UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 774-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

BBC: OFF-PAYROLL CONTRACTING AND SEVERANCE PACKAGE FOR THE DIRECTOR GENERAL

THURSDAY 22 NOVEMBER 2012

ANTHONY FRY, ZARIN PATEL and BAL SAMRA

Evidence heard in Public

Questions 1 - 171

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Public Accounts Committee

on Thursday 22 November 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Guto Bebb

Chris Heaton-Harris

Meg Hillier

Austin Mitchell

Ian Swales

Justin Tomlinson

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

Examination of Witnesses

Witnesses: Anthony Fry, Trustee, BBC Trust, Zarin Patel, Chief Financial Officer, BBC, and Bal Samra, Director, BBC Rights and Business Affairs, gave evidence.

Q1 Chair: Welcome. Thank you for agreeing to appear before us.

Clearly, since we agreed your appearance, which was really to talk about personal service companies, the whole issue of the payoff for the ex-Director General has come into the public domain. I have agreed with the CMS Committee Chair that we would ask some questions about that, and no doubt questions will be asked next week, so I hope it is all right with you if we take that first, and we will then talk about the other issue, which is the main purpose of your appearance this morning.

Was the package, which I gather from Chris Patten’s letter was approved by the Trust, required by law?

Anthony Fry: Under the terms of the Director General’s contract, yes, it was required.

Q2 Chair: By law?

Anthony Fry: Under the terms of the contract. If you breach the terms of a contract, you will be taken to court, yes, Madam Chair.

Q3 Chair: Explain that to us.

Anthony Fry: The Director General had a contract, and there were various provisions under that contract. If I take one moment to step back, the Director General had a contract with the BBC. At the time when the Director General offered his resignation, he offered it on terms. The BBC Trust had a choice: either accept the terms under which the Director General offered his resignation, or proceed down the path of seeking to terminate his employment. Under the terms of his contract, he had various rights at the time of termination, and those rights were payable. The strong legal advice to the Trust was that there was no cause-no reasons-under the terms of that contract whereby we could fire the Director General without paying him compensation for doing that, so yes, under terms of law, there was a payment due.

Q4 Chair: So the payment was due because you wanted to fire him?

Anthony Fry: No.

Q5 Chair: I am asking about the law, you see. It seems to me that, under the law, if you had fired him, his contract would have entitled him to a year’s payment; but because he proffered his resignation, under the law and his contract, he was not entitled to a year’s salary.

Anthony Fry: If I can be boring for a moment-

Chair: Please do.

Anthony Fry: Let me take you through what happened during the day in question, because it is incredibly important to understand the sequence of events. The Trust met at 2.45 on the Saturday afternoon with the Director General.

Q6 Chair: The whole Trust or the remuneration committee?

Anthony Fry: The whole Trust. This was a meeting of the whole Trust. In the light of the events that had taken place on, if I may use shorthand, the second "Newsnight", by which I mean the one that made allegations against, by inference, Lord McAlpine, the Trust met at 2.45 that afternoon to talk to the Director General in particular about actions that either had been taken within the BBC, or were to be taken in the light of the report that was expected on Sunday from Ken MacQuarrie, director of BBC Scotland. The Trust heard from the Director General about where he was at in terms of those processes.

Q7 Chair: Can I just get this clear: who proposed the pay-off?

Anthony Fry: Can I get to that? It is quite a long process, and I think it is important for all of you to understand what happened.

The Trust met. I think it would be fair to say that the view of the Trust, when the Director General had left the meeting, was that there were serious concerns around the issue of whether the Director General and some of his colleagues had grasped the gravity of the situation. To characterise it, I would say that the Director General had suggested to us that the danger for the BBC over that weekend was overreacting, to which my response was that it seemed to me that the danger for the BBC over that weekend was underreacting. It would be fair to say that the position of the BBC Trust at the end of that meeting, which was about 3.45 in the afternoon, was that, were the Director General to tender his resignation, the BBC Trust would not resist such an application. It is clear from what happened subsequently that the Director General left that meeting with a very clear impression that he no longer carried the support, or the full support, of the BBC Trust. I would characterise that as a fairly accurate reading of the tone of that meeting.

At about 5 o’clock in the afternoon, I understand that that head of human resources at the BBC, Lucy Adams, contacted the chairman to say that the Director General, having thought through what had taken place at the Trust, was minded to speak to the chairman to talk about the terms under which he would be prepared to resign. Subsequent meetings that took place between the chairman, members of the Trust unit and the Director General’s lawyers made it very clear that the terms under which the Director General would be prepared to resign were exactly the same terms as those to which he would be entitled in the event he was fired. So the position from 5 o’clock in the evening was that the Director General made it very clear to the Trust, through his lawyers and through the Trust lawyers, that the only thing that was on the table if he was prepared to resign was a payment of £450,000. There were some other elements to that payment, which I am very happy to go through.

Q8 Chair: That would be helpful.

Anthony Fry: I will come to those when we get to the remuneration committee.

The position was that at no stage on Saturday evening was the Director General prepared to resign his position as Director General of the BBC other than for a basic payment of £450,000. The chairman contacted me, as a member of the remuneration committee, and other members of the remuneration committee at some time before or just after 8 o’clock. My notes, which are contemporaneous with those calls, indicate that in my case it was about 10 past 8 in the evening. He took me through the basis of, first, the conversations that had taken place with the Director General and his lawyers,and, secondly, the legal advice that we had received from Baker and McKenzie; and he asked my opinion on what I felt were the options available to us. I expressed the very strong opinion, for reasons I am happy to go into, that in the best interests of the BBC and the licence fee payers, reaching an early conclusion of this was better than playing it long and hoping that at some point in the next 12 or 24 hours, the Director General’s position would change.

As of 8.15 on Saturday night, I was looking at two positions. Either I accept the Director General’s resignation at £450,000-as I say, I will go into some other details-or we take the view of summoning the full Trust and firing the Director General for a cost of £450,000. The very clear legal advice from Baker and McKenzie was that we had no grounds, in legal terms, for firing the Director General without compensation. In my case, leaving aside what I will freely admit was a degree of substantial irritation and aggravation that I was being put into that position, I am afraid I had to take off my moral indignation about why I was paying £450,000 rather than £225,000.

Chair: It is not you; it is the licence fee payers.

Anthony Fry: I am using shorthand, if I may, Madam Chairman. I had to shake off my substantial irritation and think: what at this point, is in the best interests of the BBC and the licence fee payers? I was very clearly of the view that trying to reach this accommodation quickly, to get an acting Director General in place, to make sure that the BBC’s future liability was capped-because, by definition, under a compromise agreement, the Director General could not subsequently claim unfair or wrongful dismissal-and to stabilise the organisation, were far and away more important than sitting on a moral high horse and trying to get the Director General to change his mind about the terms under which he would leave.

I freely admit that was a judgment call. I freely admit that if was asked to make that judgment call again today, I would do exactly the same thing. I am not pleased about it. I absolutely recognise that from the viewpoint of the overwhelming number of licence fee payers and your constituents, any of the numbers we talk about today are, frankly, in the stratosphere. Whether it is £225,000 or £450,000, these are huge numbers, and I freely recognise that. All I am saying to you is that at that point in the evening, I was very clear that it was in the best interests of the BBC to get on with this.

The BBC Trust then met at 8.45 that evening. I think it is the case that 10 out of the 12 trustees were present at that meeting or on the telephone. The matter, as you know, was then finalised and signed off and announced by the chairman at 9 o’clock that evening. I still believe that was in the best interests of the licence fee payers.

Q9 Chair: Can you explain to the Committee what the other terms in the settlement are?

Anthony Fry: Indeed. In addition to 12 months basic salary, which, as you rightly say, was what was in the contract in the event of termination without cause, the BBC is also paying 12 months medical cover. That is, again, reasonably standard in these things.

Q10 Stephen Barclay: Private medical cover?

Anthony Fry: This is through the normal BUPA scheme, which is operated by the BBC. So that is 12 months continuing-[Interruption.]

Q11 Chair: I think we are shocked that the BBC feels it is appropriate to use licence payers’ money to fund individuals to get private medicine. I think that is just shocking as an issue of principle, if I may say so, Mr Fry. That is why you are getting this reaction from the Committee. How far down the ladder does that go?

Zarin Patel: Last year, I think, we removed that provision of private medical cover for senior managers and-

Q12 Mr Bacon: With respect, that was not the question. The question was: how far down does it go? Not: when did remove it?

Zarin Patel: I will confirm it later, but certainly it was-

Q13 Mr Bacon: Why don’t you just answer the question, Ms Patel? You have a record of coming to this Committee and ignoring the question you were asked, and answering a different question. The Chair’s question was: how far down does medical cover go? If there are things you need to hedge it around with afterwards, because circumstances have changed, please add them, but can you start by answering the question, please?

Zarin Patel: My apologies, Mr Bacon. I will answer the question. Currently, all senior managers get private BUPA cover.

Q14 Chair: How many is that?

Zarin Patel: At the moment, I think we have about 574 managers. What we did was remove that cover in 2011-12, so new joiners to senior management grade no longer get private medical cover.

Q15 Chair: Okay. Can I ask what the cost of that is to the Corporation?

Zarin Patel: I do not have those figures to hand, but I can get them to you by the end of today.

Q16 Chair: Have you got a ballpark figure in your head?

Zarin Patel: From memory, I think it is about £2 million, but can I please confirm that again for the Committee?

Q17 Guto Bebb: On this specific point, the BBC has taken over responsibility for the financing of S4C in Wales. The Welsh Affairs Select Committee did an inquiry and we highlighted the fact that S4C paid for BUPA medical services. S4C has now cancelled all of that. It is fully funded by the BBC. Why are the executives of S4C willing to make that decision while the BBC still pays a private health service provider? I am bemused.

Zarin Patel: As I say, for new joiners, we have stopped that provision.

Q18 Chair: Why did you not change the contract for existing people?

Q19 Mr Bacon: So you have three classes of people: senior managers who have it; new-joiner senior managers who do not; and the poor bloody infantry who never had it in the first place. Is that right?

Zarin Patel: I think all staff get it, but can I confirm-

Q20 Mr Bacon: All staff get it? I thought you just said only senior managers got it.

Zarin Patel: Would you mind, Committee, if I check those figures and by the end of the day, send them back to you? Can I just reiterate that we removed the provision of private medical cover for senior managers in the last year?

Q21 Chair: Yes, but you removed it from new people, and you did not remove it from existing people, or have you?

Zarin Patel: No, we haven’t.

Q22 Mr Bacon: You haven’t?

Q23 Chair: You have or you haven’t?

Zarin Patel: We have removed it for new joiners at senior manager grades, but we haven’t removed it for existing people.

Q24 Chair: We will come to the wider issue of the auditing of this thing in a minute, but I would suggest to you, Mr Fry, that the Trust should reflect on that. Other people, including MPs, have their terms and conditions changed on things like pensions quite regularly nowadays, so I think it’s not a bad thing for you to reflect on whether this is a good use of public money.

Anthony Fry: I think it is fair to say, Madam Chairman, and you will know from the response the chairman gave to Mr Morse in regard to the NAO, that the Trust would be positively encouraging of the concept of some review at this point of the-

Q25 Chair: At this point?

Anthony Fry: At this point-in other words, following the hearings today and next week, if the NAO wishes to suggest to us, as part of its 2013 programme, that it reviews questions around the severance of senior managers, we would regard this as being helpful in the general context.

Can I make one point about this? As you will appreciate, the Trust has strategic oversight of the conditions and pay for the Corporation. The only person whose contractual terms it has direct control over is the Director General; the rest of the terms and conditions for senior managers are all determined by the executive committee’s remuneration committee, which, as you know, comprises three non-executive directors. We clearly, as you know, have made strenuous efforts in the last few years through strategy to drive down overall pay and numbers. As the chairman has made clear on behalf of the Trust, if we are going to have any sort of review around this issue or related issues, we would do that in the new year on an holistic basis, rather than looking at individual cases.

Q26 Chair: I am going to bring Amyas Morse in. I just want to come back to the end of the package before we move on. Do you want to come in, Amyas?

Amyas Morse: Only to say that we remain willing to start work immediately. If we are saying, Mr Fry, that you would really like to have a more broad-ranging review of benefits as a whole, which will take longer, that is a different proposition. If you would like us to look at the specific facts, legal position and so forth around some of the decisions that have just been made, I am ready to start work immediately on that, and we could report, I think, very quickly, but it is entirely up to you. Obviously, I appreciate that that would be outside our normal arrangements, and I certainly was not trying to change those, but if you wanted us to do that piece of work because it would help to inform the debate, we would be more than happy to do it straightaway.

Anthony Fry: I think we made it clear that it would be slightly odd from our viewpoint, having only just taken a set of decisions on the basis of legal advice, to think we needed to have those decisions audited. The offer that was made by the chairman of the Trust was very clear: given the concerns that are legitimately being expressed by this Committee and outside it around issues like severance, it seemed to us sensible to see the terms under which this Director General’s career was terminated at the BBC in the context of the other arrangements reached with other individuals.

Q27 Chair: I know other people are dying to come in on this, but I have to say to you, even as somebody who understands the current arrangements, that lawyers telling you it is okay is very different from auditors looking at it. I would urge you, given the degree of public disquiet over this settlement, to consider that it is in your interest, and certainly in the public interest and Parliament’s interest, that we get on and conduct this very limited exercise immediately. I should have thought it would be of benefit to you if you have nothing to hide.

Anthony Fry: We certainly have nothing to hide. I am here to answer any questions the Committee has. The chairman is in front of the CMS Committee next week, and I-

Q28 Chair: I know. The problem is that we do not have the information that we need. The normal way we work-it is a better way of working-is that we have a whole lot of facts before us on which we can base our questioning. In this particular instance, because you have not allowed the NAO to look at just this deal, our ability properly to question you and the public’s ability to have a clear understanding of what happened are inhibited. It is a very simple issue, and I genuinely think you have made the wrong call. I urge you to reconsider.

Anthony Fry: I understand the point, Madam Chairman, and I hope that, during the course of this morning, you will be able to ask any questions you wish. I am going to give you fulsome answers on every question, however convenient or inconvenient that may be, and I suggest that after the chairman has appeared next week we will re-look at it. But today, I am simply not going to say to you that I think that that is the sensible thing to do.

Q29 Chair: I am taking the "we will re-look at it". I hear that you want to do DCMS next week, but, after that, I ask really urgently that you re-look at it and come back to us by the end of that week. Can you go on? We got stuck on medical and BUPA.

Anthony Fry: My apologies. I do not think it will get any better from your point of view, but I will merely tell you what the terms are. We agreed to pay the cost of legal fees in relation to advice that he received on termination of his employment, up to a limit of £10,000. We have agreed to continue to pay the costs of the reasonable legal fees, in connection with the advice on the inquiries.

If I can just explain on the Pollard and the Smith inquiries. As you know, the Pollard inquiry is into the events surrounding-I will use shorthand-the first "Newsnight", and the Smith inquiry is, in my view, the far more serious investigation into activities around the BBC in connection with the late Jimmy Savile. I believe the Pollard inquiry is going to report some time in early December, and I think the Smith inquiry is going to last somewhere between six and 12 months. The Pollard inquiry certainly has now assumed semi-legal judicial status. There is a QC employed by Mr Pollard, witnesses are being called in an adversarial fashion, and a reasonable amount of legal fees are being incurred for representation for those witnesses. If we want to get into it, I am very happy to talk later about what I think the costs around that are, in broad terms. We do not know yet, because the thing is obviously still ongoing, but all senior executives involved have been given the right to access legal counsel, and the departing Director General is in no different category.

Q30 Ian Swales: Can I just pick up a point on the wording that you used on the first amount of legal fees? You said you agreed to pay up to £10,000 in legal fees in connection with his "termination"-that was the word you used. So we are back to the question of resignation versus termination. Also, would it be normal to pay legal fees for somebody who is thinking of resigning? Is that something that you would normally do?

Anthony Fry: In a compromise agreement, it is normal to pay legal fees. The amount of legal fees that different organisations agree to pay differs. I should say that the package that was agreed in the compromise agreement was the result of negotiation between the Director General’s lawyers and the BBC Trust’s lawyers. The total amounts that the Director General had asked for were in excess of the £450,000. Those were refused, and the agreement was reached. But this payment was one of the items that was in the request. Sadly, I have experience of having to negotiate many of these compromise agreements in other circumstances. It would be reasonable to comment that the £10,000 is not out of kilter, although it is a large number by any standard.

Q31 Ian Swales: This £10,000 was for services rendered on one afternoon, is that right?

Anthony Fry: Up to £10,000 rendered in connection with this-it is solely in connection with the termination. The Director General will submit a bill for it in due course, and that will be paid. That is not unusual in normal circumstances.

Q32 Mr Bacon: Do you know who his legal advisers were that they could run up £10,000 in an afternoon?

Anthony Fry: I do not know how much was actually incurred. It was a term of the compromise agreement, and I do not know if it will be £10,000. I do not know if it will be £25,000 or £2,000-I just do not know.

Q33 Chair: So that I can be clear, he will have legal advice for any evidence that he gives to any of the inquiries, so you could be running up hundreds of thousands of pounds.

Anthony Fry: I think that that is very, very unlikely. This is a very general number, but it is one I asked for: we think it is unlikely that the amount he will incur in regards to inquiries is greater than £25,000. Again, it is a very large number, but that is the sort of order. It is not hundreds of thousands.

Q34 Chair: Okay. Carry on down your list.

Anthony Fry: You will be glad to know that there is only one other item, which is up to £10,000 for the cost of reasonable professional communications support. That is to do with-

Q35 Mr Bacon: You mean paying his PR guy?

Anthony Fry: It is actually mainly to do with the handling of the considerable amount of doorstepping that the Director General and his family have continued to be subject to.

Chair: God, we have all had doorstepping, Mr Fry. My daughter goes out and offers them cups of tea.

Q36 Mr Bacon: When Ministers get into trouble and end up having to resign, they often get doorstepped. It has happened to people of every party. But if the taxpayer were to think that they should be paying for bouncers to make sure that when the person got doorstepped, the paparazzi could be kept away, I think the taxpayer would have some questions to ask. You are prepared to pay that, are you? What was it for?

Anthony Fry: That is part of the compromise agreement.

Q37 Mr Bacon: Was it a bouncer, or PR? What are we paying for here?

Anthony Fry: Again, it is for professional support. I presume it will be to do with the vast amount of questions that he will doubtless get asked, and to provide some sort of cover for that.

Q38 Chair: We express incredulity, but the serious point underlying this is that it demonstrates a complete lack of understanding of how this is viewed in the public domain, given that it is licence fee payers’ money. That is the real shocker about all this. It is incredible. He took a public job, for which he was hugely well remunerated, he failed in 54 days and he gets incredibly rewarded for failure. In those little bits and bobs that you have added up, there is no understanding of what the ordinary punter turning on their telly feels about it.

Anthony Fry: I absolutely appreciate that. I can assure you-I will restate my earlier comment because it is important-that on the Saturday night in question I expressed considerable irritation about many of the aspects of this. I had a very simple choice-

Q39 Chair: What would he have got if he had gone to a tribunal and sought unfair dismissal?

Anthony Fry: The estimate by the lawyers is £80,000.

Q40 Chair: Instead of?

Anthony Fry: No, £80,000 in addition to the £450,000.

Q41 Mr Bacon: Plus costs?

Anthony Fry: Plus costs. Again, looking at it from the BBC’s and the licence fee payers’ viewpoints, I had to sit there and ask myself a question. Do I feel deeply irritated? I share the Committee’s shock at some aspects of this, but I had to take my hat off at 8.45 in the evening, or in this case 8.15, and ask myself a simple question. I was faced with a direct choice: do I do this now, or do I run it into Sunday, and potentially longer, in the hope that I can get a better result? I made a judgment, and I freely accept it was a judgment. Given the position we were in, I did not think the position would improve.

There was a judgment between the damage, in morale terms, to the BBC of firing a man who, whatever failings he may have demonstrated in the 54 days, retained a significant degree of popularity, and the £450,000 with the possibility of an additional £80,000 plus costs-or the alternative, which was the compromise agreement, done cleanly on Saturday night. In my judgment, it was clearly in the best interests of the BBC and the licence fee payers to do this. Did I feel good about it? Absolutely not. Do I feel good about it now? No. But I still think it was the right thing to do.

Q42 Mr Bacon: Can I just pursue the question of the settlement? First, can we be absolutely clear about one thing, about which there has been doubt? Is it clear that he resigned, rather than being fired? Is that clear?

Anthony Fry: He definitely resigned. In theory, under a compromise agreement, you have reached agreement between the parties. The nature of a compromise agreement is that it sits halfway between resignation and termination. We could have an interesting debate about who pushed who. The Director General was the first person to suggest that he should resign or leave the corporation. I am sure that he would argue that the meeting that took place with the Trust at 2.45 that afternoon left him in a position where he felt that he no longer had the full confidence of the Trust. Personally, I think that was an accurate reading of the situation, but we did not at any stage say, "George, you’ve got to go," and nor did the chairman.

Q43 Mr Bacon: Did Mr Entwistle indicate prior to his resignation that, if made subject to disciplinary action, he would contest such action?

Anthony Fry: No.

Q44 Mr Bacon: He didn’t?

Anthony Fry: He didn’t make that clear. That was an assumption.

Q45 Mr Bacon: Did the Trust examine Mr Entwistle’s contract of employment before a decision was reached to award him the extra £225,000?

Anthony Fry: As I said, we never had to take a decision to award £225,000. He came to us with a package, on the basis of which he would resign.

Q46 Mr Bacon: You did have to take a decision. I’m sorry, he made you an offer and explained to you the terms on which he was prepared to resign, but you still had to take a decision to award him the extra £225,000, compared with your legal obligation, were he to resign or not. You still had to take that decision.

Anthony Fry: The decision we had to take was whether we were going to pay him, under a compromise agreement, the £450,000, plus the other things I have talked about, or fire him for £450,000 plus the prospects of unfair dismissal. That was the decision we had to take. Mr Bacon, I would love to have been put into a position where the Director General had reached a judgment that he should resign and go for £225,000 under his contract. That is the position I would like to have been in, but that was never on the table for me, much as I wish it had been.

Q47 Mr Bacon: Was legal advice sought before the decision was made to award him the extra money? You may already have given the answer to that question, so it is just for clarity.

Anthony Fry: Yes. Legal advice was sought throughout by the Trust. We were advised throughout by Baker and McKenzie, and we have that advice. As I say, the decision was not to award him £225,000 but to choose between paying him under a compromise agreement and firing him. Those were the only two choices.

Q48 Mr Bacon: And the lawyers were involved throughout?

Anthony Fry: Yes, absolutely.

Q49 Mr Bacon: I hate to say this, but it is mildly reassuring-HMRC could probably take a leaf out of your book in this respect-that you had legal advice right from the beginning.

Anthony Fry: We had legal advice throughout. Let me put it this way: we did not have legal advice at the 2.45 Trust meeting, clearly-

Q50 Mr Bacon: Didn’t you?

Anthony Fry: Not at the 2.45 meeting, because we had not actually discussed-

Q51 Mr Bacon: When did lawyers first get involved?

Anthony Fry: At 5 o’clock in the afternoon, I think.

Q52 Mr Bacon: At 5 o’clock?

Anthony Fry: Yes.

Q53 Mr Bacon: So Mr Entwistle made his offer to you at what time?

Anthony Fry: I believe the negotiations started after his telephone call with the Trust chairman at about 5 o’clock.

Q54 Mr Bacon: I hope you understand why this encounter and exchange is so unsatisfactory, because we would already have the answers to many of the questions I am asking you if the NAO was able to operate in the way it normally operates. The NAO would have done all that and written us a brief, and we would have a timeline so that we could understand all this. We would be further ahead than we are now.

Anthony Fry: I understand your frustration, sir.

Q55 Mr Bacon: Good. I am glad about that, because we have been trying to make that point to the BBC Trust for many years.

Anthony Fry: I think we have always understood the frustrations that the governance arrangements under the royal charter operate for everyone, not just you but other people, too. It is what it is, and I have to deal within that. All I am saying is that I am trying today to be as helpful as I can, and I am happy to go on for as long as you need me here.

Q56 Stephen Barclay: I think, Mr Fry, it is more than a frustration. Is there not a conflict of interest, because the BBC Trust has made the settlement but it is then fettering the NAO’s access at a time of the NAO’s choosing?

Anthony Fry: Those are the arrangements that exist as a result of the fact that we are governed by royal charter, not by Parliament.

Q57 Stephen Barclay: Indeed. I am aware of the arrangements, but again that was not my question. I said, "Is there not a conflict of interest in the arrangements as they currently stand?"

Anthony Fry: I do not believe so. We are charged as the governance body of the BBC, and, as I said earlier, we are in a position where this decision came to us and we had to take a set of choices. We took the proper legal advice. There is no question you can ask me on the Director General’s settlement that I am not prepared to answer.

Q58 Stephen Barclay: The problem, Mr Fry, is that we cannot ask the right questions, and nor can Mr Whittingdale’s Committee, because we do not have the right data on which to base those questions. I come back to the conflict of interest. In essence, you are the deal maker and the regulator, and you are also controlling when the auditor has access. That seems a conflict of interest.

Anthony Fry: I understand your point-we have had this discussion many times with the Committee-but actually it is down to Parliament to decide that it does not want to have a royal charter arrangement with the BBC. If you want to change the arrangements, that is in your control, not mine. I am charged as a BBC trustee to do what I am charged with under my duties under the royal charter. I did not write the royal charter; I am acting on it. I have to do what it tells me to do.

Q59 Stephen Barclay: No, it is perfectly within your control, in response to Mr Morse’s letter, to give permission to the NAO to come in. So you are not bound by the royal charter. I would simply point out that, when the BBC World Service was funded through the FCO model, the NAO had unfettered access to BBC World Service without compromising its commercial confidentiality and editorial independence for the audit.

I will come on to another point. Mr Fry, I think you are suggesting that this case is out of the ordinary.

Anthony Fry: Indeed.

Q60 Stephen Barclay: Could you please explain to me why Caroline Thomson earlier this year was paid a total severance payment of £670,000, made up of one year’s salary as payment in lieu of notice and one year’s salary as a redundancy payment?

Anthony Fry: Can I answer in two phases? I think it is important to differentiate. I said this was out of the ordinary. The Director General’s position is out of the ordinary, in my view, because I cannot think of another circumstance in which someone was in that particular office for 54 days. I said that to the Committee earlier, and I now re-emphasise it.

Q61 Stephen Barclay: So it is not the payment but the time in post that is out of the ordinary?

Anthony Fry: Absolutely. I would actually say that if you look at the list of payments made to departing members of staff under the terms of their contractual arrangements, this arrangement, in terms of what was under the contract, is actually of a rather different size and status from some of the other ones. As I said, we do not have control.

Q62 Stephen Barclay: It is not, actually. That is just simply not true, Mr Fry. I have got a list and, over the last two years alone, the BBC has paid at least 10 severance payments of over a quarter of a million pounds: it paid Mark Byford a severance payment of £949,000; it paid Sharon Baylay a severance payment of £392,000. You cannot say that the quantum of this settlement is out of step.

Anthony Fry: I was making a different point. It is not the quantum I was referring to; it was the fact that the Director General, in this case, got paid one year’s salary flat. In every other case of those payments, if you look at the size of the salaries and then the size of the severance payments, they are actually larger. The point I was making is that the Director General’s severance is actually less in that regard. That is the fact.

As the Trust-I will ask Ms Patel to respond with regard to these payments-we do not control the contractual terms; those are controlled through the remuneration committee of the executive board.

Q63 Chair: Don’t you need a chief operating officer?

Anthony Fry: Can I suggest we ask Ms Patel to talk about the details of this, and then come back that?

Q64 Chair: I will tell you what the Caroline Thomson thing feels like to me. She did not get the top job and wanted to leave, so you somehow created a redundancy when there wasn’t one. A lot of people do not get the jobs that they want to in life, but you do not just-

Q65 Mr Bacon: Hose them down with money as compensation. That is what this looks like-it really does-and they are huge amounts of money.

Q66Chair: I cannot see the organisation not requiring a chief operating officer.

Anthony Fry: I would like to respond on that. Clearly, as you would expect from my position on the BBC Trust, I have views, but in terms of the specifics of these payments, I would like somebody from the executive side-these arrangements are not within the day-to-day control of the Trust-

Q67 Chair: Is there a chief operating officer? Are you not it now, Ms Patel?

Zarin Patel: As CFO, I have taken on pretty much all Caroline Thomson’s responsibilities.

Q68 Chair: So what has changed? What was her redundancy?

Zarin Patel: What has changed is that we have closed the post of the chief operating officer, and all Caroline Thomson’s responsibilities have been divided, largely between me as the CFO of the organisation-I have taken on all of those responsibilities-and a few other departments, such as marketing and strategy, which report directly to the Director General.

Q69 Chair: Can I put it to you that it was a device to pay her off for her disappointment? I can completely understand her disappointment, but it was a device to pay her off. This, again, riles the licence fee payer. Mr Fry, you would not have done it in your private sector work in that way.

Zarin Patel: If you go back to George’s speech on his first day in office, 18 September, he clearly laid out his thinking about a smaller and more connected executive board.

Q70Chair: No. She does not get the job, and then she goes. That is fine-she might have been really fed up and have felt that she did not want to work for the organisation any more, but a lot of people have disappointments in not getting jobs and you cannot then give them £670,000 of licence fee payers’ money. It is awful.

Q71 Mr Bacon: You took her job, so you became chief operating officer, in effect.

Zarin Patel: My title, I am afraid, is still chief financial officer.

Q72 Mr Bacon: Yes, but you assumed those responsibilities?

Zarin Patel: Yes.

Q73 Mr Bacon: Remind us what she was paid when she still had the job.

Zarin Patel: Bear with me for one second-£335,000.

Q74 Mr Bacon: Can you just remind us what you are paid?

Zarin Patel: I am paid £322,000 at the moment, because we gave up one month’s pay. My substantive salary is £367,000, and that has not changed, despite increasing my responsibilities.

Q75 Mr Bacon: Okay, but I am not quite clear. Presumably, for the £335,000 that we were paying Caroline Thomson, she was quite busy. That is a very high salary, and one would hope that she was running around like a March hare, trying to keep up with all her responsibilities. You have this job, which also has responsibilities that are very significant for the finances of the whole BBC, on £367,000 a year substantive annual salary, and you have taken on all this other £335,000-worth of value, in terms of employment, as well. I am not suggesting that you should, as it were, double your salary, but I am puzzled about how you have time to breathe. If she were doing a useful job, there simply would not be time to do both her job and yours, but you have assumed all these responsibilities.

Zarin Patel: As you know, the BBC has £700 million-worth of savings targets. One of the things that we are trying to do is to run the whole business side of the BBC in a single, connected way. By taking on all those responsibilities, which are technology-

Q76 Chair: Don’t pretend that that was the rationale for this. The rationale for this was that she did not get the Director General’s job. I find it really difficult to believe that the reason she got this pay-off was that you suddenly decided you did not need the post. She went immediately after she failed to get the job.

Q77 Mr Bacon: Can you just finish the point about the single connected vision, or whatever it is?

Zarin Patel: The whole business side of the BBC-money, which is the finances of the BBC; legal and business risk assurance; technology; all the operations; the way the BBC’s buildings, technology and distribution work; and the BBC’s commercial operations-is now under my leadership. And by doing that, and I again would refer Committee members-

Q78 Mr Bacon: But you are leaving!

Zarin Patel: There will be a CFO after me.

Q79 Mr Bacon: When are you leaving, by the way?

Zarin Patel: I had agreed with George that when we had finished establishing the new division, in roughly a year’s time, that would be my desire. After eight years at the BBC as CFO, it was important for the BBC to have change and fresh insight, and it was important for me to move on.

Q80 Chair: So what offer are you going to get?

Zarin Patel: I have no severance package at all. Can I finish the point? Caroline Thomson’s departure as COO was part of a plan to simplify and flatten the structures of the BBC, and to have the content divisions and the business division operating as one. I have a substantial efficiency target to deliver as a result of that, so this is a substantial move for the right size of the business as a whole.

Q81 Chair: Mr Fry, do you accept that there was no connection between her departure and her failure to get the job?

Anthony Fry: I think there is no doubt that Caroline Thomson was deeply disappointed. Her disappointment was made very clear both privately and, indeed, publicly. I think it would have been very difficult for Caroline to do her job as, essentially, the No. 2 to a Director General whose appointment she clearly had major issues with.

If you are asking me to comment on what I think generally about pay and rations at the senior end of the BBC-you will be well aware, as I have said this in this Committee, and I will repeat it-I have been deeply concerned ever since I arrived at the Trust about the level of pay. I have been deeply concerned about the number of senior managers. I am reasonably pleased-only so reasonably-that we have managed to reduce the total pay to senior management by the amount we have. I am pleased that we have reduced the numbers of senior managers. I happen to think that it is still a journey, and it is still work in progress.

We are in a very difficult position. If I sit at the Trust and look at the position the management team is now at at the BBC, I find it very unsatisfactory. I am deeply worried and concerned, and I remain deeply worried and concerned. It was not a hollow offer when the chairman made the comment he did about work that the NAO could do on a holistic basis. We remain focused on the question of remuneration within the BBC. We have made great strides; I think there is more to be done.

I am looking forward to working much more closely with the remuneration committee of the executive board, which has been completely reshaped as a result of changes on the executive board-these are the non-executive members. I would hope that the progress we have made will continue. I recognise, more than I think sometimes people understand, how shocking some of these numbers are to licence fee payers. The tin that I sit under says, "Looking after the interests of licence fee-payers". I feel very strongly about this. As I say, these are not empty comments. Since I have been on the Trust, we have taken serious action. That action is continuing, and I believe that there is further work to be done.

I absolutely understand the comments that you have made this morning, and I know will continue to make. I welcome the comments that are made by the PAC. We will come on to them later in regard to personal service companies, but I regard this as very positive. This interaction between the Trust and the PAC is helpful to us in doing our job.

Q82 Stephen Barclay: Can you tell us whether Caroline Thomson got the minimum that her contract entitled her to?

Zarin Patel: As I do not sit on the remuneration committee, I cannot confirm that, but she was on a salary of £335,000. She got-

Q83 Chair: This is your executive remuneration committee?

Zarin Patel: No executive is a member of that; only non-exec directors are, and they approved her severance package.

Q84 Stephen Barclay: It is just that the wording in the note is interesting, because it says that it was made "in line" with contractual obligations. What we have discovered from Mr Fry is a little of the negotiation that led to Mr Entwistle being paid double of what contractually he was entitled to. What is unclear from the papers before us is what sort of negotiation took place with Caroline Thomson. It suggests, from this note, that there was a negotiation.

Zarin Patel: I cannot comment on that, because I really was not part of that negotiation, if negotiation there was. That severance package was approved by the remuneration committee of the BBC. If it pleases the Committee, we will write to you, but the information I-

Q85 Stephen Barclay: It is the sort of thing the NAO would have found for us ahead of the hearing, had it been able to have access.

Zarin Patel: Of course.

Anthony Fry: To be fair, the NAO, in this particular case, before this hearing, was only looking, or intending to look, at Mr Entwistle. My holistic approach would have enabled the NAO, and still will enable it, to look at all of this. You would not have had an answer from the NAO in regard to Caroline Thomson, Mark Thomspon, Mark Byford or anybody else for that matter.

Q86 Guto Bebb: Just briefly, the information we have shows that, in the two years to October 2012, 10 executives shared more than £4 million in severance pay. If only 10 people gained such a sum in two years-it looks as if losing your job at the BBC is the same as winning the lottery-can you give us an indication of how much has been spent in total on severance pay in the past two years?

Zarin Patel: For a recent freedom of information request, we published these numbers, and they are over five years. Over the last five years, 6,000 people have been made redundant from the BBC as a result of the substantial savings programmes we have under way. We incurred one-off redundancy costs of £276 million, but as a result of that made cumulative savings of £2.7 billion over that time period. It is also worth remembering that, in this period, since 2009, at the Trust’s instigation, we have been reducing the number of senior managers in the BBC, by 24%. We have also been reducing their pay; we have reduced pay by 27%. So the major efficiency programmes we have been undergoing, as well as the significant projects coming to an end-the finishing of New Broadcasting House and Salford-mean that a significant number of senior managers have left the organisation for one-off redundancy costs.

Q87 Guto Bebb: Do the figures you have just given us indicate that the BBC was previously bloated, to say the least? If the figures you have just given us indicate that the BBC can work with 27% fewer managers, was it previously bloated, or was the previous structure justified?

Zarin Patel: Our industry is going through a significant amount of change. Our processes and our technology are getting much more automated, so we need significantly fewer people. This is part of the BBC becoming significantly more efficient, as it invests in modern buildings and invests in technology.

Chair: It does not feel like that.

Q88 Justin Tomlinson: I have three points. You talked a lot, Mr Fry, about the legal advice you got through the negotiation process. How much legal advice were you getting when you set up the initial contracts? If you had set them up correctly, you would not now be in this position, surely.

Anthony Fry: I have to two things to say. First, the terms of the Director General’s contract are no different from the terms that are applied to the other members of the executive board of the BBC, so these are basically standard contractual terms. I do not actually accept that there is any reasonable structure of contract that we could have put in place, which, in solving the particular problem to which I know you are alluding-how does a person work for 54 days and still get paid this amount?-and which, short of appointing a Director General with P-plates and saying, "We’ll appoint you, and you’re going to have to go through a probationary period, after which we’ll decide whether you’re up to it," which would be extraordinary in the extreme, as well as very damaging to the ability of that individual to do the sort of things he or she wishes to do-

Q89 Justin Tomlinson: Why is that? I had a business for 10 years. I employed people. It was standard practice to have a probation contract, especially when you are paying such generous wages in the first place.

Anthony Fry: I can’t think-I am happy to be corrected on this, because I am making a very broad statement, and someone will pull out an exception-of a chief executive or senior member of the civil service or any other body who would go into a job on a probationary plate, I simply can’t. But, as I say, I am very happy to be corrected.

Chair: Did you?

Amyas Morse: I did.

Chair: You did?

Amyas Morse: Yes.

Anthony Fry: Well, there you are. My point, I am afraid, has been proven. I should have taken a lead from the Comptroller and Auditor General, so I apologise. Let me re-emphasise: I really understand. Please do not get the impression that I feel good about this; I feel very, very bad.

Chair: You can change things, Mr Fry; you are on the Trust.

Q90 Mr Bacon: The licence fee payers are, I am sure, interested in your feelings.

Anthony Fry: I am delighted to hear that, sir.

Q91 Mr Bacon: I cannot speak for many of them, apart from myself. I am touched-I feel your pain-but what I, as a licence payer, and others would like to know is what you are able to do about this. There is a fundamental issue here: you are, in the phrase that has been bandied around in the media, at one moment the cheerleader for the BBC and the next moment an external, stern praetorian guard or a regulator trying to oversee what they do, comment on it and, if it is not good enough, do what regulators normally do. You are not, apparently, able to do both of those functions very well, and that is the issue.

Anthony Fry: If you look at my temperament, I am probably rather better as a praetorian guard than I am as a cheerleader as a matter of general course. Like everyone else on the Trust, we start from a position, which is typical of the vast majority of people in this country, and certainly of licence fee payers, of a deep, deep love of the BBC. The question of whether you can be both cheerleader and regulator is bandied around a lot. I happen to think that, like all organisations, we do not always get it right, but I do not think it is quite as complicated as critics of the structure suggest. Do I think it is a perfect structure? We could debate this until the cows come home. Do I think that, at a personal level, I do a reasonable job of being a praetorian guard? I do. Is there more I could do? I have said it before, and I am absolutely going to say it again: I can do better, and we can all do better.

I would like to think that the journey we are on is improving financial efficiency and driving down costs. Mr Bebb, if I may say so, I have a personal view that the BBC was bloated, and I think it is foolish for us to sit here as the Trust and not say that improvements have been made, which are partly to do with improvements in technology, but also to do with the fact that the whole of the public service in this country has suffered from being bloated at various levels and needs to be enhanced.

Do I think we have got there? No, we haven’t, and there is more to be done. I will be sitting in front of this Committee in three years’ time, all things being equal, saying exactly the same thing. We can always do better. Good is not good enough; it can always be better.

So I do think I actually do a job as a praetorian guard. Some of my colleagues would say that they are better as cheerleaders than regulators. Perhaps I am a better regulator than I am a cheerleader; I do not know.

Q92 Chris Heaton-Harris: To go back to that fateful Saturday, it feels on this side of the table as though your lawyers were advising you that Mr Entwistle could come at you for either unfair or constructive dismissal. I assume that that is off the back of the Trust meeting where he left maybe disappointed by the level of support that he received.

Anthony Fry: It is a very tricky issue. If I may say so, Mr Heaton-Harris, that is one of the things that I have wrestled with. In looking back at the events of what is a relatively short space of six hours or so, I have asked myself whether my comments-I put myself in the frame, because I suspect that I was one of the most vociferous people commenting on what I thought was a lack of grip and direction-actually put me in harm’s way because they might have been construed as being on the route to constructive dismissal. In other words, had I played that meeting differently, would we have ended up in a different position regarding the threat of unfair dismissal? I don’t know the answer.

Do I think I still did the right thing? Imagine you have your chief executive in front of you and he is telling you what he is intending to do, and you as, for these purpose, a regulator/non-executive director, think, "For goodness sake, you have got to take this seriously. This is a very bad situation." That was in the aftermath, I might say, of the "Today" programme that morning, which I am rather glad I happened to listen to live as opposed to merely being told about it, because I think it is well known that Mr Humphrys can be somewhat unreasonable at 8 o’clock in the morning. On that occasion, I thought Mr Humphrys was at his most reasonable, and I was extraordinarily worried. In conversations I had with others that morning, I expressed the view that I was very worried about what was happening.

Q93 Stephen Barclay: Why did you appoint him?

Anthony Fry: At the time the appointment was made-I can absolutely speak for the whole Trust on this, because, as you can imagine, we have thought a lot about that as well-he was definitely the right candidate. The great tragedy for George Entwistle, who after all had a very distinguished 23-year career at the BBC, was that you could almost argue that the very things that he identified as being the structural weaknesses in the BBC were the things that pulled him down.

Q94 Stephen Barclay: So it sounds as though you got rid of him before you gave him time to fix it. He has had 23 years, and you then hire him for the top job against the talents of a whole range of people whom you are paying telephone salaries to. One assumes, therefore, that he is a top talent, but 54 days later-it makes Chelsea look as though they keep their managers for a long time, by comparison-you are saying that he needs to shoulder the blame. The appearance then is that, to keep him quiet, because I suspect he is angry at shouldering the blame for everything else and may want to talk about what others knew about things, you say, "Take double what you are entitled to."

Anthony Fry: I think it was a very difficult situation by that weekend. I freely accept that the position the Director General found himself in, because of his linkage to the problems arising out of the first "Newsnight"-

Q95 Stephen Barclay: But this raises serious questions about your judgment when you appointed him. Do you not accept that it raises very serious questions about your judgment when you appointed him to the post of Director General if, within just 54 days, you can have lost such confidence in him that you had to get rid of him?

Anthony Fry: I can understand that question. I will absolutely say to you that, with the benefit of hindsight, lots of things look as though you made a wrong decision. There is a question you have to ask yourself, and as one trustee among 12, I have asked myself a lot, "Were there things that I should have picked up that would have indicated to me that, faced with this sort of crisis, this individual would not be able to handle it?" I am totally satisfied that there was nothing that I could have predicted or done differently. I will say to you that, in terms of the process that we went through for his appointment, the interviews we held and the vision for the BBC, he was clearly the best candidate.

I would ask a different question, which I have asked myself: "Have I in my career ever been given a job or done anything in which I was found wanting?" I would ask that of everybody else out there. The fact of the matter is that we all get offered challenges and sometimes it turns out that we do not have the skill level to handle that challenge, even though we and the people who gave us the challenge thought we would have it.

Q96 Stephen Barclay: But your legal advice said that you did not have grounds to sack him.

Anthony Fry: There is a difference between legal grounds for sacking someone with cause, which are a very high hurdle rate, and a judgment call by the BBC Trust as to whether or not, if the Director General, in this case, tendered his resignation- Let me make it clear: we never discussed whether or not we would fire him.

If you asking me the hypothetical question whether-if we had got to Sunday morning and no terms had been reached, despite the fact that the Director General had come forward, and we had sat there and said, "We are not prepared to agree your resignation on those terms"-in my opinion, as it is purely hypothetical, at some time on Sunday the BBC Trust would have felt that it had no option, since it could not agree terms, but to terminate the employment of the Director General, my judgment is that we would have reached that conclusion, but it is a hypothetical question and it is only my view. I have never discussed with colleagues whether they share the same view. It would have been odd, however, if the Director General had said to you at 5 o’clock on Saturday, "I wish to leave and to agree terms for leaving," if by Sunday evening we still thought it was okay for him to be in post.

Q97 Justin Tomlinson: You have conceded that the figures are shocking. I would actually question that because I have a feeling the public are now getting used to these abhorrent figures coming out of the BBC. If other media sources had carried out those same figures, they would have lost subscribers and customers. For commercial pressures, they would probably have done things differently. Yet, with the BBC, we all have to continue to pay our licence fee regardless. Is that fair?

Anthony Fry: No, I am afraid that is not, if you look at the numbers coming out of Channel 4, ITV and Sky for people terminated. This is not to justify the numbers. I you will notice, I have not at any stage this morning referred to what would or would not happen in the commercial sector. Frankly, I don’t think it is relevant. I have made that clear before. Working at the BBC is a completely different activity from working in the commercial sector. The pressures are different; the revenue pressures are completely different. Therefore, I don’t use that as a comparison. In the normal private sector media companies the numbers we are talking about would be regarded as quite low. I am not justifying that; I am just telling you that.

Q98 Justin Tomlinson: On the actual negotiations-the £10,000 towards preventing the doorstepping. Surely that would have aided your ability to negotiate that price down. If somebody needs money to protect themselves against public opinion, surely that would have been a good saw to take to the negotiation figures.

Anthony Fry: Do I think that on the Saturday night I could have done a better job? Possibly. I have to say that I got to the point at 8.45 on Saturday night where all I was interested in was the preservation of what I thought were the best interests of the BBC. I am not being glib about this; I am sure that we could have all done marginally better. In the circumstances, I sort of think that we did okay. I am not justifying it. I am not being glib. I am just saying to you that, at 8.45, I sort of got off my moral high horse and thought that I have to do what I think is right for the BBC and the licence fee payers, and that I could get my moral outrage out later.

Q99 Chair: Can I just ask two tiny questions that need very quick answers? We did not mention pension pots.

Anthony Fry: We have not mentioned pension pots at all this morning. I may be wrong about this, but I believe that George had a total pension pot of £883,000, which I think translates into about £38,000 or £40,000 a year. I think that that is the figure.

Zarin Patel: That would have been disclosed in our annual report.

Anthony Fry: And that is an addition obviously. That is where the £1.3 million came from in the popular press.

Q100 Chair: I can’t remember the phrase you used, but there are others who have "stepped aside" at the moment. How will they be treated if the inquiries find that they should also leave?

Anthony Fry: It is an important point-I won’t belabour it, but I think it is important, although I need to be careful. Under the compromise agreement reached with the former Director General, there are clearly provisions that, in certain circumstances, depending on what comes out of the Pollard inquiry, the Trust-or the BBC-would be able to recoup funds out of the £450,000. The reason why I am keeping that as vague as I can is that I simply do not know what will arise out of the Pollard inquiry and will obviously have to take legal advice-I want to make that clear. The position of the individuals will completely depend on what comes out of the Pollard inquiry.

Q101 Chair: So this will not necessarily set a precedent.

Anthony Fry: I do not think that this sets any precedent whatsoever. I am going to have to look, as you can imagine, extraordinarily closely at the conclusions of the Pollard inquiry, as will the executive remuneration committee. I would imagine that there will be a considerable amount of dialogue between the executive remuneration committee and the BBC Trust around the conclusions of Pollard, to make sure that the two bodies are treating the information in that inquiry in a similar fashion. I would imagine that we will be sitting down with Dame Fiona Reynolds, who is now the senior independent director, to discuss that when the inquiry comes out at the beginning of December.

Q102 Chair: I really would urge you in the public interest to enable the NAO to do an urgent inquiry into this.

Q103 Mr Bacon: It would be helpful, and again in the public interest, to have the documentary evidence of the things you have been talking about. Can you send us and the NAO a note setting out the things you have been talking about with the various heads of the settlement and also the legal advice-and a time line?

Anthony Fry: I am very happy to do all of that. It is readily available, and I will make sure that we get that through as speedily as we can. Chairman, as always, I take on board the comments of the PAC very seriously on this matter.

Q104 Chair: Right, personal service companies.

Q105 Mr Bacon: From the frying pan into the fire.

Anthony Fry: Depends on your perspective, sir.

Q106 Mr Bacon: Given that my surname is Bacon-

Anthony Fry: And mine is Fry. That seems a very, very appropriate analogy, if I may say so.

Mr Bacon: We didn’t plan this.

Anthony Fry: It is a great double act.

Q107 Chair: I don’t know where to start on this one. I probably had better go to you in the first instance, Ms Patel, and just say that clearly the Deloitte report does not tally with the evidence you gave to this Committee. Do you want to talk about that?

Zarin Patel: I think it does tally. The Deloitte report really has not found that the BBC was doing anything wrong with its current arrangements, and it looked at every single contract and payment made by the BBC in the year 2011-12. They say that our policy is effective and compliant, but we are grateful to the Committee when, at my hearing on 16 July, you clearly expressed your concern and the public’s concern about the use of PSCs. We thought deeply about what we should do.

The review found that we can, as the Committee identified, recruit long-term presenters in three different ways-sometimes as staff, sometimes as self-employed, and sometimes on personal service companies-and that was really hard to justify and sustain. So that is one big area of change that we are making. We are also going to work with HMRC to create a proper self-employed talent modus operandi, like we have for other freelance workers, so we can be confident that they are properly self-employed and therefore our need to use personal service companies will reduce significantly.

Thirdly, where we do want to use PSCs-they are likely to be for people who have a broad portfolio of income, and international income-we are going to both significantly strengthen the contractual clauses, so we can get true assurances about the appropriate amount of tax, and increase the amount of reporting we do to HMRC, so they have transparent information.

Taken together, we believe the report has been very helpful in getting us to balance the creative flexibility that we need in employing freelancers, but also the public perception about being transparent about those tax arrangements. The review, as I say, has been incredibly helpful and we are starting to make the implementation of the recommendations as of now.

Q108 Chair: Thank you for that. The question I actually asked you was about your figures being wrong. I do not know what your data are-I am sure there are data whirling around the BBC-but having come to a Committee where we were talking about personal service contracts, and getting the figures so badly wrong, judging by what then emerged in the review, I wondered what you have to say about that.

Zarin Patel: The figures we gave you on 16 July were about a completely different time period. What we have done with Deloitte is, from the audited accounting records for the year to 31 March 2012, which is our financial year, taken every single contract that we entered into, as well as every single payment we made for contracts entered into in previous years, and audited the whole population.

The other reason it was important to take a full and comprehensive view was that in future years, we want to be, on an annual basis, in a position to be able to report against that baseline and see what progress we have made in the number of personal service companies, and employed and self-employed people. As we have done with talent and senior managers, I expect that it is something we will publish in our annual report. For me, the benefit of an independent review was to have a completely comprehensive set of data for a whole financial year, against which we could monitor progress.

Q109 Chair: We are pleased about the route you are taking into the future, but one thing that the Committee does is look at how taxpayers’ money-or licence fee payers’ money-has been used in the past. One of the concerns was that people were being forced into using personal service companies. At the time, you said to me that was not true, and I said to you that I had one whistleblower come and talk to me who clearly stated that he had been told that if he did not take a personal service contract, there was not a job for him at the BBC. Have you reflected on that statement, and would you like to say anything about it?

Zarin Patel: Yes I have. There are two issues here. The Deloitte report-the independent review-found that we did not force any member of staff to go freelance and on to a personal service company. Where people are self-employed freelancers, because of the misclassification risk we talked about earlier, we had a firm policy, which Deloitte again acknowledged, of saying that where it is unclear that you are self-employed, you must go on a personal service company. We have never forced a member of staff-

Q110 Chair: I am finding it difficult to envisage this-so-called freelancers who, for us, are either the face or the voice of the BBC. They would be classified by you as freelancers-I am not sure on what basis-but to us they are the face and the voice, and I would think of them as BBC employees.

Zarin Patel: I appreciate that. The point that we clearly asked Deloitte to look at, which they have, is: for a person who is a member of staff, like me-I am a member of staff-did the BBC’s policy push and force me to go on to a personal service company? Deloitte found that it did not.

Q111 Chair: I have to say that the evidence I got from my whistleblower was different. He was a member of staff.

Zarin Patel: And as I said to you, Madam Chairman, it is really important that if the person wants to make a confidential claim to Deloitte, they should do so. I think it is important that we follow these up.

Q112 Chair: I think they are probably relieved that the policy has changed, actually.

You wrote to me about the other issue that came out, Mr Fry. Whether or not you forced people on to it, there was also an allegation in The Times that comes out of the Deloitte report-it is on paragraph 2, page 7 of the executive summary. The second paragraph of paragraph 2 says, however, "in two files"-this was only a sample they looked at; I do not know how big the sample was-"the costs arising from the use of a Personal Service Company, including NIC, and the range of tax outcomes for the Personal Service Company and Talent were taken into account internally when considering commercial negotiations." The suggestion there is that there was seen to be a tax benefit, or a way of avoiding tax or NICs.

Zarin Patel: Deloitte’s sample was 108 files in total, and in two files they saw the correspondence. We saw all the correspondence in the negotiation, and Deloitte are really clear that they have concluded that they still found no evidence that the BBC directly advocated the use of PSCs. In these two situations, these were freelance people who HMRC had said looked much more likely to be employees, and the freelance agent’s tax accountants had got that advice, but we said, "Unless you come on staff, you have to be on a PSC," and they refused to come on staff. So in settling the fee for the PSC, what the talent accountants did was show the different ways a PSC would operate. Our tax adviser simply set out for the negotiator the factual information about how PSCs operate. We did not advocate the use of PSCs; we did not advocate the use of how money is extracted from a PSC; and Deloitte would not have concluded and clearly published an opinion if they believed that there was anything to that.

Q113 Chair: Is it right, Mr Fry, you only asked to see all this after it was raised in The Times-you did not know about it before?

Anthony Fry: No, obviously I had read it all in the Deloitte report. I took a very simple view. Deloitte are employed to do a job-to go through all the files that they decide to, and to come up with an independent report, much as an auditor would do if they went to do my annual report and accounts. They gave a clean bill of health to the BBC in regard to this matter.

I was challenged by The Times on a completely different point. The Times wanted to know whether I had personally read those particular files, and I made it very clear that I did not think that if I employ an auditor and they do the job properly, it is helpful for me to then go and do their job again for them. On the very narrow point, it was not that I did not know about it; it was that, as I made clear to The Times-it is a terrible phrase-what’s the point of having a dog and barking yourself? There did not seem to me any point, having employed Deloitte to do the job, in my double-checking that they had done the job properly. That was the very narrow point.

Q114 Chair: I shall ask a final question on this and then go to Steve and Ian. Given, again, the lack of confidence in this particular aspect of the story, would you be willing to publish the relevant e-mails, redacting the names, so that what you are asserting to the Committee could be verified in the content of those e-mails?

Anthony Fry: I think the difficulty is that the e-mails are part of an entire file and I am not sure that it is in the public interest to start publishing every single file, because these are-

Q115 Chair: No, just these e-mails.

Anthony Fry: But I think publishing e-mails-it is rather like the question I was asked by The Times: "Have you read these particular e-mails?" I replied that reading e-mails out of context is deeply unhelpful; I have to read them in the context of the entire file. Am I going to read the entire file? No. So I am afraid I take the view that I am not sure that is helpful, because if Deloitte had come to me and said, "We are extremely concerned that, in fact, in regard to these files, we are concerned that what you have suggested might have been the case was the case," I would clearly have to consider that very carefully. That is not what the accountants have told me. I probably take the view that I have to rely on professional independent sources to advise me. I am not sure publishing this or that is helpful in the context of the overall review.

Q116 Chair: The Comptroller and Auditor General wants to come in.

Amyas Morse: I just want to clarify a point. Am I right in thinking that. to some extent, having these arrangements in place can mean that it is actually cheaper for the BBC to have access to the services than it might be otherwise? In other words, you do not need to do a pension and-I do not mean to make a cheap point-severance payments as you would if you employed people and things like that. You are able to just plug and play, so to speak. So there is actually some motive in terms of cost mobility.

Anthony Fry: There is a very important point from the viewpoint of the BBC Trust, which is that, clearly, from a licence fee payer’s viewpoint, these arrangements protect the BBC and the licence fee payer from tax claims which may arise out of incorrect payment of tax by the individual through those companies.

The narrow point, and the problem for the BBC Trust-this is why I am grateful that the PAC got involved-is that we looked at these arrangements throughout from the viewpoint of whether this was in the best interests of licence fee payers, and it clearly was. After the Alexander report, the PAC, quite rightly, has a broader agenda which is not within my remit, but by raising the issue with us, you have helped us because you have provided a moral-I do not want to emphasise that word-or broader context of looking at this than simply the narrow licence fee payers’ interests. That intervention, if I may say, has been very helpful, but the narrow point is that, from a licence fee payer’s viewpoint, these companies help protect the BBC, but I recognise that the mood music has changed somewhat.

Q117 Stephen Barclay: The Deloitte report says-the Chair just referred to it-that in two of the 108 sample files, the costs arising from the use of PSCs, including national insurance, were taken into account internally, so you would accept, Ms Patel, that the benefits of using a PSC were discussed and acknowledged within the BBC.

Zarin Patel: The factual information about how a PSC operates from a tax perspective was explained to the talent negotiator. At no stage did that e-mail advocate the use of a PSC-very clearly, it did not. That is why Deloitte were able to draw a very clear conclusion-with no "subject to" or "exception"-that there was no evidence that the BBC directly advocated the use of PSCs to avoid tax.

Q118 Stephen Barclay: You are saying that they took them into account but disregarded the benefit?

Zarin Patel: Yes.

Stephen Barclay: That seems a rather contradictory position. Surely, by taking them into a account-

Anthony Fry: If you are in a discussion, it is important that the people discussing clearly understand the implications of a particular route; that is very different from advocating its use. The root of this, if I may say, is that there is no reason, from a tax perspective, why these arrangements should be inappropriate. It is all down to whether or not HMRC makes sure that it does its job properly.

Q119 Stephen Barclay: Mr Fry, you are absolutely right, but that is a no-brainer-no one is disputing that point. The report says that they "were taken into account internally when considering commercial negotiations", so as part of those negotiations, the benefit of it being a PSC was taken into account. What you are saying is that, in the negotiations, that was taken into account in some way but the benefit was ignored. I cannot understand the distinction.

Zarin Patel: Let me try to explain in a different situation. Typically, a freelancer fee rate will include, if they are going through a PSC, an employer’s NIC. It will also take account of a sensible level of pension and holidays.

Q120 Stephen Barclay: So there is a benefit from it.

Zarin Patel: But we do not advocate the use of PSCs to avoid tax, and that is the critical point, I think.

Q121 Stephen Barclay: Can I come on to a second point in the Deloitte report, where it says that some presenters who are self-employed and on PSC contracts have, in essence, very similar jobs to those who are employed. Could you describe the difference between very similar and identical?

Zarin Patel: The reason we are making the changes is that it is very hard to see the difference between someone who is on a staff contract who does a presenter job, and someone who is self-employed and doing something that appears, to you and I, to be a very similar presenter job. There might have been absolutely the right historical reasons for it, such as when someone first came to do something, they were expected to do for only a year, but they have been doing it for six years now, so-guess what?-they look like an employee. We should therefore change that and put them on an employee contract.

Q122 Stephen Barclay: It has sufficient characteristics now to be deemed employment. In fact, it has such sufficient characteristics that you are going to make it employment.

Zarin Patel: We are going to review all 6,123 PSCs, focusing on the 804 that Deloitte identified in the first instance, and put them through the new, more specific, unambiguous employment test; if they fit the employment test, that is how they will go on. Deloitte, having done a desktop review of those 804 high-value engagements, estimate that around 131 people will come on staff from the 6,123 PSCs. The rest, they believe, because of their value and the type of work that they do, are likely to be genuine freelancers. Nevertheless, as we implement, we will put every PSC through the new employment and freelance standards.

Q123 Stephen Barclay: Are there any presenters working on the same programme where one is employed, and one is self-employed on a PSC?

Zarin Patel: The BBC is a big organisation, so that might happen, but I do not have a programme or particular example-

Q124 Stephen Barclay: What I am trying to get at is, when we say they are very similar, what the distinction is, because if they are so similar, that suggests that those presenters have misfiled their tax form.

Zarin Patel: I don’t think it does. A presenter who is on a PSC to whom IR35 applies-remember, we give real information about what we pay people on PSCs to HMRC so HMRC can follow it up-will be paying an equivalent amount of tax.

Q125 Stephen Barclay: No, I am sorry, but that does not wash because I put that question to Lin Homer. We know that across the whole media, HMRC has only reviewed 59 PSC cases.

Chair: It was 23 actually, Stephen.

Q126 Stephen Barclay: Even less. I thought the figure was 59. The Clerks got a note from Lin Homer. Because of individual taxpayer confidentiality bizarrely being applied to the corporation as a whole, even though it is paid by the taxpayer, HMRC is refusing to say whether it has looked at a single case. We cannot say that HMRC has looked at any of these cases, because HMRC is refusing to disclose whether it has done so.

Zarin Patel: But it is exactly because the BBC cannot give a 100% guarantee about what happens in a PSC that this review has taken seriously the need to put some people on employment and look at each of the 6,123 PSCs and put them through a much tougher, much more specific and much less ambiguous employment test. We will create a proper self-employed on-air talent modus with HMRC so that we can be confident that these people, specifically freelancers-

Q127 Stephen Barclay: With respect, that it is a totally different point. The presenters may feel that the BBC has misled them into this position, but the liability will sit with the presenters. If you are saying that you have looked at these PSCs and in essence they have all the characteristics of employment and yet those presenters, perhaps mistakenly, have filed their tax form to HMRC and said that they are not employed, those presenters have mis-stated their tax and as a result of that have been able to pay 21% on their earnings, as opposed to 50%. That is the case, is it not?

Zarin Patel: That is exactly why we are making the really big changes in the report, because we cannot give that 100% assurance.

Q128 Stephen Barclay: So if that is the case, it would be important for Parliament to be able to see whether HMRC is now reviewing those BBC cases to see whether those presenters have mis-stated their tax position. What is preventing us from doing so is HMRC saying that the BBC has the right to individual taxpayer confidentiality. Would you therefore, not in terms of any names, but on a corporation basis for aggregate data, be willing to waive the taxpayer confidentiality that applies to the corporation to allow the NAO to inform the Committee how many cases HMRC is looking at?

Zarin Patel: I don’t believe we can do that. I would have to take advice. I do not think that it is the BBC’s tax confidentiality that is the issue; it is the individual’s.

Q129 Stephen Barclay: No, it is not. The Clerk may want to refer to the note from Lin Homer. In that note, she said that there is a duty of confidentiality to the corporation-to the BBC-so individual taxpayer confidentiality is applied to the BBC. I am not asking for the names or details of the individual. It appears that you have now looked at these contracts and said that they have the characteristics of employment. The presenters, perhaps on the basis of their discussions with you, have filed their tax forms saying that they are self-employed or that they are on a PSC. You have said that the BBC does not have any compliance duty and said, "It is not our responsibility; it is HMRC’s responsibility to do the compliance check." Parliament, however, cannot assess whether that check has been done, because HMRC cannot disclose to us due to taxpayer confidentiality. I cannot see how we as a Committee can get to a satisfactory position over the governance as to whether these tax forms have been misfiled.

Anthony Fry: Can I suggest that we take that under advisement? I simply do not understand the legal position. It may be a very important point, and to be honest I do not know the answer. We will come back to you as a matter of urgency; it is a perfectly legitimate question.

Q130 Ian Swales: Just to be clear here, we are not talking about the cost to the BBC; we are largely talking about tax avoidance by individuals, just to put that in context. We are also talking about the risk to the BBC. One or two public sector organisations are now having to make provisions because they realise there is a risk of fines from HMRC because of the arrangements they have got. It is important to state that context.

I am interested in the testing that Ms Patel is talking about. Are you familiar with what IR35 actually says about the tests of self employment?

Zarin Patel: Yes we are.

Q131 Ian Swales: I note that on page 11 of the paper you gave us you have given four criteria that you believe are important, whereas the IR35 test has some clear questions. Do you work set hours? Do you work for yourself? Do you do the work yourself? Can people tell you what to do and when to do it? Do you work at the premises of the person you work for? Do you generally work for one client at a time? You have come up with some new definitions here.

Zarin Patel: Can I just confirm that they are not new definitions? We have summarised them in the report. In the Deloitte report, you will see, in the detail, all of those factors. The new employment test we are building will be specific, unambiguous and detailed, as it needs to be.

Q132 Ian Swales: The one in this list that I would query is the length of engagement. Lots of people take fixed-term contracts and contract work as employees for periods of time that can be quite short. Can you say more about how you are using that particular criterion?

Zarin Patel: There are a number of ways. In our creative industry, we have to worry about situations such as this: you have a presenter doing two hours a week, but the programme may last six or seven years. How do you judge that relationship? For the rest of the time-the four days of the week-they are doing other work outside the BBC. That is one of the places that, working with HMRC, we want specific criteria. That would be one part of it.

The other part of it is not just the length of the engagement, but the type of work that someone does. Bal, who is close to this area, will give you a couple of examples that I am struggling with. If you have a news presenter who works five days a week and has been working for us for six years, the length of engagement is really clear and they cannot do any other work. But someone may do a piece of work for us on Monday on one programme, a piece of work for us on Wednesday on another programme, and then not work for us for four months, and then work for us again. So it is on lengths of engagement that we are trying to craft something really sensible.

I will just do the fixed-term contracts bit. As a result of new legislation over the past few years, someone on a fixed-term contract of 18 months or two years or more can start getting full employment rights, which include redundancy. In our case, where we have a big building project, we may need someone for three or four years, but we are not going to need them afterwards. Therefore, we do use PSCs and self-employed contractors, so that we do not have those redundancy liabilities at the end of that. What we are trying to do with these freelancers is balance the BBC’s need for flexibility, get value for money for the licence fee payer and have appropriate and transparent tax arrangements.

Q133 Ian Swales: So you are saying that you might employ somebody for three or four years and not consider them to be employees because you do not want them to have employment rights. Is that what you said?

Bal Samra: No, certainly not. If I could give an expression of how the different types of contract work. Just to give you some macro numbers, half of the programmes we see in the area of drama, entertainment and factual are refreshed, new titles every year that the BBC commissioners commission. Some of those titles, particularly in natural history, may take a number of years to produce. So a talent may be on a natural history programme, working over a period of time-not full time necessarily, but over a long period of time. They would have other sources of income and would be doing other things. So the length of contract-I agree with your point-is not in itself a reflection of whether that individual constitutes an employee.

Q134 Ian Swales: I think a lot of us have a lot less of a problem with people who work a few hours a week and have lots of other jobs. Your example, as I heard it, was about somebody who was involved in an office move or something for three years. I am interpreting that as pretty much full time for three years.

Zarin Patel: It would be full time.

Q135 Ian Swales: Surely we could draw up fixed-term contracts that will cover that situation?

Zarin Patel: We can and we do. The point I was trying to make is that those are not permanent skills that the BBC requires. Previously, you used to be able to have a fixed-term contract for quite a significant period of time, but employment legislation has changed, and someone who is on a fixed-term contract for two years or more starts becoming treated for full employment rights. As I said, what we are trying to do is balance value for money with the kind of permanent, temporary and specialist skills we need.

Q136 Ian Swales: Moving on, do you know how many of your people who are on self-employment or personal service contracts are registered under IR35?

Zarin Patel: No, we don’t.

Q137 Ian Swales: You don’t? Do you think you should?

Zarin Patel: First, we will use significantly fewer PSCs in future. Where we use PSCs, we are strengthening the contractual clauses, not only to get assurance that appropriate tax has been paid, but to report more clearly to HMRC what we pay every individual and under which PSC, and seeking assurance that the appropriate amount of tax is paid.

Q138 Ian Swales: The reason why I am asking you whether you know about this is that that is where the risk is. If you are paying people under these arrangements, and they are not registered under IR35, which is HMRC’s way of getting people to pay proper PAYE and national insurance in these circumstances, and you do not know that, you do not know what risk you are running under these arrangements.

Zarin Patel: That is exactly the point that the review made, and exactly why we are going to use fewer PSCs and, where we do use them, significantly strengthen our ability to assure ourselves that the appropriate amount of tax is paid on BBC income.

Q139 Ian Swales: Last question: are any of the PSCs-the 6,123 that are under review here-offshore?

Zarin Patel: None of them are offshore.

Q140 Meg Hillier: I want to pick up on some of the points that Stephen Barclay made about the Deloitte report. Of the 804 files, there are 131 high-priority cases. You talked a bit about how you were going to do this, but can you tell us when you are going to finish your review, particularly of those high-priority cases?

Zarin Patel: First, we need to finish and agree with HMRC our new specific employment test. We have started doing that now.

Q141 Meg Hillier: When is that going to be completed?

Zarin Patel: We expect by the new year. By January 2013, we could have the employment test in place. At the same time, in parallel, we are agreeing a new on-air talent modus operandi. That is, in effect, a framework that allows genuine freelancers to be employed as self-employed, therefore having no need for a personal service company. In talking to HMRC, we plan to have that in use by 1 April 2013-that is, the new tax year. Those are two enabling things that we have to get right.

We have already started the review of the 804 priority cases, and then we will systematically go through the 6,123. In transition terms, we have decided to make the changes-if someone needs to come on staff, at the end of their contract, because we do not believe that we can tear up a contract, unless by mutual consent, before then. The transition will happen in a systematic and orderly way. That is exactly why the Trust have asked us to report on a quarterly basis to ensure what progress we are making.

Q142 Meg Hillier: How long will it take? Just start with the 131. Are you doing them in priority order?

Zarin Patel: We are; we are focusing on that first.

Q143 Meg Hillier: How long do you think it will take, given the contract time?

Zarin Patel: The earliest we can start moving them is 1 April 2013, which is the date we have agreed with HMRC for a new talent modus.

Q144 Meg Hillier: When will you complete it?

Zarin Patel: On average, our contracts have a remaining life of two to two and a half years. The complete transition of all 6,123 personal service companies could take about two to two and a half years. We will work as quickly as possible, but we decided that it was right to do this when contracts expired.

Bal Samra: Just to give some colour on the sort of engagements that we enter into-to give you a sense of the nature of those engagements, including a majority of those 6,000 PSCs that we may engage with-we are talking about a range of contributions, from our presenters, who we have focused on here, to, at the other extreme, walk-on parts in a programme. A drama adaptation may have 100 people in a scene. Each separate individual may be one of the PSCs we are talking about here. "Casualty" may have an accident scene with a crowd, so you may have up to 200 individuals. The contracting relationships that we have range from walk-on parts to local radio contributors to presenters. I just wanted to give a bit of colour and the range of talent.

Q145 Meg Hillier: On the example that you gave, Mr Samra, the actors are Equity members?

Bal Samra: Some of them would be.

Q146 Meg Hillier: Most of them would be, presumably. You cannot act unless you are a member of Equity. If there is a walk-on part in the drama?

Bal Samra: Yes.

Q147 Meg Hillier: I cannot understand why they would be on a personal service contract, because they would be freelance. Whether they are doing a voiceover or have a walk-on or speaking part or a major role, unless they are on a long run in the west end or a permanent contract with the BBC-on a soap opera, or something-they would presumably be freelancers.

Bal Samra: They would be freelancers, but they would be doing other work. We do not compel them to be on personal service companies; they just are. They come to the BBC, and they may be on a personal service company, because that is the nature of the work that they do, which ranges from acting to theatre to writing to many other things that they may do. That is a decision they would have taken. The majority of the ad hoc contributions that we have are with individuals who may already have PSCs in place. That is the point I am making, really.

Q148 Meg Hillier: So lots of bulk people doing little bits of work, is what you are basically saying?

Bal Samra: Completely.

Q149 Meg Hillier: Going back to the issue of talent, it is interesting that we read in the papers of people negotiating down their fees. It seems to most of my constituents-my constituency has a high unemployment rate, the highest now in London-that some people are paid vast sums of money. Have you ever given any thought to debunking what I think is a bit of a myth about the cost of talent? If those people were not being paid so much, many of them would still do the job, and there is other talent that would come through and willingly do it for less. Is it really an issue, or is it this myth that you have to keep paying talent to such vast extents? I think some of that talent has been running rings not just around the BBC, but around other broadcasters, frankly, in demanding these high salaries.

Bal Samra: We have had an internal commitment to focus on the spend on talent. We now publish our spend on talent transparently in a report, alongside the DCMS guidelines on bandings. Over the last two years, we have reduced our total spend on talent by about £20 million. The majority of talent that we have-90%-will earn in total less than £50,000. The average across all our talent is about £4,000. That will vary based on the nature of the engagements every year. We have been working hard to attract the best talent to the BBC while competing in the marketplace and driving talent inflation down.

Q150 Meg Hillier: You are competing in quite a small marketplace. Take terrestrial and major cable channels: if Jonathan Ross left tomorrow, would he really get snapped up at the same rate by someone else? You are all arguing up the rates. You cannot be a cartel and keep the rates down, but it seems to me that the talent are whipping you and not the other way around.

Anthony Fry: It is a bit like footballers. The Trust has had a view very similar to yours on this, and we have put a lot of pressure on the BBC. Personally, I think that in the past, the BBC has sometimes underestimated the power that it has, because it is a very important showcase for talent. I think my colleagues share the view that, on an historical basis, there has been a tendency at the BBC to bid up talent unnecessarily. The problem with this is that it is a very easy thing to say. Of course, you just know what will happen: the very first time you implement a policy of bidding down talent, they disappear and go do something incredibly high-profile.

Q151 Meg Hillier: So where is John Humphrys going to go if he is not on the "Today" programme? Let us be honest? Would he really want to give it up?

Anthony Fry: I think the Trust has always taken the view-certainly since I have been on it-that paying up talent had got to a level where something had to be done. There is quite a lot of evidence, as Bal said, that that is changing. There is still a long way to go, although I have to say that generally speaking-I cannot speak for your constituents, obviously-people are much more exercised about pay to managers than pay to talent. I think that there are good examples of some talent on some programmes who have been paid extraordinarily well, so I take the point.

Bal Samra: Can I add something? In the last annual report, we reduced our talent spend by £9 million. Half of that was in the top talent tier.

Q152 Chair: Is it still? The problem is not the run-of-the-mill; it is the top.

Anthony Fry: No. It is not the Equity members at the bottom doing "EastEnders".

Q153 Stephen Barclay: Do you publish the travel expenses of the top talent?

Zarin Patel: No we don’t, because I think there is a derogation for journalism, arts and-

Q154 Stephen Barclay: There is-you have refused it. What I cannot understand is that the travel expenses are not part of remuneration-they are a cost incurred-and therefore I find it confusing why there is such secrecy over the amount of first-class or other travel incurred by top talent, because it is not part of remuneration. These are costs that one assumes have been legitimately incurred as part of people’s duties. Would you give an undertaking to publish the travel expenses of top talent?

Bal Samra: The expenses for top talent-some of those will be in their commercial contracts and some of them may not be. I don’t know exactly how those costs are all incurred, and I will go and have a look at that.

Q155 Stephen Barclay: Do you accept the premise of the question, Mr Samra? It is that it is one thing to say for our negotiations and our competitive position with Sky and other broadcasters that the amount we are actually paying someone for a salary we do not want to disclose, but that how much you spend on their travel, which is simply a cost as part of their doing their job, is a separate issue.

Zarin Patel: The BBC publishes travel, hospitality, entertainment expenditure right across the BBC across the whole year-

Q156 Stephen Barclay: Come off it.

Zarin Patel: I appreciate that it doesn’t do it for talent-I appreciate that.

Q157 Stephen Barclay: It is incredibly opaque, Miss Patel. I am sorry, but that is a very misleading answer.

Q158 Chair: Why don’t you take that point away, think about it and write to us?

Q159 Guto Bebb: I have only a few questions actually, because a lot of the issues that I wanted to touch upon have already been dealt with.

Regarding the figures from the BBC that showed that you have 25,000 front-of or behind-camera freelancers, could you give any indication as to how many of those would be working in the news gathering operation?

Zarin Patel: I couldn’t. I don’t know if Bal has that information to hand.

Bal Samra: Sorry, the question was?

Q160 Guto Bebb: The figures you have supplied show that around 25,000 freelancers work in front of or behind camera. The question I was asking was this: do you have any figures about how many of those freelancers work within your news gathering operation?

Bal Samra: In front and behind camera?

Guto Bebb: Yes.

Bal Samra: I think we’ll have to get that information for you, if I may.

Q161 Guto Bebb: Just a second point. In relation to the definition of whether somebody is self-employed or not, one of the key issues is whether they are doing any work for anybody else. If you have staff working within your news gathering operation classified as employees, do their contracts allow them to work for anybody else?

Zarin Patel: They tend not to, but again, can I confirm that?

Anthony Fry: The question was, if you are an employee in news gathering, are you allowed to do work for anybody else? And the answer that was given is that it is very unlikely.

Bal Samra: Very unlikely behind camera. In front of camera, that’s possible but very unlikely.

Q162 Stephen Barclay: Sorry to butt in, but when I looked at the specimen contract before our last hearing I seem to recall that there was a specific clause that said presenters-freelance presenters-could not work for other broadcasters in the UK. That is the case, isn’t it?

Anthony Fry: It would be extraordinary if someone who was fronting up the BBC’s "Ten O’Clock News" also went down the road and did the nine o’clock next morning at Isleworth. I mean, I cannot imagine that would happen.

Q163 Stephen Barclay: Mr Fry, you make my point for me, because it would be extraordinary, and yet if they were a freelancer, you would expect them to be free to go and work for other broadcasters, because they are a freelancer. Anthony Fry: Oh, I think you are drawing a distinction there that isn’t right. There are many things you could do as part of your overall activities that are not to do with news gathering, even though your main time might be spent doing news for the BBC. You might go off and present another programme on something completely different. Indeed, the BBC has its own cases. Fiona Bruce presents the news, but she also does "Antiques Roadshow", which is not a news operation. So it’s entirely possible-

Q164 Stephen Barclay: Possible within the BBC.

Anthony Fry: That is within the BBC, but it would be entirely possible-

Q165 Stephen Barclay: No, no, no. Again, you are answering a different question to the one I posed, remarkably skilfully, but my question was-

Anthony Fry: Praise indeed from you, Mr Barclay.

Q166 Stephen Barclay: Your contract stops you working for another broadcaster, so your example of Fiona Bruce is a total misnomer, because Fiona Bruce is not being prevented by her contract from presenting "Antiques Roadshow" on Channel Five-she is presenting it within the BBC family.

Anthony Fry: Yes.

Q167 Stephen Barclay: My point was, to follow up on what Guto was asking, when I looked at the specimen contract before our last hearing, there was a clause there that prevented freelancers doing their job of presenting with other UK broadcasters. That seemed quite a restrictive clause for someone who is a freelancer.

Bal Samra: Without permission. We very rarely have an all-encompassing exclusivity contract, where we will disallow-

Q168 Chair: That is a powerful point, though. "With permission" is on the margins.

Anthony Fry: To be fair, the 131, or whatever number it turns out to be- I am not going to be held to 131, because if I come back to the Committee and say it was 129 or 140, you will kill me. Clearly, that is part of the reason for having tests, where the totality of someone’s activities for the BBC, outside the BBC, in terms of hours, responsibilities and indeed pay, and what they get from other activities, will be taken into account. I agree with you, Mr Barclay: if it turns out that they really are BBC employees, guess what? As I made clear at the press conference when asked what happens if someone says, "I do not care if you think I am an employee. I am still going to remain a freelancer," if we think they are an employee they will either become an employee or they will leave working for the corporation. It is very simple and straightforward.

Q169 Stephen Barclay: Which raises questions about last year’s tax filing, doesn’t it?

Anthony Fry: That is a completely separate issue about the position that particular individual may or may not be in, in terms of how they decide to file their tax. I cannot comment on their tax affairs, and you would not expect me to.

Stephen Barclay: No, no.

Chair: Final question from Richard.

Q170 Mr Bacon: This is really to support Mr Barclay’s earlier questioning to you about HMRC. You ended up saying, Mr Fry, that Mr Barclay’s question was an entirely legitimate one. Could we then request that you answer it-not now, but could you send us a detailed note with your considered reflections on what Mr Barclay was saying, particularly about taxpayer confidentiality? It sounds as though that is being treated in relation to the corporation as a whole. No one is suggesting that the confidentiality of individual taxpayers should be breached, but we have a stumbling block here that we need to get over. If you could send us your thoughts in detail, we would be very grateful.

Anthony Fry: Yes, I have given the undertaking and I absolutely will, but I simply do not know the position. I apologise for the fact that I have come to the Committee without an answer to that. I will rectify that.

Q171 Chair: Thank you for coming. I gather you have missed a board meeting, and I am sure this was much more exciting.

Anthony Fry: I have to say this was considerably more enlivening than the average BBC Trust board meeting, so thank you for getting the adrenaline rushing through my veins this morning.

Chair: I would just like to put it on the record that we are pleased that you have taken note of the work that we have done on personal service accounts, and we are grateful for the Trust’s response on that. We look forward to a similar positive response to our desire to get to the bottom of Mr Entwistle’s settlement. Thank you very much.

Prepared 26th November 2012