question-

Q95Mr Jackson: No, let me jump in there. You have also overseen giving a departing manager £49,000 for training and IT equipment to improve their individual skills and career prospects on leaving the organisation, and an agreement to buy another person at least £60,000 in consultancy services from the departing manager over two years at a daily rate of £1,000. If this was any other organisation, that would be called corporate fraud and cronyism, and you presided over it.

Lucy Adams: I would also say, going back to the level of challenge that I provided to the prevailing culture, that I proposed to the management board in 2011 that a redundancy cap be put in place. I was well aware that this was unsustainable. What I tried to do was balance the need to exit long-serving senior managers, who often did not want to leave the BBC, in a way that meant that we were able to expedite it as quickly as possible and ensure that we were taking £19 million in savings year on year in senior management salaries.

Q96 Chair: Ms Adams, you keep coming back to that. I am sure you have done lots of good things. You are paid a lot of money; you are paid over £300,000 as an executive of the BBC. The thing that really sticks in our gullet is that in all these cases-25% according to the sample from NAO-you paid over the contractual commitment. We can cut it all sorts of ways. In the three years since you have been responsible, there have been 150 senior managers and £25 million. I think I am right in saying that is half the budget of Radio 4. It is two thirds of the budget of Radio 1. It is a heck of a lot of money that you have allowed to go out of the door, which could have been used to produce good public service broadcasting.

Lucy Adams: In the vast majority of those cases in the £25 million they were being paid, admittedly significant, amounts of money based on their contractual entitlement. In a number of cases-

Q97 Chair: No, you went above that. The contract was lousy; we know that. But what is particularly galling is that you went above that. We can’t understand why you went above it. Mark Thompson will come and he will give evidence. We might even have Mr Agius come and give evidence, too. What I cannot understand from you, with all of your experience-you were at Eversheds beforehand so you have not come out of an easy organisation-is why you did not just put your foot down? You are head of HR.

Lucy Adams: I think the overwhelming focus was to get numbers out of the door as quickly as possible to save-

Q98 Chair: But it is public money. It is the licence fee payer’s money. It is not your money; it is our money.

Lucy Adams: I understand that, Madam Chairman. I accept, as the BBC has accepted, many of the criticisms in the NAO Report that too often we were too generous.

Q99 Stephen Barclay: If I could go to a specific thing that builds on what the Chair is saying. I take you to page 26, paragraph 2.12, of the Report: "A severance payment of £219,000, which was £141,000 more than the individual was entitled to." Did you regard that payment as value for money?

Lucy Adams: I was unaware of that particular payment until I saw the Report. The other comments about lack of oversight that the director general has made in a letter today are absolutely valid.

Q100 Mr Bacon: If you were not aware of it, who authorised it?

Lucy Adams: In this instance, it was authorised within the governance rules of the time by the head of department, the head of HR and the head of finance. I am not trying to defend the payment; I am merely trying to explain the decision making behind it.

Q101 Stephen Barclay: As the person at the head of the function, were you concerned that the people approving these pay-offs beyond contractual terms were in some instances themselves benefiting from pay-offs beyond contractual terms?

Lucy Adams: Sorry, could you repeat that question, please?

Q102 Stephen Barclay: Were you concerned that the people approving payments beyond contractual terms then benefited themselves from payments beyond contractual terms? That is a policy issue that would apply to the head of function.

Lucy Adams: Clearly, there were members of the management board who were subsequently made redundant, who due to their level of seniority were approving payments.

Q103 Stephen Barclay: Were you aware of that instance? Were you aware that people approving these themselves were benefiting subsequently from beyond contractual term payments? Were you aware of that?

Lucy Adams: I am not sure what you are suggesting.

Q104 Stephen Barclay: I am saying that there were 40 people involved in signing these off. You say in your evidence, to take the first one, that someone was paid £141,000 more than they were entitled to, but you were not aware of it.

Lucy Adams: Are you suggesting that the person involved in signing that payment off, then benefited from a payment in the future? That is not the case.

Q105 Stephen Barclay: No. I am asking whether there were conflicts of interests in people approving payments when they themselves subsequently benefited from such payments.

Lucy Adams: I understand. Obviously, in any situation and any governance structure, the individuals making decisions at a senior level may at some future point be made redundant. I don’t honestly believe that people would be making those kinds of payment with an eye to their own future.

Q106 Stephen Barclay: That sounds rather naive. To be clear, you were aware that people who had approved beyond contractual payments were then going forward themselves for consideration for payments beyond contractual entitlement, and you raised no objection to that.

Lucy Adams: Because of the way in which the organisation restructures at the BBC have taken place, there are senior individuals who have left the organisation who at some point have approved payments, but not at the point where they were negotiating for themselves, but they negotiated them to let others go.

Q107 Stephen Barclay: Did you approve the Roly Keating payment?

Lucy Adams: Yes, I did.

Q108 Stephen Barclay: You did. Why did you think that was value for money?

Lucy Adams: I was approached by Roly after a conversation he had had with Mark, when he had been talking to the British Library about another job. He asked me whether he would be considered for another, bigger role at the BBC, and in my view I did not think that was going to be the case. He then explained that the role that he was being asked to consider at the British Library was going to be on a considerably lower sum than the salary he was on at the BBC, and he asked whether there would be an opportunity to get a severance arrangement or a deal.

What I did, and I consulted with my line manager at the time, Caroline Thomson, was to go through a simple equation, which was that if we were to make Roly redundant-and he was on a list of roles that I had identified as a real possibility-we would be paying him £500,000 redundancy, plus £125,000 in terms of his notice, plus the salary to get us to the point where he was leaving.

Q109 Chair: Why? He had got a job to go to.

Lucy Adams: What I am saying, Madam Chairman, is that if he stayed in the organisation, because I knew that we were potentially making him redundant-

Chair: Yes, but he had a job. He had a job offer. He could have gone off on a job offer, like normal people do.

Q110 Stephen Barclay: Can we stick to the payment of contractual terms? Could you explain why he was paid-

Chair: He should not have had anything.

Stephen Barclay: Indeed, and the fact that he was signed by Caroline Thomson-and uniquely, the BBC then said that the chief operating officer role was not necessary, and therefore she could get a payment. But that is a side issue. Could we be quite specific? Could you explain, please, why, in your professional judgment, it was value for money to pay Roly Keating beyond his contractual term?

Lucy Adams: Because I believed that if we did not pay him the money to go, he would stay. We would then be making him redundant, and in fact his role was then closed 12 months later, and therefore it would cost us, in addition to what I had paid him, a further £550,000.

Q111 Ian Swales: Lucy, could I stay with you please? You have been at the Trust four years, I believe.

Lucy Adams: At the BBC.

Ian Swales: Sorry-a Freudian slip. You have been at the BBC four years. The letter we have received today from Lord Hall, who has been very patient today, contains a sentence saying: "…I believe the BBC lost its way on this issue in recent years. Poor procedures and a lack of central oversight helped to create a climate where the wrong culture was allowed to flourish." That is today’s view from the director general. You have been head of HR for all those recent years. What is your response to that accusation, in a sense? You have been responsible for all HR processes in that time. How do you react to that accusation? I want to talk about the system issue.

Lucy Adams: Yes, certainly. The way I react to it is to say that I think it is a valid criticism. I think that we have, as an organisation, made a number of decisions which were not in the best interests of the licence fee payer. That, in part, was due to lack of central oversight-about divisional directors having too great a level of autonomy. As the letter goes on to say, there were over 40 people involved in making decisions over the last few years, and therefore this is more of an institutional than an individual failure.

Q112 Ian Swales: But you are head of HR. In that four years, have you at any point suggested that this should be changed-that a new structure or set of authorisations should be put in place?

Lucy Adams: No, I haven’t individually suggested that there should be a new governance process for finance arrangements. The governance and process around financial controls rests with the CFO. We have made a number of changes, so compromise deals over £75,000 came to me in many instances-admittedly, not in all. But what I was mostly focused on was reducing the amount spent on senior management pay, and also proposing a change to introducing a cap some time before.

Q113 Ian Swales: I can understand that you have changed the compromise agreements-we have not spoken about those yet. Are you saying that at no point in the last four years, other than compromise agreements, did you suggest to any of your executives-you are in charge of HR-that there should be a better process for authorising severance? You have never suggested that.

Lucy Adams: Only more recently from January, insofar as I proposed to the senior management remuneration committee that we look at severance deals over £150k.

Q114 Ian Swales: And even at that level, the NAO are saying that it is too high. Do you accept that?

Lucy Adams: Sorry, I beg your pardon.

Q115 Ian Swales: Even at the new level that you agreed in January, the suggestion from the NAO is that that figure is too high.

Lucy Adams: That is something that Tony, as new director general-

Q116 Ian Swales: Do you accept it? I am talking to you as the head of the HR function. Do you accept that?

Lucy Adams: I think it is really important that we have senior managers who are able to make decisions within their own organisations, within their divisions, but we have to balance that with a greater level of scrutiny, so the new-

Chair: Ian, the NAO have not suggested that it is too high.

Q117 Ian Swales: Apologies. I withdraw that. I think the problem that we all have with this, both us in this Committee and the public, is that the taxpayer’s pound that you spend is the same as the taxpayer’s pound that anybody else spends. You are paid more than twice as much as the Prime Minister. In the civil service, the Chief Secretary to the Treasury is now signing off all salary deals-not severance deals, salary deals-of £150,000 or more. Do you think that some sort of culture like that should take place in your organisation?

Lucy Adams: That is what we have introduced. We introduced a senior management remuneration committee, with a non-executive, chaired by Tony, to look at salaries-anything over £150,000.

Q118 Ian Swales: What benchmarking are you doing, again from your professional point of view, on the type of contracts that you are giving people, and the severance arrangements that are contractual? Indeed, what benchmarking are you doing on levels of pay? You have just given an example where somebody’s alternative employment was on a lot lower pay, and I do not believe for a minute that those 450 senior managers would walk out of the door tomorrow if a lot of them were paid quite a lot less. How are you dealing with that issue?

Lucy Adams: On severance arrangements, we commissioned benchmarking from three different sources: Towers Watson, PwC and Deloitte. They indicated that our severance arrangements were roughly in line with the public sector but higher than the private sector. In terms of the benchmarking we do on salaries, which we have done for a number of years, we benchmark with a variety of different organisations because we cover so many different sectors, but obviously we benchmark executive directors to ensure that we continue to pay a discount against the market.

Q119 Ian Swales: Am I right in saying that in your business, most of the alternative arrangements people would have would be in the private sector? We get told, and it is true, that BBC people often go off to the private sector, so is your benchmarking with the private sector?

Lucy Adams: We benchmark on salaries against both the public sector and the private sector, but as you rightly point out, the vast majority of the people we employ tend to move between other media organisations and ourselves.

Q120 Ian Swales: Exactly. I think I am right in saying that your comment about the severance arrangements benchmarking was that they were in line with the public sector, but more generous than the private sector.

Lucy Adams: That is correct. That is, they were; we have obviously changed them as a result of that benchmarking.

Q121 Chair: Who’s we? Have you been told to by Lord Hall or is that your initiative?

Lucy Adams: No, this is something that was started before Lord Hall had arrived, before Tony arrived. This was started in September.

Q122 Ian Swales: Do you think the people who are now benchmarked against the private sector for pay also have similar severance arrangements to those they would have in the private sector?

Lucy Adams: Could you say the question again? I do apologise.

Q123 Ian Swales: If you are benchmarking one of your top executives against the private sector for their pay, are you also benchmarking their contractual arrangements around severance to the private sector?

Lucy Adams: Right, I understand. We ensure that our senior managers are paid less than their commercial counterparts. We have a clear discounting policy.

Q124 Chair: Out of interest, which FTSE 100 pays over £300,000 for their HR director?

Lucy Adams: I can assure you, Madam Chairman, that the vast majority of HR directors are earning significantly more, once you add in their bonus and their incentive schemes. I took a significant drop to come to the BBC.

Q125 Chair: Most FTSE 100?

Lucy Adams: Absolutely.

Q126 Ian Swales: Finally, I refer to figure 9, on page 24. We are now talking about a system that you are claiming has changed, but that figure really brings up the evidence that of 150 cases, 62 were paid on contract and 17 under contract for various reasons. There was a total of 71, so almost half were being paid above contract. A little block highlighted by the NAO at the bottom shows that people were being paid very large sums of money, who had actually only been with the organisation, if I read rightly, from one to four years approximately. When you see that scatter of data, what is your response as head of HR?

Lucy Adams: Of the 71 who got more than the standard redundancy, 60 of those were as a result of receiving payment in lieu of notice. Payment in lieu of notice is not necessarily in itself a bad thing; it is just a different way of paying notice.

Q127 Chair: It is. It is a fiddle to get more money. It was a fiddle to give them more money. For heaven’s sake. It was the easy way of getting them out. We know from the people we have had here that they worked on and they still got their year’s payment in lieu. It was a fiddle to increase the amount of money people walked out of the door with.

Lucy Adams: In 14 of those cases, they had time to work their notice, and they should have been asked to work their notice.

Chair: Out of 60?

Lucy Adams: Out of 60. In the majority of the other cases, payment in lieu of notice can actually be a cheaper way of doing it.

Q128 Chair: Can? Was?

Lucy Adams: You don’t know whether they are going to get another job, so you are making an up-front payment as opposed to keeping them on the payroll.

Q129 Ian Swales: Of the people who left, how many were leaving the BBC on a Friday and starting another job on the Monday-to put it in perhaps exaggerated terms? In other words, how many people went straight to another job after leaving the BBC?

Lucy Adams: I do not have the level of detail for all of the 150. Clearly, in a number of the higher profile cases, there were people who were going to get another job. People getting another job who are not getting payment in lieu of notice, but who are getting their redundancy entitlement, is not something wrong. You are obliged to pay that, whether they get another job or not.

Q130 Chair: As I understand it, in the compromise agreement is a clause saying that you have not got another job. Isn’t that right? You are the HR expert. It is my understanding, from talking to an HR lawyer, that most compromise agreements have a clause in them, whereby the employee says, "I haven’t got another job."

Lucy Adams: It depends on the nature of the compromise agreement, but some do.

Q131 Chair: If that was in the clause, why did they get the extra money and walk into another job? Whether it was Loughrey, whether it was Keating or whether it was John Smith, they all walked into other jobs.

Lucy Adams: The compromise arrangements that we had with those individuals did not prevent them from getting another job.

Q132 Chair: Did you have a clause that said, "You must not have another job"?

Lucy Adams: No.

Q133 Ian Swales: Exactly. That is what enrages the public. Let us accept the fact that they might be due redundancy payments, but your earlier example showed the idea of people receiving money in lieu of notice and then actually working in another job during the period when, in effect, they are still being paid by the BBC. Why should people not be enraged by that?

I am guessing that some of those people were actually making career moves, going to higher paid jobs. They had the kind of conversation you referred to earlier, and you paid them to go in order to manage the numbers. In both those cases, the general public are right to be enraged if a large amount of public money has headed to those individuals. Am I right in saying that you have examples of both cases? There are people being paid money in lieu of notice, who have actually started another job during that notice period, and people who have effectively made a career move, perhaps to a private sector media organisation, and who you have paid off, and they may have been negotiating that new job in advance of your agreeing the figure with them.

Lucy Adams: We certainly have an example where people will have got another job at the point when they were being made redundant. We have an instance when somebody got payment in lieu of notice and then was successful in getting another job in that period of time.

Q134 Ian Swales: Do you ask for the money back? If you give somebody pay in lieu of notice of six months, and they end up in another job in three months, do you get any money back from them?

Lucy Adams: No, we have no legal ability to do that. You are paying them their notice period, but you are choosing to pay it in one lump sum.

Q135 Ian Swales: But if you give somebody a notice period, it means that they work until the end of the notice. They should surely not be allowed to start another job in that period without some financial redress.

Lucy Adams: No, a payment in lieu of notice is a full and final settlement, which means that they walk away, having had their notice paid up front. You have no means of recourse.

Ian Swales: That is why we are here.

Q136 Guto Bebb: Going back to the £25 million, which the Chair referred to, the reason why that figure is important is that it reflects the licence fee payments of 172,000 households, so we are talking about a significant sum of money. You made the point that the vast majority will have been in line with contracts, but to bring you to another example, in paragraph 2.12 on page 27, the payment for a senior executive who was working on a part-time basis was calculated on the basis of a full-time equivalent. According to the BBC, the individual in question had recently agreed to become a full-time member of staff, so the payment was calculated on the basis of that person working full-time. In other words, the person never worked full-time and always worked part-time, but when it came to working out their redundancy payments, the payment was made on a full-time basis. How can that be justified?

Lucy Adams: Again, I am not seeking to justify it; I am seeking to explain how-

Q137 Guto Bebb: But the decision was made, so it should be justified. The difference between what that person should have received, which was £145,000, and what that person did receive, which was £233,000, is £88,000. I bring it back to licence fee payments. That represents 607 households paying for a discretionary payment that was not necessary according to the contractual agreement that that individual had. You need to justify it.

Lucy Adams: I go back to what I said earlier: in each of these negotiated settlements, severance arrangements were arrived at with a view to moving the individual out of the door and getting the savings as quickly as possible.

Q138 Guto Bebb: If the aim was to get that person out of the job, why had that person recently agreed to work on a full-time basis? If the aim was to move them out of the organisation quickly, that does not correspond with the BBC explanation that they had recently agreed that that person would work on a full-time basis. It does not stack up.

Lucy Adams: Because obviously a drive to restructure followed swiftly after the agreement for the individual to move from working four days a week to working five days a week.

Q139 Guto Bebb: The other thing I wanted to say was that Lord Patten referred to the fact that these figures have not only horrified the licence fee payer, but many members of staff within the BBC. The £5.3 million paid to 10 executives is equivalent to 50% of the cuts being demanded of BBC Wales over a five-year period. That is the scale of the BBC’s generosity towards senior members of staff.

On the part-time issue and going back to the issue of us and them, why did you not follow the redundancy and reorganisation policy of the BBC? If you are working at floor level in the BBC in Cardiff on £40,000 a year and you work on a part-time basis, your compensation would be calculated on the basis of that policy. Yet if you happen to be a senior executive and are able to have a cosy chat with the HR director, it would appear that you get a better deal. Is that acceptable in terms of the morale of BBC staff?

Lucy Adams: No, I fully accept that the payment in this instance was too generous. All I can say is that they were a highly litigious individual and the decision and the negotiated settlement was to avoid future legal claims and to create minimum disruption.

Q140 Guto Bebb: But if the contractual position said £145,000, surely you must be confident that any legal action would have failed.

Lucy Adams: No, because clearly there are cases where people can take action over unfair selection for redundancy. In this case, it was a choice between two individuals and it was very possible that we would be open to a legal challenge.

Q141 Guto Bebb: On the basis of this advice, if any member of the BBC staff in Wales facing redundancy as a result of BBC cuts engages a lawyer, they will get a better deal.

Lucy Adams: This individual did not engage a lawyer. They were a highly litigious individual who understood the law themselves. I go back to the fact that I am not seeking to defend and justify all these payments. What I am trying to do is to explain that decisions were made with a view to saving huge amounts of money and getting individual managers out of the door.

Q142 Guto Bebb: The key thing is that you do need to justify the figures in question, because this is public money. There is a great deal of concern that we have two situations here: we have public money being wasted without justification, but just as seriously, we have a situation in which it appears that some people who are able to talk to senior management in London get a far better deal than other members of BBC staff in other parts of the country. That is a huge issue for the morale of the organisation.

Q143 Nick Smith: Mr Fry, earlier when you gave evidence you used a phrase that I found deeply troubling. You said-I think you referred to the former director general-that you were told to get back in your box. What was that about, did you resolve the matter and did you report it to Lord Patten?

Anthony Fry: This predates Lord Patten. I think it was actually almost my first remuneration committee, where I think the former director general took the view that I had not read my royal charter quite closely enough and therefore realised that some of my prior experience of what I thought remuneration committees were there to do was outwith my responsibilities as a member of the Trust.

Q144 Nick Smith: How was the matter that you were disagreeing over resolved?

Anthony Fry: If I am absolutely honest with you, I cannot even remember what the matter was. I suspect that it was to do with aspects of executive remuneration on a generic basis-the scale of pay and so forth.

By the time I joined the Trust, which was 2008, the question of pay generally within the public sector was becoming a very live issue in the aftermath of the financial crisis. I freely admit that I think the BBC Trust was way ahead of many other bodies in recognising that the question of pay in the public sector was going to become a very big issue. I think at that time we were urging the director general that he should take immediate action in regard to the scale of salaries at the executive board level, because we felt it would be inevitable that over the coming years there would be massive pressure on the public sector.

I believe I have said in front of this Committee before that I very much regret that-I may have got the dates wrong on this-it took the BBC some further 18 months to take action with regard to senior pay. In my view, the BBC would have been much better had it taken that action when we were suggesting it should. I think it was on that issue.

Q145 Nick Smith: Lord Patten, you gave evidence earlier. I think most people out there in Ebbw Vale in Blaenau Gwent-in my constituency-would think that if you discover an obvious wrong, an open-and-shut case, how you respond is really quite important. It says something about you and it says something about the organisation. It is often the simple stories that tell a lot about what is going on. It was reported that Mr Entwistle received about £25,000 for 20 days’ work, and you said, "He didn’t do it, because his temporary replacement did the job." When I asked if you had asked for the money back, you said very simply, "No." I suppose the question is: why didn’t you ask for the money back?

Lord Patten of Barnes: As part of the compromise agreement with George Entwistle, it was accepted that if he broke the compromise agreement in any way, there was the possibility of us clawing back parts of the settlement. On two or three occasions, we consulted Baker and McKenzie about whether we had an entitlement to make any clawback, and on each occasion they said that we did not.

Q146 Nick Smith: That brings me to a wider point. Colleagues around the table today have outlined the eye-watering amounts of money that have been overpaid in many cases. Are you going to ask for any of that money back, or is it all just flowing down the river and gone?

Lord Patten of Barnes: What I am certainly not going to do is to risk asking to get money back, losing in court and fetching up paying more money from the licence fee payer than would have been the case otherwise.

Chair: There is nothing wrong in asking.

Nick Smith: Yes. Ask for your money back. If I think that I have been overcharged for something, I ask for the money back, and all of my constituents would do too.

Q147 Chair: One thinks of Pat Loughrey, Roly Keating and John Smith, for starters, all of whom went into jobs. It is all public money, and I just think that there is nothing wrong in asking. In fact, Roly Keating has given it back.

Lord Patten of Barnes: I am very pleased that Roly Keating has. The Roly Keating case happened since I have been chairman of the Trust. The other cases were before my time. I think other people with an appropriate sense of seemliness would see whether they should make a similar gesture.

Q148 Nick Smith: When you go back to the office tonight will you ask to get the money back?

Lord Patten of Barnes: I am not going to add to the answer I have just given which was not about George Entwistle. I explained that the information was not in relation to George Entwistle, but to other people.

Q149 Chair: Will you ask for the money, Lord Hall?

Lord Hall of Birkenhead: I think the onus of responsibility for these decisions-these payments-lies with the BBC. I am pleased that Roly Keating sent his money back. John Smith has sent some money back too. But we got this wrong. We were overpaying. The fault lies with us, the executive of the BBC.

Q150 Mr Bacon: I should like to ask Lucy Adams about case study 5. Could you turn to page 41? This is Sharon Baylay who was paid severance of £394,000. Do you think that this was value for money?

Lucy Adams: The saving of Sharon’s post very quickly meant that we recouped the money as part of the ongoing plan of annual savings. So I think it was the right decision to remove that post. I also think that, given that Sharon was pregnant and about to go on maternity leave, the fact that at the BBC, while it is not a legal necessity, it is custom and practice not to serve notice to pregnant women but to wait until the end of their maternity leave, and given that she was leaving at the same point as a male colleague who, as we have seen, was going to be receiving some fairly generous terms, it was the appropriate thing to do.

Q151 Mr Bacon: What is the answer to my question?

Lucy Adams: What I am saying is that it is a lot of money-

Mr Bacon: What I am really asking is what is the answer to my question.

Lucy Adams: I believe it was value for money rather than face a discriminatory claim for unfair selection of redundancy by a pregnant woman when a male colleague was in receipt of a significantly larger payment.

Q152 Mr Bacon: At the time it was decided that she was to leave, she had only worked for 17 months. She had only 17 months of continuous service, as the report says, " and so is not entitled to redundancy pay". That is correct, isn’t it?

Lucy Adams: That was correct.

Q153 Mr Bacon: Good. Okay, thank you. The next point is this: you have stated all along that the primary concern of all of this was to get people out of the door as quickly as possible. Correct? That was the primary concern: to get people out of the door as quickly as possible. I paraphrase, but that is what you said earlier, didn’t you?

Lucy Adams: What I said earlier was that my primary concern was to get people out as quickly as possible-

Q154 Mr Bacon: Yes, thank you. I thought that is what you said.

Lucy Adams: But with minimum disruption.

Q155 Mr Bacon: As she was at a point where she didn’t have a statutory right to redundancy pay because she only had 17 months’ continuous service, and your primary concern was to get people out of the door as quickly as possible, why was she then allowed to extend her stay at the BBC so that the proposed leaving date was eight months hence, taking her over the 24-month limit so that she became entitled to a significant sum of money to which she previously would not have been entitled at all? Why was that allowed if the primary concern had been to get her out of the door?

Lucy Adams: Because she was pregnant.

Q156 Mr Bacon: Right, so she then went on maternity leave.

Lucy Adams: That’s right. So we served notice at the point when her maternity leave finished.

Q157 Mr Bacon: It says in the report that she went on maternity leave just over a month later.

Lucy Adams: But she was pregnant at that time so she was about to go on maternity leave. As I say, it is the BBC’s approach not to serve notice on pregnant women.

Q158 Mr Bacon: You ended up paying her £400,000 when you needn’t have paid her anything. She had no entitlement to redundancy pay and you ended up paying her £400,000.

Lucy Adams: We had to pay her her notice which was £310,000,which is the vast majority-

Q159 Mr Bacon: That is the whole point isn’t it. Until she had got past the 24 months-I am reading from the report: "At this point, the individual involved has 17 months of continuous service and so is not entitled to redundancy pay".

Lucy Adams: That’s right, but the redundancy element was obviously 10% of the overall amount-

Q160 Mr Bacon: Are you saying that even at that point she would still have been entitled to pay in lieu of notice?

Lucy Adams: She would have been entitled to her notice period, whether it was paid in one lump sum or over the period.

Q161 Mr Bacon: What does it say about HR policy at the BBC when you hire this person, who was there for only 17 months on an annual salary of £310,000 and less than a year and a half later you decide that the post is not required and make the person redundant?

Lucy Adams: Ms Bayley joined before I joined the BBC, so I was not involved in her appointment, nor was I involved in the structure of-

Q162 Mr Bacon: I was not asking who made the decision. I was asking what it says about the BBC’s HR policies if that is possible.

Lucy Adams: It is clearly not desirable that people are let go so soon after joining. You hope that they enjoy a fantastic career at the BBC. What we were trying to do was to reduce the amount spent on executive board members and senior managers. Ms Bayley was one of those casualties.

Q163 Mr Bacon: You were allowing people who were below you to use delegated authority to get rid of people. One of the most surprising things you said was that you did not even know about the example in paragraph 2.12-the case of someone being given £141,000 more than they were entitled to-until you read this report.

Lucy Adams: No, that’s right. I wasn’t aware of it until the NAO came and talked to us about the study because, as I said, we have a level of divisional autonomy to make financial decisions and, with hindsight, that lacked central oversight.

Q164 Mr Bacon: And that was lack of central oversight by you.

Lucy Adams: I think lack of central oversight based around the financial governance of the BBC in respect of these payments, yes.

Q165 Mr Bacon: It was a lack of central oversight by you, wasn’t it?

Lucy Adams: We’re asking divisional directors-very senior executive board members-to make some of these calls, so in that sense I think it is shared responsibility.

Lord Hall of Birkenhead: Could I just make a point, Mr Bacon? My point about the culture of the BBC is that it is not just HR. What was going on here was a broad acceptance of things being devolved that in my judgment should not have been devolved-

Mr Bacon: Indeed.

Lord Hall of Birkenhead: And of responsibilities by executive remcos with non-execs and so on, and management boards and finance committees which were not gripped or not tight enough. I have proposed reforms to that, working closely with Lucy Adams.

Q166 Mr Bacon: There is a reason why you have said relatively little in this. Everyone knows that you have joined extremely recently and weren’t responsible for this culture. It seemed to be a culture of mates, cronyism, slapping each other on the shoulder, arranging for huge pay-offs, snouts-in-the-trough r us.

Lucy Adams: I do not think it is a question of mates and cronyism, Mr Bacon. I think there was a prevailing culture where generous redundancy terms and severance arrangements were made, which clearly did not deliver value for money.

Q167 Mr Bacon: It is good that you said that, because a minute ago you said case study 5 was value for money. Now you are saying that generally they were not value for money. That is interesting. What I want to know is what is the licence fee payer getting for the £300,000 or so you are paid? How much is your salary?

Lucy Adams: It is £320,000.

Q168 Mr Bacon: What does the licence fee payer get for that if you are not doing oversight?

Lucy Adams: What they have got over the last four years since I have been there is a reduction in senior managers, which has delivered £19 million of savings every year, which is obviously significantly more than was spent. What they have also got is a reform of pensions and a freeze on management pay. What they have also got is removal of management benefits more in line with a public service. What they have also got is reform of additional pension supplements that were given to managers. What they have also got is greater transparency-

Q169 Mr Bacon: On benefits, such as private health, perhaps the BBC was going to remove it anyway, but it was a matter of astonishment that senior managers even got private health when everyone else didn’t, and I think that reflects just how extraordinarily out of touch the culture had become.

I have talked to BBC journalists. I was talking to one last night who said, "I would love to be one of those people who had to hang their head in shame because I had been paid so much money." But most BBC employees are not like that. They work very hard and they don’t get paid big amounts of money. There is a sort of little superstratum at the top-

Ian Swales: Big superstratum.

Q170 Mr Bacon: A big superstratum at the top. I don’t know whether it is the marzipan or the icing sugar, or the cherry on top, but a small number of people have been gouging the licence fee bare for quite a long time, and it is a very big problem. I am delighted that Tony Hall in his answer a moment ago said that he recognises that there is a big cultural problem, and I recognise that Lord Patten said earlier that he is trying to do something about it.

I want to come on, Tony Hall, to ask you a question about that, because you are dealing with an organisation that is widely loved. Many people in this country have a great deal of time for the BBC, but its actions over recent years are very hard to defend. There are those of us who want to see the BBC thrive and do well and who want to protect the existing licence fee structure against all comers, and goodness knows there are plenty of those who would like to see it torn apart. I count myself among those people who want to see it thrive, notwithstanding all we know about convergence and all the rest of it.

My view is that, if it is not absolutely, completely, totally and utterly broken, don’t fix it. Leave the licence fee system in place, because I think it delivers tremendous value. For those of us who want to defend the BBC and everything it stands for, the actions of the people who have been running the organisation for the past few years make it incredibly difficult for us to defend the BBC. I would like to know what you have been doing as the new leader in the past few months and what you will be doing in the time ahead to restore the morale and confidence of the people who work for you.

Lord Hall of Birkenhead: First, may I thank you for what you said about the BBC? It is a wonderful organisation that a lot of people, both inside and outside the organisation, believe in. It produces great programmes, and it has been doing great programmes over the weekend, and before that, too.

On the specific issues that are before us now, I recognised that we had to move on this and move on it quickly, which is why I said on day two that we would tackle the issue of severance pay. A bit later that month, I said that we would cap severance pay. That was the first thing. Working very closely with Lucy on that, and looking into the culture of the BBC and the way that it is organised, I could also see that, at the centre, the amount of control of what was going on was simply not good enough. There had been a different principle running through this, which was to devolve decisions. That was not good enough, which is why Lucy and I are working together. From now on, we will have a senior management committee that looks at remuneration down to the level of £75,000. That is not just to do with severance or redundancy, but-I think you made this point earlier, Mr Bacon-to look at the substance of pay and how much we are paying people. On top of that, we will remove the use of payment in lieu of notice, because as the NAO Report makes absolutely clear, people should work their notice and then leave.

Q171 Mr Jackson: In your letter, on page 2 you refer to the 11 cases caught by the cap where redeployment has simply not been possible. What specific legal advice have you had, or are currently having, on your responsibilities and obligations to those people?

Lord Hall of Birkenhead: Lucy and I began working on 26 people-work had been going on before I arrived-who would be hit by a £150,000 cap because of the conditions of their contract before the cap. Those people had letters and all sorts of things saying that they would be paid redundancy and other things.

Q172 Mr Jackson: All of them?

Lord Hall of Birkenhead: Yes.

Q173 Mr Jackson: So it is not just custom and practice-they have had a letter indicating a contractual relationship in which they effectively have to be paid above that cap?

Lord Hall of Birkenhead: Yes, Mr Jackson. There was no cap when these deals were done. These were people to whom it was either said, "Will you stay on until a certain point?" or "We need you to stay on," or whatever. These are people who either had letters or had had firm meetings saying, "This is the deal for your exit."

With good work from the HR department, we have now got that 26 down to 11. Those are people who either are going to stay on and accept the cap or are being redeployed. There are then 11. Six of those people have gone with payments above the cap. Above-the-cap payments by us to those six people total £400,000. We are now working on the other five people.

Q174 Chair: £400,000 in total?

Lord Hall of Birkenhead: In total for those six people. We have five people on whom we are now working to see whether we can redeploy them before 1 September, when the cap comes in, or they have to leave. In honesty, I have to say to the Committee that it is unlikely that we can redeploy those people, but they are all people under prior conditions of service and notice.

Q175 Chair: Can I just ask some questions on that? Were any of these people involved in the DMI fiasco?

Lord Hall of Birkenhead: No.

Q176 Chair: Are any of them getting payment in lieu of notice?

Lord Hall of Birkenhead: No.

Q177 Chair: Are you proposing to pay any of them a payment outside of the BBC rules?

Lord Hall of Birkenhead: No. There is one case where there is a possibility of a fault in the way that the case has been handled and we might have to make some recompense for that, but we are taking legal advice on that.

Q178 Mr Bacon: I would like to ask two more questions of Lord Patten, because they are really about the Trust. The first is about the role of the National Audit Office. You cast some doubt on the existing structure and, at the very least, suggested that perhaps the role of the Trust should be extended in some respects, even if they were relatively minor. Another issue with which you will be familiar, which the Committee has talked about for many years, is the relationship between the BBC and the National Audit Office, which is unconventional to say the least, in that it is the result of an agreement between the Secretary of State for Culture, Media and Sport and the Trust, such that the auditor can go only where the auditee consents to it going.

I understand that there is a negotiation and that six topics are suggested each year under the agreement, but it is not the kind of normal relationship that you might expect between the auditor and a publicly funded body. That has raised some questions, particularly in the light of what has happened in recent years. It is quite possible that, had the NAO had the ability to go wherever it sought and therefore there had been a greater degree of challenge earlier-one might say the same about the Financial Services Authority, had it been the case there-some of these problems might have been uncovered earlier. Do you see a case for examining and perhaps adjusting the relationship between the NAO and the Trust so that the NAO as an auditor-a value-for-money auditor-has the unfettered access that it would normally expect in relation to any other publicly funded body?

Lord Patten of Barnes: I cannot speak for the Comptroller and Auditor General, but at the moment I think we have a good and effective relationship with the NAO. In practice, it is inconceivable that if the NAO asked to look at this or that aspect of our activities, we would be able to say no.

We are coping with a situation that would have led some of my predecessors as Chairman of the Governors to throw themselves on their spears in protest at what they would regard as an infringement of the BBC’s independence. I do not take that view. The BBC has been in front of parliamentary Select Committees nine times this year. That is the sort of accountability that would have Lord Reith spinning in his grave. Nevertheless, I do think that there are certain points beyond which we should not go. If there is ever a case where the NAO wants to do something, within the terms of our agreement, that we find difficult, clearly the issue would arise again.

However, at the moment, we welcome the reports that the NAO has done. It has contributed to dealing with the issue that you raised earlier in remarks that I totally endorse. There is a disjuncture between the trust that people have overall in the BBC, and their views on its efficiency and the way that it uses their money. That is a disjuncture that we have to change.

Q179 Mr Bacon: While we are on the subject of Lord Reith, in passing, may I just say how disappointed some of us are that you are not wearing a dinner jacket and that neither is Tony Hall? Tony had plenty of opportunities to wear a dinner jacket in his previous job; he really should have made a bit more effort, frankly.

Lord Hall of Birkenhead: I didn’t, as it happened. I wanted lots of people to feel that they could come to the Royal Opera House. Wearing a dinner jacket was not something that I enjoyed there.

Q180 Chair: May I interject something before you move off the point? We welcome the co-operation with the NAO, but we must say that there is always delay. Whenever I ask the NAO about how they are getting on, for some reason there is always delay built in. That seems to show a reluctance on the part of the executive-it is probably not an issue for the Trust-to co-operate fully and promptly with the NAO.

Lord Hall of Birkenhead: I want to co-operate fully and promptly with the NAO, and as far as I am now responsible, I will make sure that that happens.

Amyas Morse: May I say something? I hope that this will be a moderate comment. I was very interested by some of what both Lord Patten and Anthony Fry were saying about feeling that, sometimes, their own input was held pretty strongly at arm’s length. That can be our experience as well. I therefore do not see a great difference between our experience and yours, from time to time. I think it is very important that we find ways to make that a really open portal, rather than something where your approach is treated on a need-to-know basis. I do not regard it as something where we are really at odds with the Trust. It is something where both the Trust and, when we are asked to work for you, the NAO need to have more free access to information, so that we can actually give comments based on initiative rather than simply on getting in and mining for particular bits of information that we have had to agree to. I simply say that to you because I think for both bodies to do a better job, that would be very helpful. I am not trying to take it any further than that in this discussion.

Anthony Fry: I do not think we disagree with that at all.

Q181 Mr Bacon: One more for Lord Patten. I am looking at a letter to you from Sir Peter Sutherland, the chairman of the London School of Economics court and council, dated 14 June, concerning the undercover filming in North Korea. In the conclusion, he says that the limited concessions made by the executives-the BBC executives-to the case made by LSE constitute "a totally inadequate response to serious and justified criticisms". I understand from the LSE that they are still awaiting a reply. Is it your plan to issue a more fulsome apology to the LSE?

Lord Patten of Barnes: The issue is being looked at at the moment, under our complaints procedure.

Q182 Mr Bacon: I should point out that not only am I twice a graduate of the LSE, but so is our Chair.

Lord Patten of Barnes: I can assure you that that was why my answer was going to be even more grovelling than would otherwise have been the case. The LSE had a reply from the executive, or two replies, I think, very promptly, which Peter Sutherland did not find acceptable, and which one other complainant did not find acceptable. Those complaints will be dealt with under our normal procedure as rapidly as possible by the editorial standards committee.

Can I just make a point that is analogous to what we have been talking about? A lot of people would like a situation in which the Chairman of the Trust intervenes editorially on issues like that. That would be as bad as my intervening in the way that the BBC is run day to day. We have to balance things, so that we can make oversight operate. That depends a huge amount on trust between the strategic body and the executive, and I totally trust what the director general is doing.

Chair: Very quick questions from Justin, Chris and Ian, then I will come in, before Steve asks a final one. We’ve got about 10 minutes, guys.

Q183 Justin Tomlinson: Lucy, going forward, how important do you think human resources skills will be in ensuring that licence fee payers get value to money?

Lucy Adams: In relation to severance arrangements?

Justin Tomlinson: Yes.

Lucy Adams: What Tony and I have done in the last few months is put in place a range of governance arrangements, policy changes and communication to make sure that things are better understood. So in many ways, because room for exceptional payments has been closed down, room for payment in lieu of notice has been closed down, and room for anything above the cap has been closed down, it will be an easier role for managers because there will be very little room for manoeuvre.

Q184 Justin Tomlinson: But you have had to use your HR expertise and skills to ensure that those systems are watertight.

Lucy Adams: Yes.

Q185 Justin Tomlinson: Do you remember your interview with the CIPD-an organisation "leading HR into the future"-in 2010, when you were quoted as saying that you are not an HR person and you do not have a traditional HR background? Do you have the skills to put those systems in place?

Lucy Adams: I have been a senior HR director for over 10 years now. What I was referring to in that interview was that, first and foremost, I am not somebody who is isolated from the business that I am in. I believe the remainder of the quote was, "I’m first and foremost a business person", and that was to point out that you can have people who understand policy and best practice, but who do not get engaged in the business. I am very keen to be involved in all aspects of the BBC.

Q186 Justin Tomlinson: Have you ever run a business?

Lucy Adams: I have not run my own business, no.

Q187 Justin Tomlinson: You are not a business person. Secondly, the executive and senior management pay strategy plan, back in 2011, was a document that I believe you pulled together. Did you not suggest that there should be a 10% uplift in pay for senior managers? I believe it was then pulled.

Lucy Adams: I do not recall it-sorry, which paper?

Justin Tomlinson: The executive and senior management pay strategy plan in 2011, which proposed that senior managers should get a 10% uplift, despite the need then to cut the numbers.

Lucy Adams: I do not believe that to be the case, because at that stage we were looking to reduce numbers, salaries-

Q188 Justin Tomlinson: It was released under freedom of information to The Daily Telegraph at the time.

Lucy Adams: But that would be very strange-I will have to check-because we were looking to reduce numbers and salaries at that time.

Q189 Justin Tomlinson: Okay. Mr Bebb pointed out, very reasonably, that all members of staff had contracts, but that decisions were taken-often by you-to deviate from the standard terms of the contract for what you believed to be in the best interests of the BBC, although often costing us a lot more money. Under the new NAO proposals, you will get sight of things at a much lower level, so you will have even more involvement. Will that mean that we will have even more contracts ignored and more money simply given to people to leave?

Lord Hall of Birkenhead: May I answer that? Lucy is reporting to me, and we are doing a lot of work on making sure that the organisation is simpler. I will not go into that now, because it is not the point you made, but when you talked about value for money for licence-fee payers, that is really important. The answer is that I am going to be working with Lucy very closely on all those contracts, to make sure that they are proper and that the policies we have told you that we will deliver, will be delivered on.

Q190 Justin Tomlinson: Turning to page 8, No. 13 is on confidentiality clauses. The case studies that we have looked at today have all raised concerns, but we have only skimmed the very top of this. There are huge numbers of others that we do not have the information for. I am just speculating that some of those confidentiality clauses could have been used to hide some perhaps even worse cases. Do you feel that that might be the case, or have concerns that that might be the case?

Lucy Adams: The Comptroller and Auditor General can comment on the methodology, but as I understand it, the methodology employed was what is called a purposive audit-we provided details of all 150 senior managers who had left with a severance arrangement, and the auditors chose which ones, not on a random basis, but on a purposive basis. They looked at the largest payments and at exceptional payments, and at the cases involving the largest salaries and the largest pile-on. While a further 90 were not the basis of the study, our assumption is that there is no further learning zone-the vast majority of the money is covered.

Chair: Bring in Stephen on that point.

Q191 Stephen Barclay: Thank you, Chair. My question is to Lord Hall, please, building on Justin’s point. As we have just alluded to, 90 cases have not been looked at by the NAO-so the majority have not been-and it is unable, under its access rights, to publish the names. Given that the Committee has agreed to call Mr Thompson back in the autumn, will you now share with the Committee the names of all 150 senior managers who received severance payments in the three years to December 2012, with the sign-off and relevant documentation regarding their pay-offs?

Lord Hall of Birkenhead: We have to have care about protecting-under data protection-those who have benefited from the BBC’s decision. Our presumption, and we have taken advice from the Information Commissioner on this, is that we should not do that, unless those people come out themselves and say, "We are prepared to have our names in the public domain." What we are very prepared to do, Mr Barclay-on the top 10 names that are now out there from this Report-is to tell you the groupings of people who made those decisions.

Q192 Stephen Barclay: So the legal advice you have-given you publically say that you have a very open culture-is that data protection prevents you from sharing that with the Committee.

Lord Hall of Birkenhead: There is a balance here, which you probably know better than I do, between openness on the one hand, which is what we want, and protecting the personal data of those people whose data should be protected on the other hand. It is a very hard balance.

Q193 Stephen Barclay: Indeed it is. In reaching that balance, would paragraph 5 of Schedule 2 to the Act not apply? It imposes a public interest test. Indeed, the High Court ruling that applied to MPs’ expenses had two limbs to the test: whether it was taxpayers’ money; and whether there were allegations of impropriety. Both those tests would be met here. Further, the ninth article of the Bill of Rights means that no proceedings can be sustained against a witness to a Select Committee, so Speaker’s counsel has advised me that there is no impediment to you sharing that information with this Committee on the basis of data protection. Will you now, therefore, share that information?

Lord Hall of Birkenhead: We need to take away what you have just said and examine it. I will always look at that. We need to come back with a considered judgment on the things you have referred to, rather than just coming out with one here now.

On impropriety, one thing I took very strongly from the Report was that the NAO are not saying that there is any impropriety in any of these payments.

Stephen Barclay: To avoid potential doubt from BBC lawyers, I would also draw your attention to the Information Commissioner’s guidance about seniority. To put seniority in context, the average severance payment is £164,200. Paragraph 50 on page 16 of the Information Commissioner’s guidance on requests for personal data about employees says that "it should be recognised that there is an increasing public expectation of transparency regarding the expenditure of public money and the performance of public authorities. This is especially the case if there is any evidence of mismanagement by senior staff". So, again, there is an element of debate there. The figures cited in that guidance relate to staff at the level of £58,200 and above. We are talking here about a group of people some of whom were paid sums that are sixfold above that.

As I have set out, I don’t think that there is any impediment to your sharing with the Committee the details regarding all 150 cases from a data protection perspective. Just in case there is any doubt on that, under Standing Order 148(1), Parliament has "the power to send for persons, papers and records", and "Erskine May" is very clear-this is on page 839: "Disobedience to the order of a committee made within its authority is a contempt of the House". I would therefore like to ask the Chair for the agreement of the Committee that we apply Standing Order 148(1) in the event that data protection is seen as an impediment, and request the names of all the 150 people, and the relevant papers regarding their severance.

Chair: The Committee is agreed that that is what we should do.

Justin Tomlinson: I think you know that there are far more issues and that gagging orders were used to hide some even worse cases. I believe that you commissioned an Ernst and Young report that highlighted that, and it would be rather helpful to see that report. I presume it will not be forthcoming, but Steve’s legal knowledge may very well help us on that.

Stephen Barclay: The Committee can agree, within the same part of the Standing Orders, to request that report for Mr Tomlinson as part of our evidence.

Q194 Justin Tomlinson: Crucially, throughout the evidence given today, people keep referring back to the fact that there was a culture of this happening. It was nobody’s fault-it was always somebody else, but nobody is prepared to say who that is.

One final question for Lord Hall from me: after everything that we have heard today, can you have total faith that Lucy Adams has the skills to deliver value for money for licence fee payers?

Lord Hall of Birkenhead: Yes I can. We have been working together very hard over the past three months, not just on these issues but on other issues to do with the design of the organisation. As I said in my letter to you, I think that the BBC is over-complex and over-layered. We need to have a simpler structure, in which people take responsibility for decisions that are made and there is real authority, and people know the authority levels within the organisation.

In this case, I feel that the authority levels were devolved far too low. Lucy Adams has been working with me on that and doing some first-rate work, which I hope will really give better value for the licence fee payers in the medium term.

Q195 Chair: Lord Hall, has anybody who was responsible been disciplined?

Lord Hall of Birkenhead: Why I wrote to you saying that I felt that this was an institutional matter and a cultural matter is because people were working within guidelines and within a framework, which in my judgment, looking back at this-I could be wrong-was accepted but we all know was wrong.

Stephen Barclay: Sorry, could you explain-

Lord Hall of Birkenhead: Some-not all-of the people who have been responsible for that are no longer at the BBC. I have concentrated my work on going forward and saying, "This is wrong. It is unacceptable," and looking at how I make sure that I can stand before you all and say that we have a grip on this and are giving good value to licence fee payers.

Q196 Stephen Barclay: Could I clarify? Lord Hall, you said that people were working within guidelines. Where was it set out in the guidelines that people could ignore contractual terms?

Lord Hall of Birkenhead: I will correct myself there, because I think that you have made an important point. Culturally-as I think Lucy Adams and others have said, and you have all commented-we had lost the plot. We had lost the way. We had got bedevilled by zeros on various salaries.

Q197 Stephen Barclay: People were not acting within guidelines?

Lord Hall of Birkenhead: I think one of the issues was that there was not enough grip at the very centre of the organisation by the non-execs with the executive remuneration committee. There was not a senior management remuneration committee. Things were devolved far, far too low down. What I am attempting to do, and will do and am doing, is bring that back to a proper level at the heart of the organisation, with me chairing-

Q198 Stephen Barclay: And we do appreciate that, and we appreciate your getting a grip, and we appreciate that there was a loss of grip. But just to be very clear, people were not acting within guidelines, were they?

Lord Hall of Birkenhead: I take the point that there were things that were outside the policies of the BBC. That is completely right, yes. I accept that.

Q199 Chris Heaton-Harris: I am sorry I was late in. I was actually at a Statutory Instrument Committee which, as Lord Patten will remember, is one of the Committees in this place where you have no choice but to turn up. It was about the minimum wage, and sticking three pence on a band of one particular part of the minimum wage. You do expect these people to pay the licence fee too. The contrast between the figures I was listening to in Committee Room 11 and the figures we have been talking about since I walked in here has been rather stark.

I want to ask Lord Hall a question. You have been in this role since November last year. I wanted to follow up on the points being made, because what I have heard since I walked in referred to a "lack of central oversight", which I think was a direct quote from Ms Adams, and that it felt way too cosy. I do not want to call for Ms Adams’s head at all. I do not like doing that sort of thing, and I do not think that it is clever politics. But I do think that when she starts talking about people’s roles, it proves to me that there is such a culture of cosiness and cliqueyness, where there is not enough regard for taxpayers’ money and licence fee payers’ money. I wonder how you are going to tackle that.

Lord Hall of Birkenhead: To correct you on one point, I have actually been in the job-and it is a wonderful job in many respects-for three months, not since November. I was announced then, but it is three months.

Q200 Chris Heaton-Harris: Are you enjoying Public Accounts so far?

Lord Hall of Birkenhead: I am enjoying a lot of the responsibilities that go with the job, but I also want to make sure that I can stand before you and also the people who pay for us, the license fee payers, and say that they are getting brilliant value for money. I think Mr Bacon made the point earlier that there is a lot of good will for the BBC, for the programmes that we do and the services we provide. I want to build on that. I think the challenge role which you are hinting at is a really important one for our non-executive directors.

The conversation earlier on with the Trust was about being ignored. I want our non-executive directors to provide absolute proper challenge to the executive, and I know that they will do. That is what they are there to do, in terms of what we do. Not just in terms of pay, but across the range of services that we provide. I intend to make sure that they provide that proper challenge. That challenge, in my judgment, looking back, has not been there in anything like the degree-

Q201 Chair: Directors should also do the job properly.

Lord Hall of Birkenhead: I completely agree, Madam Chairman. It is down to me and the executive team, which I have spent the last little while building. But regarding the non-executive, I think that the point being made was about culture. I think the cultures of organisations, which non-executive directors need to build into an organisation, is that sense of representing the outside view and what people outside the organisation feel, and holding the executive to account. I also think that it is up to us, the executives, to make sure that we are listening to what our viewers and our listeners, our audiences, are saying to us. And I think that we are, now.

Amyas Morse: Very quickly, I wanted to ask Lucy Adams a question. There have been a lot of suggestions about things you might have challenged under the previous director generalship. Would you feel that you actually had permission, or a culture that was encouraging of challenge at that time?

Lucy Adams: That is a very interesting question. Coming into the BBC, which had a director general who had been in position for a long time, there was a certain way of doing things and, as is evidenced by my failed attempt to get a redundancy level cap in 2011 and to reduce the amount that people were getting at that time, I think that there was only so far that we would go.

Amyas Morse: So that would be no, really. Would that be a fair summary?

Lucy Adams: I don’t think it is fair. I think there was absolute-

Amyas Morse: Pretty tough?

Lucy Adams: "Tough" is fair.

Q202 Chair: I am going to come in on this. We hear it all too often when we have witnesses here. It is one disaster after another, and it is always "Not my fault, guv, it was the person before." Public money is at stake. I have to say to you, Ms Adams, that you were in that job for four years. You were head of HR. You are probably a tough cookie. You should have exerted a bit of toughness. It is a big enough organisation that you could have done so. It is all too easy to blame people who are not in the room. We have people in front of us, and they no doubt have some explanation, but it is always blaming the person before. I would love it if we had an organisation in front of us that accepted responsibility for what had happened. You were there for four years. You were there for the three years that are the subject of today’s deliberations.

Lucy Adams: Madam Chairman, I would hope that the Committee has heard from me throughout this session that I have accepted responsibility for decisions that I believe with hindsight were made in error, and that were not good use of licence fee payers’ money. I am trying to set a context of an ambition and an overwhelming regard for trying to move money out of the organisation and save £20 million a year. I hope I have made it clear today that alongside my colleagues, I take my share of responsibility.

Q203 Ian Swales: I have one quick question. The BBC is almost a byword for complexity-it is still lampooned in publications like Private Eye for it-so I am not surprised to see a comment in your letter, Lord Hall, saying that there are some 55 separate boards and committees looking at operations and back-office functions. You still have 445 senior managers. You made a very welcome comment about looking for simplification. How many senior managers do you think the BBC actually needs, approximately?

Lord Hall of Birkenhead: I cannot give you an answer to that, because it would be off the cuff, and I do not like giving that sort of answer. What I can tell you is that I take the agenda of simplifying the organisation really seriously. I think that will be welcome, and not just to people outside the BBC who are pitching for programmes or have an interest in the spending of their money as licence fee payers. As I go around the country meeting people in the BBC-I am doing that one day a week-I think it will also liberate people within the organisation to have some clarity. It also brings us back to-I think simplification also means this-people taking responsibility. If they are running a project or whatever, they are taking responsibility for that.

Q204 Ian Swales: I totally accept that. One final comment: Mr Bacon talked about how the BBC is loved, but equally, if you are in any doubt about how important it is to the public how the money is spent, you only need to go back and look at the debate on local radio, whenever it was. I have never heard anything like it in Parliament. That is a part of the BBC that needs protecting. It is a very small amount of your spending, and yet there were plans to axe a lot of it. That is exactly what the public do not want to see. They want to see this agenda that you are talking about.

Lord Hall of Birkenhead: Mr Swales, I have been to a number of local radio stations. The work being done in local radio, with small resources but huge ambition, is absolutely first-rate. We are providing a service to communities, for example in Radio Orkney, which no one else is doing. We have got to make sure we can justify every pound we spend, as if it were our own money, to the people who are paying for us. That is a really important point for the BBC of the future.

Lord Patten of Barnes: I think we may be coming to a close. I do not want to cut short this Socratic dialogue, but there is just one point that I want to be clear about. On the point that the Committee is making, if the legal advice that the executive has is that those who received severance payments are entitled to the protection of legislation on data-I am not talking about the people who made the decisions, but the people who received the payments-is it the Committee’s position that it will seek to use parliamentary privilege in order to overturn those rights? I do not know if I am interpreting that correctly, but I think there would be a hell of an argument about what it would do to the BBC’s independence, which I am statutorily obliged to defend.

Q205 Chair: All I can say to you is that we get information about individuals on a number of cases, most recently around the Serious Fraud Office. We of course have regard to the rights of the individuals concerned in the way we use that information.

Lord Patten of Barnes: Is the Serious Fraud Office guaranteed by charter its independence?

Chair: Probably not.

Lord Patten of Barnes: I do not want to find us getting into unnecessary constitutional or legal arguments. It would be in both our interests to avoid that if it is humanly possible.

Q206 Chair: I do not think we would in any way wish to undermine individual rights. I was going to ask three quick questions of Tony Hall, just for clarity. Does your £150,000 cap include the lot? Does it include any pension top-ups, and all that sort of stuff?

Lord Hall of Birkenhead: The lot, but we do not plan pension top-ups. That is the lot.

Q207 Chair: That is the lot. Now, for clarity, the issue of health care and car allowances, because it is unclear from the Report-are you stopping that for all current staff, even though they may have had it in their original contract entitlement?

Lord Hall of Birkenhead: Not at the moment. All new staff do not have either of those two benefits, as you know, Madam Chairman. Over the autumn and winter, Lucy Adams and I will be looking at the remuneration packages that we are offering. We will try to achieve the very difficult balance between what the public expects of us in terms of pay, but also some areas where the market for talent is pretty hot and we do not want to lose people who are good.

Q208 Chair: I hear that, but those two are currently costing you £3 million a year.

Lord Hall of Birkenhead: The NAO Report suggests that we do a cost-benefit analysis on that, and we will do so.

Q209 Stephen Barclay: To address Lord Patten’s point, the legal advice I have received-obviously, it will be subject to discussion with BBC lawyers-is that, first, the royal charter does not fetter standing order 148(1). Secondly, as I set out, I do not think that data protection is a constraint, although that is something on which Lord Hall will want to take advice. I have cited the 2008 case and the public interest element. Thirdly, the fact that the Committee obtains information does not equate to its being published. I cite the precedent from the National Policing Improvement Agency, where we investigated a payment of over £500,000 to a member of staff, but then accepted representations from Mr Gargan of the NPIA, who gave us good grounds for why the data could not be shared, which satisfied the Committee.

Obviously, it is an issue for further discussion, but the point is that ahead of our hearing with Mr Thompson, it strikes me as appropriate that the Committee has access to the details regarding those 150 people. They are senior members of staff, and we would not know whether any of them was currently being employed as a consultant for the BBC, for example. It is relevant that that information is available for the Committee, and then the Committee can decide what it does with it.

Lord Patten of Barnes: Behind that argument is your four-square defence of the integrity and the independence of the BBC.

Stephen Barclay: These are value for money issues. They are not editorial questions.

Chair: On that note, thank you very much indeed for being at this session.

Prepared 12th July 2013