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Baroness Noakes: I hope that I may be permitted to speak today, for although I have not taken part in deliberations on the Bill I have followed the proceedings in Hansard.

I want to take part because I feel that I have some knowledge that could be useful to the Committee. In my former life as a partner in KPMG, I was responsible for services provided to the BBC, which included both the financial audit and the audit of the BBC's fair trading commitment. I am probably the only person here who has practical experience of auditing the fair trading commitment, although I acknowledge that my noble friend Lady Hogg has considerable and more up-to-date knowledge of how it works from the governors' perspective.

It is fair to say that the BBC has become very much more open about its fair trading commitment over the years. I first became involved during the 1990s when the commitment and its audit first emerged. On

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looking at the 2001–02 annual report I was struck by how far the BBC has moved in terms not only of the process of oversight of the commitment but also in disclosing the issues relating to fair trading. I pay tribute to the BBC for that and to the governors who have been committed to seeing greater transparency through their compliance committee.

As the noble Lord, Lord Gordon, said, there is a potential for the BBC to trade unfairly, which is why it has the fair trading commitment. On the whole, the BBC has a good record on its commitment to the fair trading principles. On that basis it should have nothing to fear from the amendments. I understand that no organisation likes to subject itself to outside scrutiny, and I see where the BBC is coming from in that regard. It has devoted significant resources to monitoring its compliance to the commitment and can doubtless see no useful purpose in additional examinations.

The crucial features of the fair trading commitment are its complexity and subjectivity, however. The governors' statement in last year's annual report said that fair trading issues were complex. From my experience, that is something of an understatement. When I was involved, the issues with which we had to grapple involved very difficult judgment calls, covering issues that were both intellectually and technically complex. They are not easy issues. The auditors' report emphasises both that the audit is not an absolute assurance that there are no breaches of the commitment and that the judgments applied by the BBC can be open to challenge. Both those points are entirely reasonable, and I do not criticise the auditors for making them. But they underline the fact that there are no absolutes when dealing with the fair trading commitment. That is why I believe that extra scrutiny from outside the BBC would be a valuable safeguard.

I have no doubt that the governors, who oversee the fair trading commitment through the compliance committee, approach their duties conscientiously and fairly. But the governors are also involved in making strategic decisions about the BBC, some of which may have fair trading consequences. Consciously or not, the governors carry some baggage with them into the compliance committee. I have no reason to doubt any single judgment made by the governors in relation to fair trading, but there are underlying concerns that the process is closed within the BBC and not sufficiently open to be robust over time. I hope that the Government are prepared to consider the amendments.

Baroness Cohen of Pimlico: I had not intended to intervene at this point, but I have some relevant experience inasmuch as I was a BBC governor and a member of the fair trading committee in the early days, and I was a member of the pre-legislative scrutiny group.

The BBC fair trading committee was unique in my commercial experience. No commercial company would dream of having a committee that agonised over the question of whether it was competing fairly or unfairly. My experience of the fair trading committee was that the benefit of the doubt was always given to

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the complainants. One had to remind oneself that one was in severe danger of hobbling the whole organisation.

I also used to remind myself and my colleagues that the BBC was and remains subject to the ordinary competition law of this country. Our commercial rivals tend to speak as if competition law had in some way been suspended in favour of the BBC. It has not and it is not, and any action brought against the BBC on normal competition grounds has so far failed.

While I am moved to tears by the vision of the sunlit uplands, with happy commercial companies being able to get the answer that they want from Ofcom, I do not believe a word of it. This is in the normal area of people trying to deal with powerful rivals. We should bear in mind the view expressed by the noble Lord, Lord McNally. The fact that the BBC is powerful and successful is something that we have willed, and we should hesitate to undermine it.


Baroness Blackstone: I shall do my best to take the overall view suggested by the noble Lord, Lord McNally. I begin by immediately emphasising what my noble friend Lady Cohen has just said—that UK and EU competition law applies to the BBC, as it does to other broadcasting organisations.

The Bill gives Ofcom concurrent powers with the Office of Fair Trading to apply UK competition law to broadcasting and related activities. Ofcom's functions in that respect are set out clearly in Part 5 of the Bill. Over and above the requirements of competition law, the BBC is also obliged under the terms of its charter and agreement to adhere to the corporation's own fair trading commitment, the enforcement of which is the responsibility of the governors.

The fair trading commitment is reflected within the BBC's published commercial policy guidelines. As the Government explained in their response to the Joint Scrutiny Committee, the guidelines are internal documents designed to ensure that the BBC is properly equipped to comply with competition law in carrying out its activities, and that all those activities are consistent with and supportive of the BBC's core purpose as a public service broadcaster. The guidelines underpin compliance with the law, but do not substitute for it. The BBC's fair trading framework is also subject to annual audit by independent auditors, as we have heard, and their opinion is published in the BBC's annual report and accounts.

Given the nature and role of the fair trading commitment, it seems to us entirely right and proper that its enforcement should continue to be a matter primarily for the corporation's own board of governors, rather than an external regulator. It is an internal document like those used by many large companies and we would not expect Ofcom to enforce it. To give Ofcom the responsibility for enforcement would be wholly inconsistent with both its status and indeed its purpose.

The effect of Amendment No. 152 would be that, where the BBC had published guidelines for BBC companies undertaking any commercial activities in

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the UK relating to the making, acquisition or selling of programmes, the responsibility for monitoring compliance with such guidelines would rest with Ofcom. That would effectively give Ofcom the function of enforcing further aspects of the BBC's fair trading commitment, which, as I have already said, is, and should be, the responsibility of the board of governors. So this amendment gives rise to the same objections as Amendment No. 146.

Amendment No. 275 appears to be designed to address the fact that, since Ofcom will not licence the BBC's public service channels, those channels will not be subject to Ofcom's cross-promotion rules. There are a number of points to be made about this. In the first place, the BBC's promotional activities are of course—I say this once again—covered by competition law which applies to the corporation, and which, as I said, will in future be enforced concurrently by both Ofcom and the OFT.

Lord Gordon of Strathblane: Something extra might be required for the BBC precisely because, under the current ownership rules, only the BBC would be able to behave anti-competitively by being able to cross-promote from radio to television and indeed into magazines. No private operator in this country would be allowed to own a television station and a radio station—and indeed magazines—in the same market. That is prohibited under ownership rules. The competition rules have not actually emerged because there is no opportunity to be anti-competitive. There is an opportunity in the case of the BBC. For that reason, one must be extra vigilant; no more than that.

Baroness Blackstone: I am grateful for my noble friend's intervention. However, I am afraid that he is worrying about something that he need not worry about. I believe that the BBC's own commercial policy guidelines are directly relevant here and that they operate effectively. They contain commitments that the BBC's core public services will not be used unfairly to promote BBC commercial activities, and there will be no promotion of BBC commercial products and services within BBC programmes on the public services.

I should also point out that the promotion of licence-fee funded services is in the interest of licence payers, because it informs them about the whole range of services for which they are paying. What could be the matter with that? Noble Lords will no doubt remember that the BBC's fair trading policies were subject to an independent review by Professor Whish, in 2001, which concluded that they were appropriate to ensure that the BBC does not distort competition in commercial markets. I think that we should accept the recommendations made by that completely independent review.

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