PART ONE: BBC Annual Report and Accounts 2006/2007

PART ONE:The BBC is required under the terms of its Charter toproduce an Annual Report and Accounts in two parts.
The BBC Trust prepares the first part, the BBC Executive
prepares the second and each reflects the different roles
and responsibilities of the two bodies.Together the twoparts make up the BBC’s review and assessment of its year.

Annual Report andAccounts 2006/2007
The BBC Trust’s review and assessment

Contents

2 Chairman’s introduction
5 Overview
The BBC Trust
9 What it is and what it does
12 The Trustees
BBC performance
15 Services
28 Finance and business
BBC Governance
32 The Trust
46 The Governors
51 The Trust’s plans for 2007/2008
52 Contact the BBC Trust

British Broadcasting Corporation
Broadcasting House
London W1A 1AA
bbc.co.uk© BBC 2007

This is a pivotal time for the BBC...
We have a new Charter, a new licencefee settlement, a new definition of theBBC’s Public Purposes, and a new systemof governance that puts audiences firmly
at the centre of what we do.Thoseaudiences have more choice than everbefore: more channels, more ways ofreceiving them and, increasingly, more
ways of contributing to them.This is nota world in which the BBC can stand still.
This Annual Report reviews the BBC’s
activities over the past year in thecontext of rapid change in many areasin which the BBC operates. In Part One,the BBC Trust provides a strategic
overview. In Part Two, the BBC Executive
gives an operational review, accompanied
by detailed performance data andfinancial statements.

Chairman’s introduction

This is the first annual report from the BBC Trust.
It is very different from previous BBC annual reports,
and this reflects the new and very different governancesystem now operating at the BBC.
Sir Michael Lyons
Chairman, BBC Trust

The Trust is the sovereign body of the BBC.
It works on behalf of the public, who fundthe BBC.The public is made up of many diverse
groups reflecting age, geography, interests, religion,
ethnic background and many other factors.
As Trustees, representing the public interest
within the BBC, we will work to understandeveryone’s opinions and expectations. It is thenour job to use our judgement to make decisions
that set the BBC’s course.

Because this work is ongoing, our assessmentsof BBC performance in this report are necessarily
provisional and incomplete, but where objective
evidence is available we have sought to be frankin our comments. Some messages are alreadycoming through strongly: the public trusts the
BBC and values much of what it produces, but
it wants to see more innovation from the BBC.
These are messages to BBC management that
we underline in this report.

Inevitably, we will not please everyone. But I
hope that most people will come to recognisethat we are seeking to promote the public
interest in the way we work to achieve our
key aims as BBC Trustees.

My own favourite BBC programmes havealways been those that bring diverse audiences
together, that appeal across the barriers of age
or geography or background – genuinely popularsuccesses such as BBC One’s Planet Earth, Life
on Mars and Doctor Who. However, it is not only
big budget programmes such as these whichaudiences value and enjoy. High quality does
not necessarily mean high cost.The public wants
to see more BBC programmes that demonstratecultural and creative ambition. A big part of ourjob is to find ways to enable the BBC decisively
to raise its game – but not at the expense ofvalue for money.

The first of those key aims is to guard the
independence of the BBC and protect it frominterference by outside interests, whether political,
commercial or from any other source.The BBC
cannot operate in the public interest unless it isindependent and seen to be independent.
After that, our next key aim is to ensure thatthe BBC delivers distinctive, high-quality services
to all the people and all the communities of theUnited Kingdom – services that inform, educate
and entertain, and fulfil the BBC’s Public Purposes
set out in the Charter.
The Charter gives us new governance tools –described later in this report – to help us achieve
our aims. Much of the Trust’s work so far has
been spent in consulting the public to ensure thatthe new strategic framework we are building is
informed by our understanding of the kind of
BBC the public wants – one that will reliably
produce the programmes and services the public
really values.

2 | Part One: BBC Annual Report and Accounts 2006/2007

An independent BBC delivering high-quality
output will give us a strong foundation for ourthird key aim: to ensure that the BBC makesa very important contribution to the social,economic and civic life of the UK.This is a bold
ambition. We can achieve it by ensuring thatthe BBC adds significantly to the creative andeconomic vigour of the UK, and by ensuringthat the BBC contributes to the good reputationof the UK internationally.
In working to achieve these aims, we will
operate in an open and transparent way andalways keep ourselves receptive to views frommany different directions.

As Trustees we do not run the day-to-day
operations of the BBC – this is the job of the
Director-General and his staff. Our job is to makesure that they have clear priorities and that they
use their resources well – to produce high-quality
services that reach their audiences and provide
value for money and efficiency. We will rigorously
hold the BBC management to account against
these standards.
Where the BBC’s journalism is concerned, we
will seek to ensure that BBC reporting meetsthe highest standards of accuracy and impartiality
essential to sustain public trust. In this report we
set out the results of some recent work – begun
by the Governors and completed by the Trust –to ensure that the BBC is properly positioned
to meet the new challenges to impartiality.This
provides a timely reminder that impartiality is notjust about news and current affairs.The principles
of impartiality are relevant to other areas of theBBC’s activities.
In common with all media organisations, the BBC
faces new challenges as technology and marketschange. Audiences now expect to be able todecide where, when and how they consume their
media, and they are increasingly adept at finding
what they want.Young adults, for example, are,as we show in this report, abandoning televisionand radio in favour of new kinds of entertainment
offered online.This is not a world in which the
BBC can stand still. It is vital that we encourage
the BBC to reshape itself to meet changing public
needs and expectations. We want the BBC to beat the forefront of developing new services forthe public and to play a full role in the new
media marketplace.
However, we also recognise that the BBC is only
one of many media providers – albeit a verysignificant one – and we know the public places
a high value on the breadth of choice madeavailable by the thriving UK media market.The
public interest lies in maintaining that breadth ofchoice.The BBC must be careful not to use its
considerable economic power in ways that might
stifle enterprise or initiative from elsewhere.

It is a great privilege to be entrusted with thecare of the BBC and I am very proud to be its
Chairman. I want to pay tribute to the Trust’s
predecessors, the BBC Governors, for the work
they did over many years to establish and defend
the BBC’s independence and to build the BBC
into Britain’s foremost cultural institution. I would
like to pay particular tribute to Michael Gradewho, as the last Chairman of the Governors andthe first Chairman of the Trust, did so much todesign the new governance system and ensure
it was established by the new Charter.Tribute isalso due to Chitra Bharucha who became Acting
Chairman after Michael Grade’s resignation.
She and her Trust colleagues laid much of thefoundations on which the Trust will rest.
Ultimately, the BBC has only one asset – itspeople, whether they are part of its own staff orcontributing to the BBC from outside. My fellow
Trustees and I recognise that the BBC is driven
by the professionalism, innovation and creativityof its people and we will work to nurture andstimulate those qualities.
Sometimes we ask BBC programme makers
not just to be professional, innovative andcreative. We ask them to be courageous too.
Alan Johnston, the BBC’s Gaza correspondent,
who, as I write, is still held in captivity, typifies
that quality – a fine reporter who put himself
at daily risk to ensure that BBC audiences could,
through his eyes and ears, experience eventsin that troubled land at first hand.The courageof people like Alan Johnston is one of the things
that make the BBC special.

Sir Michael Lyons
Chairman
19 June 2007

The Trust cameinto existence on
1 January 2007.
Sir Michael Lyons
joined the Trust
as Chairman on
1 May 2007
Part One: BBC Annual Report and Accounts 2006/2007 | 3

“It used to be real old schooland now they’re creating andintroducing new programmesthat are making it for everyone,
not just the older generation.”
Spontaneous definition of BBC One. Female, age 18–24,
Somerset, contributing to Trust consultation on service licences.

Overview

Our provisional assessment, based on our first six months
as Trustees, is that the BBC is becoming more efficientand is delivering a wide range of high-quality content
across all its platforms, but it must do more to respondto public demands for greater originality.
Our audience research shows that public
approval of the BBC remains strong but
audiences want the BBC to provide a steadyflow of new programme ideas.This means
the BBC must show more creative ambition.
We understand that this carries the risk ofoccasional failures – and accept that risk aslong as the BBC is not spending its money
wastefully and that there is clear evidence
that the BBC is striving for originality anddistinctiveness in its creative output.
The ability to take creative risks is one of the
key justifications for the BBC’s public funding.
It will underpin our decisions about licence fee
investment in the months ahead.As Trustees wewill ensure that the BBC continues to contributeto the creative and economic vigour of the UK
by bringing its audiences high-quality, distinctive
output that informs, educates and entertains.
The world in which the BBC now exists
The transformation of the media landscapecontinues at great speed as new channels andservices are launched and existing ones evolvein response to sharply intensified competition.
In this thriving media market, audiences are
evolving rapidly too.
Some, particularly younger audiences, are turningaway from traditional media such as television andradio and finding new sources of entertainment
and information, for example online games andsocial networking websites.
At the same time, other audiences remaincommitted to the traditional channels, but have
rapidly rising expectations in terms of ambition,
innovation and high production values.
In this world of swift and relentless change
the BBC must stay true to its original vision ofproviding high-quality information, education andIn this Annual Report
we set out where wewill focus our attention
in the year aheadentertainment – but also ensure it can keep pacewith the changing tastes and expectations of theBBC’s many different audiences.
This can only be achieved by ensuring thateverything the BBC does is both driven by public
value and informed by the interests of the public
as licence fee payers.The role of the BBC Trust
is to make sure this happens.
The Trust represents the public
The Trust represents the interests of the public.
As BBC Trustees our first duty is to guard the
independence of the BBC against outside
interference, whether political, commercial, or fromany other quarter.The BBC can only be defended
if it demonstrates impartiality, accuracy, high quality
and good value for money. Our job as Trustees is
to make sure that the BBC delivers these qualities.
We hold the Director-General to account fordelivering the services that meet the BBC’s Public
Purposes and current priorities – set in conjunction
with us and informed by the views of the public.
The Trust is the sovereign body of the BBC.
It is entirely independent of the BBC Executive
and BBC management who run the day-to-day
business of the BBC.
The BBC is becoming more efficient
In recent years the BBC has achieved significant
improvements in its efficiency which have released
more money to spend on content. Over the past
two years the BBC delivered £228million in savings,
not without pain as this saw the loss of 1,891 posts.
The efficiency drive continues with a further targetof £127million savings in 2007/2008. As we consider
our decisions on future licence fee investment
we are looking at what further efficiency targets
we can set the BBC, but without distracting fromthe BBC’s core purpose of delivering high qualityand distinctive output to our audiences.

In a world of relentlesschange the BBC muststay true to its originalvision – but also keep
pace with changing
audience tastes
and expectations
Everything the BBC
does must be driven
by public value andinformed by theviews of the public.
The Trust’s role is
to make sure thishappens and to guard
the independenceof the BBC
The BBC is becoming
more efficient but there
is still more to doPart One: BBC Annual Report and Accounts 2006/2007 | 5

Overview

Our key challenge
for the BBC: wewant output with
ambition, high quality,
distinctivenessand originality

The Trust requires high quality anddistinctiveness from BBC services
As Trustees we do not make BBC programmes, orpreview programmes before they are transmitted.
Our job is to set the strategic priorities for the
BBC and, informed by our understanding of what
audiences want, to set out for management how
we expect each BBC service to contribute todelivering the overall BBC Public Purposes.

For more information
about the Public
Purposes and our
new governancetools see page 9

We have new tools to help us do this. Purpose
remits and service licences will, in a way neverpossible before, enable us to set objective,
transparent, published criteria against which wewill judge the BBC’s performance. We will report
the findings in our annual reports. As these newtools are not finally in place yet, our judgementsin this report are provisional.
The report sets out the key messages on
performance that we have been giving the
Director-General and his staff since we started
work.Those messages can be summed up as:
we are looking for output that displays ambition,high quality, distinctiveness and originality.
There is more detail on all of this later in thisreport, but in headline terms our key comments
about the BBC this year are:

The attitude of our audiences to repeats iscomplex. Our research tells us that audiences
dislike peak-time repeats but often welcome
the chance to catch up on a missed programme
before the next episode is shown. So we arepleased to see peak-time repeats fall (8.4%
versus 8.9% in 2005/2006). We will continue
to review policy in this area, especially as
on-demand services become more established.
Over the past year the BBC has started
to implement some editorial priorities
by refreshing drama on BBC One, factualon BBC Two and the provision for children.
We note that a key challenge is to address allunderserved audience groups, not necessarily
by creating new output specifically for theseaudiences but by finding ways to reconnect
them to mainstream BBC output. Strong
content that appeals across different audiencegroups is one way to do this.
BBC Radio is strong and successful overall,but has not been without controversy in theyear with Ofcom ruling against two presentersfor offensive language and the emergenceof talent costs as a concern to the public andto commercial operators. We will be looking
further at talent costs during the coming year.

BBC Television is doing well – viewers still
regard BBC One as the highest quality mixed
genre television service while approval ratings
for the various BBC channels are stable or
improving. Our concern – given that audiences
feel strongly the BBC should be moreinnovative – is whether this has been achievedat the cost of creative and cultural ambition.

The BBC’s journalism continues to be strong.
Research shows that audiences continue toplace a high value on the BBC setting thestandard for high quality journalism and viewers
rate BBC News 24 highly for quality.The
challenge is to ensure that we protect theBBC’s core values of accuracy, impartiality
and independence – not just within journalism
but throughout the BBC’s activities.

We note the fact that young people areturning away from television and radio as they
consume alternative forms of entertainment.
BBC Three’s role in meeting the needs of thisaudience is something we will consider insetting the BBC’s strategic priorities.

The BBC’s online services are one of its great
success stories. However we need to review
whether they are properly positioned to respondto rapidly changing audience expectations.
We will be reviewing bbc.co.uk in detail in
2007/2008 as our first service licence review.

While BBC Four is becoming more popular
we note that reach is not the only objective forthis channel.The challenge is how BBC Four cancontinue to build its appeal without losing faithwith its original vision to be “a place to think”.

The Trust plays a key role in upholding the BBC’s
editorial standards. We were disappointed withthe serious breaches in standards concerning
telephony lines on programmes that came tolight in the year and initiated a policy review ofthis area to report later in 2007 (see page 43).

6 | Part One: BBC Annual Report and Accounts 2006/2007

The Trust recognises that the public interest
is best served by a thriving media market
We recognise that the public does not consume
only BBC output and that BBC audiences value
the wide range of choice available to them in thethriving UK media market. An important part ofour role in upholding the public interest within
the BBC is to ensure that the BBC does not use
its considerable economic power in ways thatmight narrow the public’s media choices.
Earlier this year, for example, the BBC Executive
asked us for permission to launch new on-demand
services.These include the BBC iPlayer which willallow audiences to catch up, via the internet, with
BBC television and radio programmes they may
have missed for up to a week after transmission.
We gave our approval – but only after insistingthat some important changes were made to theoriginal proposal (see box below).

BBC on-demand services
We undertook a public value test of
the service proposals, including a public
consultation on our provisional conclusions.
We approved the new services – but withmodifications. In reaching our decision, ouroverriding responsibility as Trustees wasto act in the public interest.This meant
we focused primarily on the effect on
consumers – who enjoy the choice offeredby content and services beyond those fromthe BBC. Our changes were designed toprotect this public choice.
Our modifications included an adjustment
to the time period for which the public will
be able to store downloaded programmes,a requirement for the BBC to seek a solutionthat will work on all major computer
platforms and we ensured that suitableparental controls were part of the service.
We also imposed conditions to safeguard
the range of classical music the public canaccess by protecting the fragile commercialmusic market in that sector. We are satisfied
that the BBC’s new on-demand services will
create significant public value with limited
market impact. We will conduct a formal
performance evaluation two years after
the launch of the service.

Similarly, when we took the difficult decision tosuspend the online educational service, BBC jam,
we were clear that this was what would best serve
the public interest.We have asked management tobring forward fresh proposals for a service thatanswers educational need and is distinctive fromcommercial offerings (see box below).

Trust suspension of BBC jam
In March 2007 we suspended the online
educational service BBC jam – a difficult
decision taken with great regret. However,the service had always attracted controversy,
and we were informed that the European
Commission had received complaints fromthe commercial sector alleging that BBC
jam had not complied with its conditionsof consent.
The Commission proposed that we conduct
an early review to address these complaints,
in addition to the review to which we werealready committed later this year under
BBC jam’s approval conditions. After carefulconsideration, we decided that twoconsecutive regulatory reviews would
seriously hinder the effective delivery of theservice. Doing nothing was not an option,
however, because the Trust faced theprospect of the European Commission
opening a formal investigation and seeking thesuspension of the use of licence fee funds forthe service. In the circumstances therefore, we
felt that it was in the best long-term interestsof licence fee payers to suspend BBC jam andrequire the BBC Executive to bring forward
a fresh proposition, building on the successesof the service and taking account of thechanges in the market for online educational
materials since 2003, when consent for
BBC jam was granted.
Promoting education and learning is
one of the BBC’s six Public Purposes
and a core part of the BBC’s public service
remit. We look forward to receiving
the Executive’s proposals, which we expect
to be subject to a Public Value Test. Our
aim remains to ensure that the needsof school-age children are met in a way
which commands widespread support.

We will ensure thatthe BBC does notuse its considerable
economic powerin ways that narrow
licence fee payers’
media choices
We are committed
to fair and open
competition. We hearappeals from anyone
who believes the
BBC has broken its
fair trading guidelines
and who has notbeen able to geta satisfactory
response from
BBC management

10,500 individuals
and organisations
responded to our
public consultationon the BBC’s
on-demand proposals

Part One: BBC Annual Report and Accounts 2006/2007 | 7

“If Jeremy Vine is discussing
something that’s happened in
the last few days he has bothsides of the argument and hesits in the middle and I have yet
to hear him make a judgement,
he keeps himself very impartial
which I think he should anyway.”
News and current affairs programming on BBC Radio 2. Male, age 20–39,
Newcastle-upon-Tyne, contributing to Trust consultation on service licences.

The BBC Trust
What it is and what it does

The Trust works for the public who pay for the BBC.
We listen to a wide range of voices, seeking to understandall opinions and expectations to inform our judgements.
We ensure the BBC is independent, innovative and efficient;a creative and economic force for good in the UK, and for
the UK internationally.
We are the sovereign body of the BBC, its
independent Trustees acting in the public interest.
We aim to ensure that:the BBC remains independent, resistingpressure and influence from any source
the BBC’s management delivers public value
by providing distinctive services of the highest
quality to all the people and all the communities
across the UK
the BBC contributes to the standing of the
UK in the world, to the economy and to
British culture.
Our tasks are to make sure that:making judgements that will safeguard
the BBC’s high quality, audience reach andindependence over the long term
making sure our own processes are open
and transparent
rigorously holding the BBC’s management
to account.

Public Purposes
The Charter and Agreement sets out six
Public Purposes for the BBC.These are:sustaining citizenship and civil society
promoting education and learning

the BBC meets its mission to inform, educate
and entertain with ambition and fulfils the
Public Purposes laid down in its Royal Charterstimulating creativity and cultural excellence

the BBC’s management has clear priorities
and is using its resources well, providing quality,
value for money and efficiency and reaching
all audiences

bringing the UK to the world and theworld to the UK

the BBC stays at the forefront of developing
new services for the public, encouraging choice
and innovation in the media marketplace
without stifling private enterprise or initiative
the BBC’s journalism meets the highest standardsof accuracy and impartiality to sustain public trust
the BBC promotes its reputation and values
around the world.
We will achieve this by:listening to the public and inviting their viewsin all their diversity
prizing the professionalism, innovation andcreativity of BBC staff and everyone who
contributes to the BBC
vigorously defending the independence of
the BBCThe Trust is thesovereign body of theBBC. Its independent
Trustees act in the
public interest

representing the UK, its nations, regions
and communities

in promoting its other purposes, helping
to deliver to the public the benefit ofemerging communications technologies
and services and, in addition, taking
a leading role in the switchover todigital television.

Governance tools
The Charter and Agreement gives us governancetools to help us undertake our key tasks:
Purpose remits: For each BBC Public Purpose
we published a purpose remit defining ourpriorities for the Executive and setting out
how we will judge performance.
Service licences: Based on the purpose remits
we issue service licences.These set out foreach BBC service its remit, headline budget,

The Trust iscommitted toopenness.You canfind out more about
how the Trust
operates, and thedecisions it makes,
on bbc.co.uk/bbctrust

Part One: BBC Annual Report and Accounts 2006/2007 | 9

The BBC Trust
What it is and what it does

There is more
information on how
the Executive manage
the operations of the
BBC within Part Twoand how it should contribute to delivering
the Public Purposes. We consult publicly
before we set purpose remits or issue newservice licences and, once adopted, monitor
performance against them.
We also approve the Executive’s annualStatements of Programme Policy, ensuring
these are consistent with service licences,and monitor performance against them.
Public Value Tests: Before we decide whether
to approve or reject a management proposal
to launch a new service or make a significant
change to an existing service, we undertakea Public Value Test, which includes a market
impact assessment undertaken by Ofcom(see box below). This helps us form ourjudgement of whether or not the proposal
is in the public interest (for more on Public
Value Tests, see page 36).
Relationship with management
We do not manage the day-to-day operationsof the BBC.This is the job of the Executive,
led by the Director-General. Our role is toset priorities for the Executive and ensure they
are properly delivered within agreed policies
and budgets.
The Director-General, who is appointed byus, is the BBC’s editor-in-chief and chairs the
Executive Board.The responsibilities of the
Executive Board include:delivering BBC services in accordance with
Trust strategies
directing the BBC’s editorial and creative output
operational management of the BBC
conducting the operational financial
management of the BBC to ensure value
for money
accounting to the Trust for its own
performance and for the performanceof its subsidiaries.

The memorandumof understanding
between the Trustand Ofcom isavailable on
bbc.co.uk/bbctrust

The Executive Board includes non-executive
directors whose appointments are approvedby us.

10 | Part One: BBC Annual Report and Accounts 2006/2007

Other supervisory functions
We have a number of supervisory and regulatory
functions – the key ones are set out below:
Value for money: We approve theBBC’s high-level strategy and budgets andalso commission regular value-for-money
investigations into specific areas of BBC activity.
Editorial: The Executive draws up editorial
guidelines setting out the standards BBC
content should meet. We approve theseguidelines and any amendments, andwe use them to monitor the BBC’s editorial
performance. We do not vet programmes
before transmission.The Director-General,
as the BBC’s editor-in-chief, is ultimately
responsible for all editorial decisions. We
consider complaints on appeal after the BBC’s
complaints process has been exhausted.
Complaints and appeals: We set theframework within which the Executive
handles complaints and, where appropriate,
we hear appeals.
Commercial and fair trading oversight:
We ensure the BBC complies with its fairtrading policy, and that the Executive properly
addresses key operating risks. We also exercise
oversight of the BBC’s commercial services.

The Trust’s relationship with Ofcom
The Trust is a supervisory body withsome regulatory functions. It shares someregulatory responsibility for the BBC with
Ofcom. In some cases, the Trust works
directly with Ofcom, principally in the
Joint Steering Group for market impact
assessments. In other cases the Trust andOfcom have different responsibilities.
Ofcom regulates broadcasters including the
BBC through its Broadcasting Code whichsets standards, eg on Harm and Offence,for broadcasters.The Trust regulates BBC
output in terms of impartiality and accuracy
and is the final arbiter within the BBC
for editorial complaints. Ofcom and theTrust have signed a memorandum of
understanding as to how they will work
together on these and on other issues
where they have regulatory responsibilities.

Listening to the public
One of our key principles is that we will always
act in an open and transparent way.The issues
we deal with are often complex. We have toconsider the views – often the competing views– of a wide range of individuals and organisations.
We will always publish the evidence that has
informed our independent judgements – and fully
explain our decisions.
For example, when we approved the Executive’s
proposals to develop and launch Freesat(see page 30) we published all the evidence
we had taken into account. It is available on our
website, bbc.co.uk/trust, and it includes a numberof independent reports on key aspects of the
proposal, plus contributions from organisations
that commented on the proposal.
We also consulted widely on our draft purpose
remits and service licences which we publishedin January 2007. We will use the findings fromthese consultations to inform our work in
finalising these governance tools and in setting
BBC priorities.
Service licences consultation
Service licences are a key tool used by theTrust to define BBC services and monitor
their performance. We consulted publicly
on the first licences, which came into
operation on 1 January 2007. We asked
if the licences adequately described BBC
services as they were when the Trust cameinto being – and whether their content wasappropriate to allow the Trust to govern the
BBC’s UK public services.
We received a good level of response
from the commercial sector and otherorganisations, although rather fewer
responses from individual members of
the public than in our other consultations.
In anticipation of this we had commissioned
focus group research across the UK toassess the opinions of the public.
We will publish the individual responses
and a summary of all the consultation
responses. We are now considering
whether to vary these initial licences,
informed by the responses received.

Purpose remits consultation
Our research agency conducted avery large audience survey in February
2007, interviewing around 4,500 adults.
We wanted their views on the BBC
Public Purposes – more specifically, howimportant they felt each Purpose was,and how well they believed the BBC was
performing in delivering them.The findings
will feed into our work on developing
purpose remits.These will make clear what
we expect the BBC Executive to deliverin order to fulfil the expectations of licencefee payers and the Public Purposes laid
down by Parliament.

The Trust will always
seek to understandthe views of its
audiences before
taking its decisions
Audiences are telling
us loud and clear thatthey want fresh andnew ideas – and they
feel the BBC could do
better here

We will place particular importance on
gaining insights into areas where audiences
feel dissatisfied with what the BBC offers
them now, and where people feel the
BBC could do better. An overview of theresearch will be published with the revised
purpose remits later this year.
Early findings show that audiences placeparticular importance on education andnews as BBC priorities. Where people
feel the greatest gap exists between
importance and performance is in the areaof creativity and originality. Audiences are
telling us loud and clear that they want freshand new ideas and a wide range of enjoyableand entertaining programmes – and thatthey feel the BBC could do better here.

Looking forward
In the year ahead we will continue to work
energetically on behalf of licence fee payers andcomplete the building of the new governancesystem that gives BBC audiences a powerful voicein contributing to our decisions on BBC priorities.
There is more detail on our plans for 2007/2008
on page 51 and on our website.

In the year ahead wewill work energeticallyon behalf of the public
enabling their views to
inform and contributeto our decisions on
BBC priorities

Part One: BBC Annual Report and Accounts 2006/2007 | 11

The BBC Trust
The Trustees

01

02

03

04

05

06

07

08

09

10

11

12

01 Sir Michael Lyons
02 Chitra Bharucha
03 Diane Coyle
04 Dermot Gleeson
05 Alison Hastings
06 Dame Patricia Hodgson DBE
07 Rotha Johnston
08 Janet Lewis-Jones
09 David Liddiment
10 Mehmuda Mian Pritchard
11 Jeremy Peat
12 Richard Tait CBE

The words ‘Trust’and ‘Trustee’ in thisdocument are notused in a technicallegal sense and are
not intended to imply
that members of
the Trust are to betreated as trustees
of property or subject
to the law relating
to Trusts or Trustees
12 | Part One: BBC Annual Report and Accounts 2006/2007

01 Sir Michael Lyons
Chairman
Chairman since 1 May 2007. Chairman,
English Cities Fund. Non-executive directorof MouchelParkman plc, Wragge & Co,
and SQW Ltd. Former Chief Executive of
Birmingham City Council; Nottinghamshire
County Council and Wolverhampton BoroughCouncil. Former Deputy Chairman and Acting
Chairman, Audit Commission. Former Professorof Public Policy, Birmingham University. Led the
Lyons Inquiry into the functions and funding of
local government. Former non-executive director,
Central Television; former Chairman, ITV Regional
Advisory Council. Governor, Royal Shakespeare
Company, and (until October 2007) Chairmanof the City of Birmingham Symphony Orchestra.
02 Chitra Bharucha
Vice-Chairman
Acting Chairman from November 2006
to April 2007. Chairs BBC Trust Audiences
and Performance, and Remuneration andAppointments Committees. Member of various
public bodies including Chair, Fitness to Practise
Adjudication Panels of the General Medical
Council, and Chair, Advisory Committee on
Animal Feedstuffs for the Food Standards Agency.
Former consultant clinical haematologist and
Deputy Director, Northern Ireland Blood
Transfusion Service. Former member of the
Independent Television Commission and the
BBC Broadcasting Council for Northern Ireland.
03 Diane Coyle
Chair, BBC Trust Public Value Test SteeringGroup. Economic consultant specialising in
new technologies and globalisation. Director,
Enlightenment Economics. Member of Competition
Commission.Visiting Professor, Institute for Politicaland Economic Governance, University ofManchester. Former journalist.Widely publishedauthor and broadcaster on economics.
04 Dermot Gleeson
Chair, BBC Trust Finance and Strategy
Committee. Deputy Chairman of the BBC
Pension Scheme Trustees. BBC Governor,
2000 to 2006. Chairman, M J Gleeson Group plc,
having formerly been Chief Executive. Former
Chairman, Major Contractors Group; former
director of the Housing Corporation, andof the Construction Industry Training Board.
Former Head, Home Affairs Section,
Conservative Research Department; former
member of Christopher Tugendhat’s cabinet
in the European Commission.
05 Alison Hastings
Trustee for England
Media consultant. Former Editor, Newcastle
Evening Chronicle. Former Head of Editorial Staff
Development,Thomson Regional Newspapers.
Former local newspaper journalist. Former
member, Press Complaints Commission.
06 Dame Patricia Hodgson DBE
Principal of Newnham College, Cambridge.
Governor and member, Wellcome Trust; member,Committee on Standards in Public Life;
non-executive director, Competition Commission.

Member of Higher Education Funding Council
for England. Former Chief Executive, Independent
Television Commission. BBC career included many
senior positions including Director of Public Policy.
Part of the founding team of the Open University.
07 Rotha Johnston
Trustee for Northern Ireland
Chair, BBC Trust Audience Council SteeringGroup. Entrepreneur in commerce and property.
Partner, Johnston Partnership. Non-executive
director, Allied Irish Bank (UK) plc; Deputy Chair,
Invest Northern Ireland. Non-executive member,
Northern Ireland Office Departmental Board.
Former Director of Variety Foods (NI) Ltd andLocal Enterprise Development Unit. Has held
appointments in the Labour Relations Agency
and the Northern Ireland Economic Council.
08 Janet Lewis-Jones
Trustee for Wales
Vice-President of the British Board of Film
Classification. Trustee for Baring Foundation;
Chairman, Membership Selection Panel, Glas
Cymru Cyf (Welsh Water). Former Commissioner,
Postal Services Commission. Former member,Welsh
Fourth Channel Authority (S4C); Strategic Rail
Authority; and of British Waterways Board. Former
Vice-President, University of Wales (Lampeter).
Former group Company Secretary,Welsh Water plc.
Former civil servant and trained as barrister.
09 David Liddiment
Creative Director of All3Media and Associate,
The Old Vic Theatre Company. Broadcasting
career includes Director of Programmes, ITV;
Deputy Managing Director LWT; Directorof Programmes, Granada TV; and Head ofEntertainment Group, BBC TV.
10 Mehmuda Mian Pritchard
A Commissioner of the Independent Police
Complaints Commission, London and South
East Region. Non-executive director of the
NHS Litigation Authority. Former memberof the Police Complaints Authority and the Officefor the Supervision of Solicitors. Former solicitor
in private practice in Birmingham and a former
non-executive director of Northern Birmingham
Mental Health Trust.
11 Jeremy Peat
Trustee for Scotland
Chair, BBC Trust Fair Trading Policy and Appeals
Committee; Chair, BBC Trust Market Impact
Assessment Joint Steering Group; Chairman of the
BBC Pension Trustees. BBC National Governor
for Scotland, 2005 to 2006. Member of theCompetition Commission. Director of theDavid Hume Institute. Former Group Chief
Economist at the Royal Bank of Scotland.
12 Richard Tait CBE
Chair, BBC Trust Editorial Standards Committee.
Professor of Journalism and Director of the Centre
for Journalism Studies, Cardiff University. BBC
Governor, 2004 to 2006. Former Editor-in-Chiefof ITN and Editor, Channel 4 News. Former
BBC editorships include Newsnight, The Money
Programme, and the 1987 General Election
results programme.

Details of theGovernors who
served until
31 December 2006
are set out on page 47

Part One: BBC Annual Report and Accounts 2006/2007 | 13

“Some of the new comedy isquite quirky, but it can be justrandom and unfunny.”
Spontaneous definition of BBC Three. Male, age 25–34, Cardiff,contributing to Trust consultation on service licences.

BBC performance
Services

It is too soon for us to make definitive judgements andthe assessments below are provisional while we finalise
the purpose remits and service licences that in futureyears will be our key performance assessment tools.
They will give us objective evidence with which tomeasure and, if necessary, to challenge the effectivenessof the BBC in delivering high-quality services that
demonstrate innovation, ambition and risk-taking.
Performance assessment
The Governors used to set corporate
objectives for management and reporton them in the Annual Report.The Trustdoes not set objectives in this way; instead
it sets strategic priorities through purpose
remits and we will report progress onthese annually.This Annual Report marks
the transition between the two systems
and therefore includes assessments against
last year’s Governors’ objectives as well as
our own assessments of BBC performance.
The Governors set five objectives, threeof which were editorial, and we include
reports on these in this section.The othertwo objectives – on driving digital andon value for money – are covered in the
Finance and business section. Our viewson performance against the five objectives
are set out as follows:
Programme strategy (page 17)
Impartiality (page 22)
Accountability (page 24)
Value for money (page 28)
Driving digital (page 30)
Part Two contains information covering
a range of facts and figures about theBBC’s broadcasting activities.This year the
information has been expanded, at ourrequest, to show the information by individual
service.This reflects our commitment togreater transparency.The data will, in futureyears, contribute objective evidence to assist
our assessment of BBC performance.

Detailed facts andfigures on theperformance of BBC
services can be foundon pages 64 to 75 inPart Two

BBC in the wider media market
No broadcaster has escaped the enormouschanges sweeping through the industry overthe last 15 years or so.These changes havebrought in their wake audience fragmentation,
intensified competition, an increasingly complex
media landscape and heightened audience
expectations.The BBC has responded to theseforces by developing new services – digitalchannels on television and radio and extensive
online services – and continues to reshape itself
in order to take advantage of new technologicaldevelopments on behalf of the public.
At the same time, the BBC has to rememberthat its core broadcast audiences still dependon the channels and networks that existed wellbefore the current spate of change began.The
challenge for the BBC is to continue to supply
high-quality, innovative programming to theseaudiences, while finding the financial and creative
resources to satisfy rapidly developing audience
expectations elsewhere.
Given the diversity and plurality of its audiences,the BBC will never be able to meet all the
expectations of every licence fee payer, but aclose understanding of audience expectations will
inform the strategic priorities we set for the BBC.
It is an important principle that the BBC should
service all licence fee payers. We are pleased tonote that some 94% of adults in the UK use BBC
services and that the BBC’s audience approvalscores have remained reasonably steady over thelast few years.That said, the BBC’s total market
share of all TV and radio consumption – at around
43% – is in gentle decline.

94%

of adults in the UK use
BBC services
Source: Pan BBC Tracking Study.
Claimed reach, age 15+, 2006/2007

Part One: BBC Annual Report and Accounts 2006/2007 | 15

BBC performance
Services

Young adults
The dramatic changes in the broadcast
audience are nowhere more apparent thanin the changing media behaviour of young
adults (16–34).They are taking up newtechnologies and switching away fromold ones at a faster rate than many older
people, whose viewing behaviour often
remains unchanged and based around fouror five channels.Young adults watch lesstelevision than older groups, they listen toless radio and they consume more online
services and other non-broadcast screen
offerings such as games. As the chartshows, for 15–24s the internet is almost
as popular a source of entertainment as
television. It is important that the BBC finds
ways to remain relevant to these younger
age groups.

Television
Broadcasters of traditional linear television1
are now under great pressure. Weekly televisionviewing of the BBC and the commercial channels
has fallen on average by one hour over the past
three year period. Audiences are shrinking as
viewers – particularly the young (see box) –are attracted by new offerings elsewhere.
Competition for this shrinking audience continues
to intensify with the launch of new channels,
and further competition comes from the growthof on-demand viewing through personal video
recorders (PVRs) and online services. We expect
this trend to intensify when the BBC launches
its own on-demand television service via the
BBC iPlayer later this year (see page 7).

Despite the lower than average levelof use of BBC services, young adults havea higher than average level of approval of
the BBC.This may reflect the relatively low
numbers who actually pay the licence feein their households. But it may be that they
are less likely to share older audiences’
perception of the BBC having been betterin the past – young people are more likely
than the population as a whole to think
the BBC is innovative.

BBC One and BBC Two have been unable toescape the long-term decline in reach sufferedby nearly all established television channels.
But against an acutely competitive background
BBC Television has done well to continue toappeal to very large numbers of viewers withBBC One and BBC Two, and to increase thereach and appeal of BBC Three and BBC Four.
We are pleased to note that viewers still regard
BBC One as the highest quality mixed-genre
television service; that viewers’ overall approvalof BBC One and BBC Two is stable; and thatapproval is growing for BBC Three and BBC Four.
Many BBC television programmes score well interms of audience appreciation.

44

47

53

TV and internet as a sourceof enjoyment % who agree (by age)

35–44

45–54

56%

fewer programmes in 2006/2007
had an average audience of
10 million+
Source: BARB,TNS/Infosys, age 4+. All TV
Channels, UK. Minimum 10 minute duration(2006/2007 compared with 2005/2006)16 | Part One: BBC Annual Report and Accounts 2006/2007

3

6

The question is whether or not this strong
competitive response overall has been achievedat the cost of creative and cultural ambition.
Our research suggests that audiences feelstrongly that the BBC should be more innovative(see purpose remit research, page 11).This issomething we will investigate over the coming
year as part of our work on licence fee
reprioritisation. We will also consider the roleof each BBC television channel, how the portfolioof channels fits together and how it should workin a fully digital environment.

9

16

21

33
36

40

Source: BARB, TNS/Infosys, age 4+

A key message from our work with the public
is that audiences want the BBC to be moreinnovative.They value fresh and new ideas – andfeel that the BBC could be doing more to deliver
them.This is a challenge for the BBC that we will
pursue vigorously in the year to come.

40

25.1
2006/2007

25.8

25.5
2005/2006

2004/2005

2003/2004

26.1

TV viewing: averageamount of hours per week

15–24

25–34

55–64

65+

■ Internet■ TV
Source: Purpose Remit Survey, age 15+. BMRB February 2007

Linear television is defined as scheduled programming.
Non-linear television includes on-demand viewing via
Personal Video Recorders.

1RadioThe competitive forces that have reshaped UK
television in the last 15 years were first felt by
UK radio 40 years ago, when the launch of thepirate radio stations prompted the BBC radicallyto reshape its radio portfolio into Radios 1, 2, 3
and 4.This coincided with the launch of BBC
local radio.The broad strategy followed by
BBC Radio, then and since, of creating tailored
networks with a clear public service role for
specialist audiences, has proved extremely
successful. BBC Radio continues to attract
a high share of listening, with a strong lead overcommercial radio, although, as with television,
reach to younger audiences is in long-term decline,
both for the BBC and for the commercial sector.

Programme strategy

By the end of the year, more than half the adult
population (58%) claimed either to own a DAB
digital radio set or to have listened to digital radio
via a digital TV or the internet. But sales of DAB
radio sets have been relatively slow with anestimated 4.7 million units sold to date, and reachto individual digital-only radio services remains
correspondingly low: the leading digital-only radio
service The Hits (owned by Emap) has a weekly
reach of just 2% of the adult population. Although
the development of digital radio has been relatively
slow to date, the arrival of a second national digital
multiplex next year may further stimulate commercial
competition and the digital radio market.

We are pleased with the progress made so
far with Creative Future, the Director-General’slarge-scale project to develop an underlying
editorial strategy for the BBC for the next
six years.This is underpinning the workon reprioritisation following the licence fee
settlement. Key themes are refreshing drama on
BBC One, factual on BBC Two, and the overall
provision for children and teenagers.

translating Creative Future into service
strategies and pan-BBC proposals
reducing the volume of repeats on
BBC One in peak-time to below 8.5%
in 2006/2007■ 45.1% Commercial Radio■ 54.9% BBC Radio
Source: RAJAR. Adults aged 15+

continuing to increase overall investment
in original UK comedy and drama
refreshing BBC One’s early evening output.

The objective of continuing to increase overall
investment in original UK comedy and drama
was achieved. Investment in comedy rose by
5% in 2006/2007 to £87.6million and a further
9.1% increase is proposed for 2007/2008.
Lead times in drama are longer, so while
investment here rose by only 3.4% toMobile phone

Internet

DAB radio set*

8%

20%

24%

41%
Digital TV

Users of internet
and bbc.co.uk (millions)

12.9

15.6

27.8

The Governors’ target for reducing repeats in
BBC One peak-time was met.The 2006/2007
figure was 8.4% (down from 8.9% in 2005/2006).
Valuable work has been done to improveunderstanding of audience attitudes to repeats
in general (see box on page 18) and we support
management’s approach.The priority must be
to create outstanding, ambitious and innovative
programmes. Properly-managed repeats releaseresources to fund these landmark programmes –which, themselves, are likely to bear repeating.

Source: RAJAR. Claimed usage among adults
age 15+. March 2007.
*Have a DAB digital radio set at home

25.8

While we support the focus on the young, wehave pressed for similar attention to be paid to
all underserved audience groups.The challenge
is not to create new output specifically for theseaudiences, but to find ways to reconnect themto mainstream BBC output.

How people listen
to digital radio services

bbc.co.uk

The BBC’s online services now face intensecompetition, nationally and internationally, but
bbc.co.uk remains the leading UK website offering
information, entertainment and educational
content.The development of bbc.co.uk as a sourceof on-demand BBC television and radio is likely
to cement its position as a key channel throughwhich the BBC delivers its Public Purposes.

The Governors set management a seriesof programme strategy objectives for
2006/2007. These were:Internet

OnlineThe BBC spotted the public service potentialof the internet at a very early stage and was
instrumental in establishing it in the UK as a
medium for high-quality news and information.
bbc.co.uk has become one of the BBC’s mostsuccessful services, used by an average of
15.6 million adults each month in the final quarterof 2006/2007 – an increase of more than
2.5 million people in 12 months.

BBC Radio: shareof listening 2006/2007■ Q1 2006■ Q1 2007
Source: TNS. Adults age 16+ in internet
homes, UK. Claimed monthly reachPart One: BBC Annual Report and Accounts 2006/2007 | 17

BBC performance
Services78%of the population watch
BBC One in an average week
Source: BARB,TNS/Infosys, age 4+. At least
15 consecutive minutes, 2006/2007£268.2million in 2006/2007, management is
proposing a further 16.4% increase in 2007/2008.
In response to the Governors’ final programme
strategy objective – refreshing the early
evening output on BBC One – management
experimented with a trial run of The One Showand this has been commissioned as a regularanchor point in the BBC early evening schedulefrom spring 2007.

What audiences think about repeats
BBC research suggests that whileaudiences dislike some kinds of repeats
they value others. Peak-time repeats
on BBC One are disliked, but ‘narrative
repeats’ are popular. (Narrative repeats areshown shortly after the original broadcast –often off peak, or on a different channel.
Audiences value them as a chance tocatch up on a missed programme before
the next episode is shown.) Likewise
digital transfers, where a programme
first broadcast on one of the BBC’s digitalchannels is re-broadcast on BBC One
or BBC Two, enable people without
digital access to view those programmes.
Audience fragmentation is increasing
the value of repeats. Rising numbersof channels make it more likely thata programme will be missed becauseof schedule conflicts, and audiences
increasingly expect repeats in order tocatch up. In the long term, on-demandviewing may well reduce the value of
repeats, particularly narrative repeats.
But until on-demand is well-established,
the value of repeats is likely to go on rising.

Management’s reviewof the services canbe found in Part Two

This evidence suggests the best way
forward is to continue to minimise repeats
in peak-time on BBC One, but to increaselevels of narrative repeats and develop
a well co-ordinated programme of
repeats across the portfolio of services.
The repeats policy must make sense toaudiences and avoid the kinds of repeats
they dislike. As on-demand develops,
the policy may have to change to reflectchanging audience behaviour.

18 | Part One: BBC Annual Report and Accounts 2006/2007

Television
BBC One remains the BBC’s flagship service.
For many members of the public it is the BBC.
Viewers’ expectations are extremely high and,while programmes such as Planet Earth may
exceed these standards, the channel has towork hard to match these expectations. Although
42% of viewers of the channel agree strongly
that it offers high-quality programmes, a rather
lower proportion – 29% – rate it highly for being“original and different”.
BBC One viewers expect a very high level offirst-run, original programming and we have asked
the Executive to retain the commitment to decrease
repeats in peak-time in the channel’s Statementof Programme Policy for the coming year.
BBC One’s overall reach is falling. Over the last
three years it has lost five points, falling to 78% of
the population in 2006/2007. Some of BBC One’s
most popular programming is coming underpressure. Reach to soaps such as EastEnders has
fallen by ten percentage points over the three
years and audience perceptions of BBC One as“best for soaps” have weakened.We are pleased
to note, however, that reach to current affairs is
growing – aided, in part, by moving Panorama to
a new peak-time slot on Monday nights.We fully
endorse the objective set by the Governors thatboth the prominence and the appeal of serious
current affairs should be restored. BBC One’s
Statement of Programme Policy makes clear that
we expect the channel’s current affairs output touphold the highest standards of impartiality andrigour, to invest in long-term investigations, and toreflect a broad variety of opinions and experiences.
Panorama is to use its peak-time slot to bringhigh-quality coverage of a wide range of current
affairs topics to its broad audience.
BBC One entertainment can polarise audience
opinion. Some viewers feel that entertainment
formats make the channel feel more modern andyouthful; others are highly critical of celebritybased entertainment, believing it to be derivative
and unworthy of the channel. We believe strongly
that all BBC services, including BBC One, should
demonstrate innovation and creative ambition.
We accept that this implies a degree of risk-taking,and recognise that the impact of ‘misses’, as well asof ‘hits’, is greater on BBC One than on any otherBBC service.

6.5
6.0

6.8
6.2
2006/2007

78.4
57.0

61.4

59.1
2005/2006

2006/2007

81.9
2004/2005

79.7

83.7
67.0
2003/2004

Average 15-minute weekly reach (%):
BBC One and BBC Two

Source: BARB,TNS/Infosys, age 4+ in
multi-channel homes. All hours, 2006/2007

Approval: BBC Three and BBC Four
Score out of 10

2005/2006

One of the findings of our service licence
consultation was that viewers think of BBC Two
in a different way from BBC One. In the coming
year we will consider its ‘fit’ with other BBC
television channels.

BBC Three has thethird highest average
weekly reach, out of
280+ non-terrestrial
TV channels. BBC
Four is ranked 16th

We will aim to gain a better understandingof the role BBC Three and BBC Four should playin the BBC’s portfolio of television services asdigital switchover approaches. We also want tounderstand better the transfer policies between
the BBC’s digital and terrestrial channels, where
there is a trade-off between retaining thedistinctiveness of the channels and getting
best value for money by showing programmes
on more than one channel.

6.4
6.1

The channel’s factual output has performed strongly– including Top Gear (two episodes of which
attracted average audiences of more than 8 million),
Coast, Springwatch and The Apprentice (now moved
to BBC One). BBC Two is performing relatively
well in attracting audiences to its peak-time output
in a highly competitive market.The challenge is to
manage this without losing faith with the channel’scommitment in its Statement of Programme Policy
to show programmes of depth and substance thatbroaden and challenge viewers’ horizons.

BBC Four is also becoming more popular. It now
reaches 7.1% of the population in digital televisionhomes – a good performance for a digitalchannel. However, reach is not the only objective
for BBC Four. High quality must remain thetouchstone for the channel and the challenge for
BBC Four is to keep faith with its original visionof being “a place to think”.

2004/2005

The audience to BBC Two has fallen fasterthan BBC One’s over the last four years, withparticular decline among younger adults, although
this rate of decline seems to have slowed.

■ BBC One
■ BBC Two

■ BBC Three (16–34 year olds)■ BBC Four (all adults)
Source: Pan BBC Tracking Study, age 15+
Base: All who watch the channel

Source: BARB, TNS/Infosys, age 4+. All hours

BBC Three has grown in popularity. It now
reaches 17.6% of the population in digital
television homes and approval is up. One in five
16–34 year olds watches the channel and it hasdeveloped a reputation as a testing ground for
new comedy.The changing media behaviour of
the young is a critical issue for the BBC and
BBC Three’s role in fulfilling the needs of thisaudience is something we will consider in setting
the BBC’s strategic priorities. We agree with the
Executive’s view that there is a debate to be had
about some of the channel’s programme titles.

BBCi offers a broad range of non-linear television
output accessed via the red button. We notemanagement’s comments on its ease of use but
are aware that the Governors were concerned
about speed of response times and we haveasked management to monitor users’ perceptionsof quality and usability as more content is added
to the service.
CBBC and CBeebies are performing strongly
in particularly competitive markets.There are
now 18 dedicated children’s channels available
in the UK but, overall, children are watchingless television as they turn to other forms ofentertainment. In this context, we note the18

dedicated children’s
TV channels in the UK
Source: BARBPart One: BBC Annual Report and Accounts 2006/2007 | 19

BBC performance
Services63%of 15–29 year olds who listen
to Radio 1 do not tune in toany other BBC Radio service
Source: RAJAR. 2006/2007

popularity of the children’s content on bbc.co.uk.
56% of 7–15 year olds in the UK with internet
access claim to have used CBBC online.
CBeebies is still the most popular children’schannel in its broadcast hours (0600–1900)
with a 7% share of viewing2 among children
aged 4–14 in digital television homes. Despite
increased competition, the channel continues toreach around 16% of this age group in digital TV
homes. CBeebies is also seen as very innovative– half of its adult viewers agree strongly with thestatement that it offers “programmes with new
ideas and different approaches”. One weakness
in the schedule has been provision for the 4–6
age group and we are pleased to note in the
CBeebies 2007/2008 Statement of Programme
Policy a plan to improve reach among this age
group by introducing new programming.

Radio 1 remains a key route for the BBC toreach the young – 53% of its audience do notlisten to any other BBC radio service, rising
to 63% for young listeners (15–29). But reachto 15–29s has fallen for the second year and,
although this is an issue across the radio industry,Radio 1’s decline is more pronounced. However,increased listening via digital platforms, especiallyamong Radio 1’s target 15–29 audience, may
counter this over time.
Our Service Licence consultation showed thatthe distinctiveness of Radio 1 and Radio 2 isof particular concern for commercial operators.
In finalising the purpose remits and reviewing theservice licences, we will consider whether these
services could do more to clarify the sourcesof their distinctiveness and contribution to theBBC’s Public Purposes.

CBBC is also still popular relative to competitors.
Adults recognise that it provides a distinctive
service, in terms of being British, offering a rangeof live action programmes and also that it has
some educational value for children.

Over the year, talent costs have emerged as asignificant issue for BBC Radio, and a source ofconcern to the public and commercial operators.
We have built this into our forward plan ofvalue-for-money studies (see page 51).

The Trust acknowledges that, in the overall children’s
television market in the UK, commissioning oforiginal content is declining.The BBC’s role ininvesting in UK programming therefore grows inimportance and this is something we will take into
account in our licence fee reprioritisation work.

Radio 3 has seen a decline in reach over thelast few years although share remains stable.
In contrast, on-demand listening to its output
has grown, although we decided not to approvethe download of free classical music as we
believed that the public value gained could beoutweighed by the loss to consumers in thecommercial market. In early 2007 a number ofschedule changes were made and we await withinterest the impact of these on the network’s
overall performance.

Radio
Radio 1 and Radio 2 continue to perform well.
Overall, reach to Radio 1 is growing, as is the
network’s audience share as people listen for
longer. Our audience research shows that
listeners particularly appreciate the presenterson Radio 1 and Radio 2. However we note the
Ofcom ruling against two Radio 1 presentersfor offensive language and we are reassured by
the Executive’s decision to tighten regulation
here. Radio 2 remains the UK’s most listened-to
station with more than 13 million listeners and it
continues to have a high level of approval among
its listeners.
However, there are some underlying concerns.
Share of viewing = the percentage of a total viewing audience
watching over a given time. 7% of all children watching
television in digital TV homes between 0600 and 1900 are
watching CBeebies. Source: BARB, TNS/Infosys 2006/2007

2

20 | Part One: BBC Annual Report and Accounts 2006/2007

We note the aim of Radio 4 to modernise
without losing core listeners and, in particular,
its aim to refresh some of its output in orderto broaden its appeal.The service continues
to be highly rated among its listeners, andrated the best service for high-quality
programmes. In the final quarter of 2006/2007
the network recorded its highest share oflistening for a decade.
The slight decline in the audience forRadio Five Live is, in the view of its management,
largely attributable to the network’s dependence
on medium wave listening. We note that it is facing
increasing competition for sports rights, includingthe loss of the exclusive rights to Premiershipfootball coverage.
In general the BBC digital radio services are
increasing their reach and maintaining a solid
performance when compared with commercial
stations. By the end of 2006/2007, BBC digitalradio services reached almost 8% of adults(up from 4.5% at the end of 2005/2006). BBC 7’s
blend of original programming and content
from the archives has proved popular, and it has
the third highest reach of all digital-only radio
services in the UK. BBC Asian Network and
1Xtra target specific, relatively underserved
audience groups. Despite the narrower target
audience, we feel that the performance of thestations could be stronger. Reach to 1Xtra, forexample, has shown relatively modest growthduring the past year. However, we note 1Xtra’s
Statement of Programme Policy for 2007/2008
prioritising an improvement in reach througha refreshment of the schedule – although thisshould not be achieved at the cost of lowered
public service ambition.
English local radio provides a highly valued
service of local news and information foraudiences who can sometimes feel underservedby the rest of the BBC. BBC English local radio
attracts more than 7.5 million adults in an
average week, although with some decline inreach over time.The service faces some difficult
challenges – striving for broad appeal among
the target audience of over 50s while maintaining
distinctiveness within local markets and within
the BBC radio portfolio.
We welcome efforts to refresh and modernise
BBC Radio Scotland.The challenge is to achieve
this while remaining fully distinctive in the Scottish
broadcasting landscape. BBC Radio Wales
achieved a record share (12.9%) in the final
quarter of 2006/2007.
Despite a slight fall in reach and share, wenote early results from audience researchundertaken by management that show listeners
to BBC Radio Ulster/BBC Radio Foyle give theservice the highest scores among BBC’s nations
radio services for delivering the Public Service
Broadcasting characteristics of high-quality,
innovative, challenging and engaging programming.

We recognise concerns about the continuinglack of provision of the national radio stations on
DAB, as raised by the BBC Audience Councils ofWales (BBC Radio Wales) and Northern Ireland(BBC Radio Foyle). We will take these concerns
into consideration as part of our wider licencefee reprioritisation work. We were encouragedby the welcome from Audience Council Scotland
for the relaunched Radio nan Gàidheal.The
service now runs continuously throughout theevening and has expanded its output.
Journalism
The Governors set management some
impartiality objectives for 2006/2007.
These were:

808k
adults listen to BBC 7
in an average week

Source: RAJAR. Age 15+. Q1 2007

7.5m

adults listen to the BBC’s local
radio services in England in an
average week
Source: RAJAR. Age 15+. 2006/2007

ensuring the BBC meets the highest
standards of accuracy, fairness andimpartiality
responding to the Governors’
independent reviews of impartiality
to ensure strong editorial processes
and training.
For the public, news remains the mostfundamental service provided by the BBC. Recent
research commissioned by the Trust (see page 11)
shows that audiences place a high value on the
BBC setting the standard for high-quality journalism.
As Trustees we place very great importance on
the BBC continuing to offer accurate, impartial andindependent news and current affairs, and throughour Editorial Standards Committee (see page 43)
we will ensure that the focus on impartiality begun
by the Governors is sustained.
In assessing performance against the Governors’
impartiality and independence objectives, we
judge that in overall terms BBC journalism inthe past year has risen to the constantly difficult
challenge of meeting the high standards ofaccuracy, fairness and impartiality expected byaudiences, and that substantial progress has been
made in implementing recommendations fromthe Governors’ impartiality reviews.
Audience research indicates that perceptionsof the BBC’s impartiality remain stable over time.
Research by Ipsos-MORI (Q1 2007) reports
76% of respondents saying they trust BBC news76%

of adults say they trust BBC
news programmes
Source: Ipsos-MORI (Q1 2007)

Part One: BBC Annual Report and Accounts 2006/2007 | 21

BBC performance
Services

80%of adults access BBC Newson TV, radio or online in an
average week
Source: Pan BBC Tracking Survey.
Claimed usage age 15+, 2006/2007

programmes the most to give a fair, informed andbalanced view on important issues and events.
Overall, 53% rate the BBC as “fair and impartial”,
against 18% who believe it is “biased” (comparedwith 57% and 16% in Q1 2006).
Coverage of the Middle East has been a particularfocus for action by management to strengthen
editorial processes. An enhanced role has beendeveloped for the Middle East Editor; there has
been a co-ordinated plan to improve current affairs
coverage; and there has been regular monitoringof output by the senior editorial adviser.
Last summer’s conflict between Israel and
Hezbollah fighters in Lebanon posed a major testof BBC impartiality and tested the BBC’s ability toconvey complex information to diverse audiences.
The coverage drew more than five thousandcomplaints, many alleging bias – in both directions.
A specially-commissioned audience survey for BBC
News reported that a majority believed the BBC
had provided the best coverage of the conflict,with 64% trusting it and 11% distrustful. On a scaleof 1–10, the BBC coverage scored 6.7 in termsof being “fair and balanced”. This compares witha normal score of 6.3 for “BBC News is impartial”.
A study, Safeguarding Impartiality in the 21stCentury, was commissioned by the Governors
in conjunction with BBC management and was
taken over by the Trust and the BBC Executive(see box, right). A separate study wascommissioned of impartiality in BBC reportingof business (see box on page 23).

6m

weekly unique users ofbbc.co.uk/news in 2006/2007
Source: BBC server logs, UK only.
Based on cookies

BBC News across television, radio and online
reaches 80% of adults, but audiences for news
programmes on BBC television and radio havefallen in recent years.This reflects the rise ofalternative news sources such as the internet,
mobiles and free newspapers, but also changing
attitudes among younger and less well off
audiences who seem to be becoming lessinterested in keeping up with the news on aregular basis. We note, however, that the appealof regional television news has been relatively
robust and that audiences appear to have astrong interest in news about local issues.
Weekly unique users of bbc.co.uk/news haverisen by 72% in two years, to 6 million at the endof 2006/2007. Usage of news on bbc.co.uk has
increased so rapidly that it now regularly exceeds

22 | Part One: BBC Annual Report and Accounts 2006/2007

the level of previous ‘spikes’ in usage such as theJuly 2005 London bombings. News is by far themost popular part of bbc.co.uk and we notethat the BBC’s online news offering continues
to develop and innovate in order to serve thepublic better.
The BBC’s continuous television news service,
BBC News 24, is now the clear market leader
in terms of reach, and viewers rate it highly interms of quality. We are pleased to see fromanalysis of its output that its news agenda
remains distinctive and our work with audiencesshows that there is appreciation of the channel’s
breadth of agenda, its coverage of significant
international news, and its reporting fromacross the UK.

Safeguarding Impartiality in the 21st Century
Impartiality, one of the cornerstonesof BBC editorial values, is coming underincreasing pressure as the nature of politics– and of technology – changes and as
audience involvement grows. In responseto this the Governors commissioned afundamental review of BBC impartiality.
The results were published in June 2007.
Research commissioned for the projectshows that the public value and demand
BBC impartiality. It underpins the public trustin the BBC without which the BBC cannot
function. Impartiality depends on accuracy,balance, context, distance, evenhandedness,fairness, objectivity, open-mindedness, rigour,self-awareness, transparency and truth.
Crucially it is about breadth of view andcompleteness. It should not be an excuse
for insipid programme-making.
The BBC has the mechanisms, in its
Editorial Policy department and its College
of Journalism, to improve its deliveryof impartiality.The report recommends
their role be extended.The report also
recommends clearer editorial supervisionof big themed seasons.The rise of celebritydriven single-issue campaigns presents
particular dangers. Newsrooms also need
to be fully aware of the ethical issues raisedby user-generated content.

Impartiality of BBC business coverage
As part of their regular programmeof impartiality reviews the Governors
commissioned an independent panel,chaired by Sir Alan Budd, to assess theimpartiality of BBC business coverage.
The panel reported in May 2007.
Its overall conclusion was that: “mostof the BBC’s business output meets therequired standards of impartiality”. But thepanel also said it had seen: “a number ofindividual lapses and identified some trends
which lead to repeated breaches of theBBC’s standards”.
The Trust welcomed the report. It shared
the panel’s concern about the BBC’s
predominant focus on the consumer
perspective in business reporting. Audienceswere also investors, savers, business owners
and employees with a personal and civic
interest in understanding the impact ofbusiness from a range of perspectives.
Impartiality meant providing a complete
picture and full breadth of opinion and
the BBC had a responsibility to deliver this.
The Trust will discuss the panel’s
recommendations with management
when they have had an opportunity
to consider the report and respond.

OnlineOur work with audiences shows that bbc.co.uk
is valued for its ease of use, for the reliabilityof the information it offers, and for its breadth.
News, sport and children’s are the most popularofferings – although we expect that there will
be growing demand for on-demand output when
BBC iPlayer is launched.
Our remit for BBC iPlayer sets the Executive
the objective of using the service to maintainthe reach, consumption level and value formoney of the BBC’s radio and television output,
and of increasing the impact of BBC programmes.
The remit makes it clear that BBC iPlayer should
give the public greater choice and control over
how they consume BBC programmes, andincrease viewing of niche and specialist

programming. By achieving these aims, BBC
iPlayer should help maintain the perceived
relevance of the BBC to licence fee payers as
their patterns of media consumption change.
Use of the internet continues to change anddevelop at great speed – social networking
and content sharing, for example, are increasingly
important to many users. BBC online services
must remain relevant in this rapidly changing
environment and we look forward to engaging
with management on their ideas for developmentof bbc.co.uk.We will review the service later thisyear (see box below).

Impartiality should not
be an excuse for insipid
programme-making
Source: Safeguarding Impartiality in the
21st Century

Trust review of bbc.co.uk
The Trust is committed to carrying out
in-depth reviews of all BBC public services
at least once every five years and we will
regularly publish an up-to-date scheduleof forthcoming reviews. In March 2007
we decided to review bbc.co.uk, the BBC’s
online service. Our decision honours
a commitment made by the Board ofGovernors in 2004, following the DCMS
review of BBC Online, that another review
should be carried out after three years.
We will launch the review in early summer
2007 with a period of public consultationon the current scope and performanceof bbc.co.uk. We will seek responses fromthe public and from the BBC’s otherstakeholders, including commercial
operators, and we will commission researchwhere necessary. We will also ask the BBC
Executive to submit a public response to
the review.
We will then consider the evidence
gathered during our review and draw
conclusions. We will make public our
findings and any resulting actions, suchas changes to the service and variations
to its service licence.

BBC jam, the online educational service forschool-age children, was suspended in March 2007.
For the background to this, see box on page 7.

News, sport andchildren’s are themost popular online
content on bbc.co.uk

Part One: BBC Annual Report and Accounts 2006/2007 | 23

BBC performance
Services

233m

people watch or listen to
BBC World Service (target
for 2006/2007 = 210 million)
Source: BBC Global News

183m

people listen to BBC World
Service radio (target for
2006/2007 = 163 million)
Source: BBC Global News

BBC World Service
No licence fee funding goes to BBC World
Service, which is funded through a parliamentary
Grant-in-Aid.The Trust’s role is to agree andpublish long-term objectives in agreement with
the Foreign and Commonwealth Office, and to
approve high-level strategy.
We note that the World Service has increased
its overall reach ahead of target. However, we
also note that target reach among ‘influencers’(opinion formers and decision makers – apriority audience for the World Service) was
not met in all key markets. We are keen tounderstand the needs of this audience better.
The Trust’s Audiences and Performance
Committee commissioned independent research
into six language services – Arabic, Persian,
Swahili, Bengali, Hindi and English for Western
Europe.The overall response was positive.
Reputation and reliability were perceived
as strong, and audiences mostly found theWorld Service to be trustworthy, in-depth
and educational.The research identified aneed to make global issues more relevant
locally and to encourage further participationin global debate.
In the coming year the World Service will launch
an Arabic television service and it has plans fora Farsi equivalent the following year. We will
monitor delivery of these new services to ensurethat they contribute to the BBC’s Public Purposes
alongside the existing service portfolio.

You can find out more
about the BBC World
Service in its own
Annual Review – alsoavailable on bbc.co.uk
24 | Part One: BBC Annual Report and Accounts 2006/2007

Audiences
The Governors set the objective for2006/2007 of improving BBC accountability
to audiences.The Governance Unit was
asked to:conduct a major public survey of
attitudes towards the BBC
work with the Audience Councils to build
their profile and develop an action plan
to engage more widely with audiences.
BBC management were asked to:develop new service strategies in response
to Creative Future, ensuring that all
audiences are well served, and focus
on improving perceptions of audiences
less favourable towards the BBC.

We are encouraged by the progress madetowards achieving the Governors’ accountability
objective. BBC management have reflected theaims of this objective in their Creative Future
project, one aim of which is to ensure that the
BBC is relevant to all audiences.This has taken
account of the needs of currently less wellserved audiences including the young and thoseon lower incomes.
Over the year management showed a very
welcome focus on understanding audiences.
Initiatives include a cross-media study looking at
how and where the BBC currently delivers value
to audiences, and a series of Audience Festivals
encouraging BBC staff to learn more about thosethey are trying to reach.
As BBC Trustees, representing the interestsof the public, we are committed to understanding
and engaging with audiences ourselves. Our
research programme includes a very large scale
survey of 10,000 adults in the UK. We began thisproject earlier this year. As part of our work
developing purpose remits, the research agency
BMRB interviewed some 4,500 people to discover
their attitudes to the BBC, what they thought
were important roles for the BBC, and how wellthey felt the BBC was performing. (For moreon this, see page 11.) The findings, as they comethrough, will feed into our work on reprioritisation.

The new Charter establishes Audience Councils
and gives them an important role in the new
governance of the BBC.The Trust has developed
an Audience Council Protocol, setting out therole and responsibility of the Councils, and set
up an Audience Councils Committee as a forum
for the exchange of ideas (see page 34). For the
Audience Councils’ own performance assessment
see box, right.
The Committee is currently developing outreachand promotion plans for each Council. Work isalso under way to seek the views of the public
on how they want to be consulted and involvedin the Trust’s decision-making processes, andAudience Councils will play a key role in this.
For an example of one Council’s consultative
approach see the box on minority language
provision below.

Minority language provision
Through its engagement with the public,
the Audience Council for Northern Ireland
identified particular audience concerns
about output in Irish and Ulster-Scots.
As a result it held a local consultation andthis will inform the Trust’s deliberation on
provision for indigenous minority languages
across the UK.
The two-stage consultation aims tounderstand audience needs and concerns
and to identify key priorities for minority
language provision by BBC Northern Irelandover the next three to five years.There will
be a second consultation in summer 2007
after the Trust has published its emerging
thinking, and the results will inform theTrust’s final decision later in the year.

Audience Councils’ assessmentof BBC performance
The role of Audience Councils as definedin the Charter is to bring the diverse
perspectives of licence fee payers to bear on
the work of the Trust through the Councils’
links with many different communities within
the UK. Each of the four Councils, covering
England, Wales, Scotland and Northern
Ireland, review BBC performance in theirnation and discuss their assessments with
the Trust at an annual meeting.

All four Audience
Councils raised
concerns over thelimited availability ofsome digital services
in their nation

At the annual meeting in April 2007 someof the key issues identified included:
BBC network news coverage of devolved
issues – there was some dissatisfaction in
Scotland, Wales and Northern Ireland withthe accuracy and range of BBC networknews coverage of devolved issues.
BBC network news coverage of regional
stories in England – Audience Council
England questioned the tendency of BBC
network news to ‘parachute in’ nationallyknown names to cover regional stories
at some cost to accuracy and provisionof local context.
Cultural representation on BBC network
output – all four Councils expressed
concern over the level and quality ofrepresentation of the UK’s nations andregions in BBC network output.
Levels of network commissions fromthe nations and regions – the Councils
in Scotland, Northern Ireland and Englandpressed for a greater share of network
contributions from their nation.
Digital provision – all four Councils raised
concerns over the limited availabilityof some digital services in their nation.
Where appropriate, the editorial issues
will be taken account of as the Trust finalises
purpose remits and commissions purpose
plans from the Executive. Other issues will
be taken forward through the Trust’s regularprogramme of reviews and progress reports.
For example, the next impartiality review
will consider the impartiality of nations andregions journalism.

The Trust has
agreed that the next
impartiality review
will look at issues
around nations andregions journalism

Part One: BBC Annual Report and Accounts 2006/2007 | 25

BBC performance
Services70%

of licence fee payers would
miss the BBC if it were not there
Source: Purpose Remit Survey. Age 15+
BMRB. February 2007

Other significant findings from the Trust’s own
work with audiences include:
Although the BBC’s overall approval ratings
remain stable – and ahead of ITV, Channel 4
and on a par with Sky – approval varies
somewhat among different demographic
groups. We will work to understand theseresults more fully.
When we asked audiences if the BBC caters
equally for all parts of the UK, only a minority
agreed.The feeling is stronger the further
away from London people live.This has beena long-standing concern of audiences, andis not limited to the BBC – many other national
bodies also experience this.This is something
we will work to understand more fully andseek to take account of in our work on licencefee reprioritisation.
When audiences are asked their views on how
seriously the BBC takes their opinion, a sizeable
minority – a third or more – say they feel ittakes either “not very much” or “none at all”.
These perceptions are higher among older
audiences, lower income groups and people
living outside England.This is a real concern for
the Trust in our role of representing the public.
The Trust is currently consulting with audienceson how they want to have their say and theoutcomes will inform the Trust’s future
engagement activity.
Despite the audience challenges, the Trust ispleased to note that the vast majority of the
public – 70% – would miss the BBC if it were
not there.

26 | Part One: BBC Annual Report and Accounts 2006/2007

“It’s quite good when you’regoing home from work as
well because it’s not blastingin your ears. It’s quite kindof interesting stuff to listen
to in the car when you’re stuckin traffic on your way home.”
BBC Radio Scotland. Female, Glasgow,
contributing to Trust consultation on service licences.

BBC performance
Finance and businessWe take a strategic
look at the BBC’s
finances and approve
the BBC’s budget
and long-term
financial plans

As Trustees we have responsibility for the oversight of theBBC’s financial and business performance.We also report
here on the Governors’ objectives for 2006/2007 dealing
with value for money and driving digital take-up.
BBC in the wider economy
The BBC is a major presence in the UK media
sector with expenditure of £3.3billion in 2006/2007.
Of this, £1.1billion was spent outside the BBC
within the UK creative industry (with independent
production companies, artists and other programme
resources).The window of creative competition
has opened up new opportunities to independent
producers, while in particular sectors such as
children’s programming the BBC’s commissioning
role is becoming increasingly important insupporting original UK programming.

We may set management a number of financial
objectives within which they must manage
their operations.
The Governors set management a seriesof value-for-money objectives for 2006/2007.
These were:Deliver value-for-money savings whilst
retaining quality output. Reduce
headcount by 2,055
Make cumulative cash savings of£211million, including new cash savingsof £112million, towards a target of annual
cash savings of £355million by 2007/2008.
Incur implementation costs of no morethan £148million

The BBC’s contribution to a thriving UK media
sector is not simply through its direct expenditure.
The BBC also contributes in other ways such as
through the provision of specialist industry training(see Part Two, page 81) and the regular flow ofstaff between BBC and commercial players.

Develop a coherent business architecture

The BBC also increasingly contributes to thewider economy throughout the UK. During
2006/2007 it spent £864million outside London
in the nations and regions.This year also saw therelocation of the BBC’s finance division to Cardiff,while on 31 May 2007 we finally approved thecontract for a new broadcasting centre in Salford.
BBC financial performance
Under the Charter, the Trust has the ultimate
responsibility for the BBC’s stewardship of thelicence fee revenue and its other resources.This
means we are required to keep under review
the financial needs of the BBC and ensure thatvalue for money is achieved by the BBC throughits spending of the licence fee.

For management’s
more detailed review
of BBC financial
performance seePart Two

Set targets for continuous financial
improvement
Improve Worldwide’s return to the BBC:
ensure double-digit profits growth andongoing sales growth; at least 10% return onsales; and EBITDA1 margin of at least 22%
Increase licence fee sales by 1.04% andreduce evasion to 4.6%

We do this in two ways – through an ongoingprocess of review of budgets and financial plans
and also through a more targeted series ofstudies on particular aspects of value for money.

Most of these objectives were met and the BBC
is on track to deliver the savings planned for the
final year of its three-year efficiency programme.
£128million in cash savings were made in
2006/2007, making a cumulative total of£228million – £17million above target. Costs ofimplementing the programme were £106million– £42million below estimate. However, theheadcount reduction target was missed by 8%.
The target was 2,055 and the out-turn 1,891.

Each year we take a strategic look at the BBC’s
finances and have a duty to approve the BBC’s
budget and its long-term financial plans.

The BBC has developed a business model
designed to reinforce a culture of continuous
improvement.The intention is to apply the

28 | Part One: BBC Annual Report and Accounts 2006/2007

Earnings before interest, taxes, depreciation and amortisation1

operating principles beyond the current
three-year efficiency programme to secure
further value-for-money benefits.
BBC Worldwide met all our financial planningobjectives.The double-digit growth target
for profits was comfortably achieved. Profits,
excluding exceptional items, rose by 27.5% from
£79million to £101million. Sales increased by
3.2%, and a return on sales achieved of 12.4%
against a target of 10%.The EBITDA margin
was 27% against a target of at least 22%.
The objectives of increasing licence fee revenue
and reducing the evasion rate were not met.
Net licence fee sales grew by 0.3% against
a target of 1.04%, and the evasion rate rosefrom 4.7% to 5.1%.The rise in the evasion
rate accounts for the missed revenue target.
A contributory factor may have been thetransition from Post Office to PayPoint collection.
Around 3% of customers are thought to havedelayed payment as a result of the switch –but this is forecast to be a one-off effect.
On a more positive note, the cost of licence feecollection fell by £20million and the combined
cost of collection and evasion amounted to 9.2%
– the lowest since the BBC took over licence feecollection in 1991/1992.
Specific value-for-money studies
The Trust also fulfils its stewardship responsibility
through the commissioning of a series of
independent value-for-money reviews each year.
We agree the areas on which these reviews
will focus in dialogue with the Comptroller and
Auditor General – the head of the National
Audit Office (NAO).The reviews are thenundertaken by the NAO or other external
agencies. For the purposes of these reviews
editorial decisions are out of scope.The findings
from each review are published in full on
bbc.co.uk/bbctrust and presented to Parliament.
During 2006/2007 four reviews were completed
under the previous programme of studies
agreed by the Governors.The full reports
from each study, including the BBC’s response
to all recommendations made, can be foundon bbcgovernorsarchive.co.uk, but we give a
brief overview below:

1 BBC’s definition of overheads (July 2006):
This study considered whether the definition ofoverheads was a useful measure to demonstrate
whether the BBC was achieving best value forlicence fee payers.The Governors were pleased
that the NAO considered that the use ofoverheads measurement had proved usefulto the BBC in its past efficiency programmes.
We will take forward the recommendations fromthat review as we work on the reprioritisationplans and set management new efficiency targets.

We commission aseries of independent
value-for-money
studies as part of ourstewardship duties

2 BBC outsourcing: the contract between the
BBC and Siemens Business Services for theprovision of technology services (July 2006):
This assessed whether the BBC was well placed
to meet its strategic objectives for outsourcing
technology services, to review how thepartnership with Siemens was progressing andto enable lessons learnt from this contract to be
applied to future outsourcing deals.The Governors
welcomed the NAO’s acknowledgement thatthe deal had been a financial success for the BBC
but agreed there was scope for improvement intechnology governance arrangements. Following
the report the Governors took a close interestin management’s efforts to address the review’s
recommendations, monitoring progress throughregular updates to the Audit Committee.
3 BBC’s management of risk (November 2006):
This assessed whether the BBC’s overall
approach to risk management allows theorganisation to understand fully and respondeffectively to the risks it faces. The NAO
concluded that the BBC had an appropriate
framework for managing risk.
4 BBC independent television commissioning(November 2006): This assessed the effectivenessof the independent commissioning process.
Deloitte concluded that the complicatedcommercial and regulatory environment has some
limiting effect on the BBC’s ability to improvevalue for money in independent commissioning.
Notwithstanding that, we were pleased to notethat the report concluded that “the BBC takes
value-for-money considerations very seriously
and is doing much to drive value-for-money
improvements in independent commissioning.”
We are planning five reviews for 2007/2008(see page 51).

All of our value-for­money reports are
published in full on
our website

Part One: BBC Annual Report and Accounts 2006/2007 | 29

BBC performance
Finance and businessWe have a duty tohelp deliver to the
public the benefit ofemerging technologies
and services, and to
take a leading rolein the switchover
to digital television
We have approved
the BBC’s proposals
to develop, jointly withother broadcasters,a satellite platform
guaranteeing
subscription-freeaccess to any
digital services

Driving digital take-up
The Royal Charter contains a new Public Purpose
for the BBC which requires it to take a leadingrole in the switchover to digital television andsets out a broader role for the BBC in helping
to deliver to the public the benefit of emerging
technologies and services. Recognising the growing
importance of these issues, the Governors set four
specific objectives for management.
The Governors set management a seriesof objectives in 2006/2007 for driving
digital take-up.These were:Preparing for digital switchover anddriving the market for free-to-air digital
television, digital radio and new media
while continuing to serve the analogueonly audience
Raising awareness of the value added
to the overall portfolio by the BBC’s
digital services
Improving their availability
Working with the commercial sector
to drive take-up.

In general terms we are pleased with progress.
Take-up of digital television, DAB and broadband
continues to rise, and availability of digitalterrestrial television (DTT) has reached the
maximum coverage possible until switchover
starts – 73%. In 75% of homes at least one
television set has been converted to digital,
and in 42% all sets have been converted.The
launch of the BBC iPlayer and of Freesat should
produce further progress in driving digital.
Overall awareness of digital switchover stands at
82%, although levels are very much lower in someregions (51%, for example, in Ulster). Management
have explained that these regions will be among
the last to switch; awareness is much higher inareas switching first (96% in Border), reflecting
the concentration of marketing effort there.

82%of adults are aware of digital
switchover
Source: Digital UK, Q1 2007

We have some concerns over figures showing
a decline in the awareness of the BBC’s digital
services. Management have suggested to us that
this reflects the rapid approach of switchover anda consequent shift in the marketing emphasis –away from messages promoting BBC digital

30 | Part One: BBC Annual Report and Accounts 2006/2007

services and towards generic messages
promoting switchover itself.
We have stressed our concern that management,
working alongside Digital UK, should maintain asharp focus on reducing the ‘digital divide’.This
means targeted marketing aimed at hard-to-reachgroups such as lower income groups, someethnic minorities, and the over-75s.
Although this is the last year in which we will
monitor objectives in this way, the Trust’s Digital
Protocol requires the Executive to report to us
quarterly on digital progress.The Public Purpose
remit for emerging communications will alsomeasure many areas currently monitored throughthe objective.

FreesatIn April we gave BBC management theformal go-ahead to develop and launchFreesat.This is a satellite platform, developed
as a joint venture with other UK
broadcasters, guaranteeing subscription-freeaccess to digital services, including those fromthe BBC.The only payment will be a one-off
charge for equipment and installation.
Although we are not required to undertakea full Public Value Test for activities that do
not constitute BBC content services, weapplied similar principles in reaching ourdecision. We weighed up Freesat’s likely
benefits to the public, the public value it
could create, and the potential market
impact. Our consultations demonstrated
widespread public support for the proposal.
We gave our approval subject to conditions
relating to quality control, the transparency
and integrity of the use of licence fee
funding, and technical co-existence withother digital television platforms.
We have asked BBC management tomove swiftly in developing their plans toensure that licence fee payers, particularly
those outside Freeview coverage areas,
gain maximum benefit in the lead up
to digital switchover.

“I know he can go on that
[CBeebies website] and it’sa safe website and he won’t
be wandering off.”
Spontaneous comment on bbc.co.uk. Female, 30–49, Inverness,
contributing to Trust consultation on service licences.

BBC Governance
The Trust

The Trust’s role is toset priorities for the
BBC and ensure they
are properly deliveredby the Executive
within agreed policies
and budgets
The Executive runs the
day-to-day operationsof the BBC

A different system of BBC governance came into force when
the new Charter took effect on 1 January 2007.The Boardof Governors was replaced by the Trust, and a formallyconstituted Executive Board was created. Under the new
system the Trust is formally established as the representativeof the licence fee payer, and there is greater separation
between the Trust and the BBC Executive than there was
between the Governors and BBC management.
Overview
As Trustees we are committed to upholding
the highest standards of corporate governanceat the BBC. In this section we set out how thegovernance of the BBC has been managed overthe past year by the Trust and by the Governors.

Governance under the Trust
The BBC Charter and Agreement sets out our
obligations as Trustees, including:representing the interests of licence fee payers
and carefully assessing their views
maintaining the independence of the BBC

Governance under the Trust(January–March 2007)
Governance under the Trust – page 32
Statement of Trust responsibilities – page 33
Trust Committees – page 33
Trust advisory bodies – page 34
Promoting equality and diversity – page 35
Measuring public value – page 36
Trust Unit – page 37
Trust expenditure – page 37
Trustee remuneration – page 38
Commercial and fair trading – page 40
Upholding editorial standards – page 43
Governance under the Board of Governors(April–December 2006)
Governors’ committees – page 46

Part Two of theBBC’s Annual Reportand Accounts provides
more information
on how the Executive
has undertaken its
corporate governanceresponsibilities

Governance Unit – page 47
Governors’ remuneration – page 48

32 | Part One: BBC Annual Report and Accounts 2006/2007

exercising rigorous stewardship of public money
taking proper account of the competitive
impact of the BBC on the wider market
making sure the BBC operates openly
and transparently
ensuring that the BBC’s Public Purposes are
effectively promoted
setting the framework for handling complaints,
and hearing appeals where appropriate.
The way we work as BBC Trustees is
set out in a series of published protocols.
The protocols describe how we should manage
our responsibilities – for example, to conduct
our business in an open and transparent way,
to set the strategic direction of the BBC, andto undertake value-for-money investigations.
The Trustees have also agreed a Code ofPractice, setting out the principles and policies bywhich we conduct our business.This covers suchthings as conflicts of interests,Trustees’ expenses,
and political activity by Trust members. In addition
we have adopted Standing Orders governing
the way we conduct our meetings. The Trust
will review its own performance and that of its
committees on an annual basis.The first review
will be carried out by April 2007 and reported
in next year’s Annual Report and Accounts.

Statement of Trust responsibilities in respectof the Annual Report and Accounts
The Charter requires that an annual report andstatement of accounts is prepared and audited.
The Executive Board’s responsibilities are detailed
in their responsibility statement on page 95
of Part Two of this Annual Report and Accounts.
In summary, the Executive Board is responsible
for preparing the financial statements andstatements of compliance with applicablecorporate governance codes and remuneration
regulations and delivering these to the Trust
within Part Two.

Trust Committees
The full BBC Trust meets monthly but we
do much of our work in small committeesof Trustees who report back to the full Trust.
These committees have decision-making powers.
The Trust Committees are:More information
about our Committees,
including theirterms of reference,is provided on
bbc.co.uk/bbctrust

Finance and Strategy Committee (see below)
Audiences and Performance Committee(see page 34)
Audience Councils Committee (see page 34)
Public Value Test Steering Group (see page 36)

In preparing its corporate governancedisclosures the Executive Board has elected
to comply with the 2003 Financial Reporting
Council Combined Code and the disclosure
provisions of the Companies Act 1985 and,
where applicable, the Financial Services
Authority Listing Rules which apply to acompany listed on an EU regulated market.
In order to comply with those requirements
the Annual Report must include disclosureson the governance arrangements of the Trustas well as those of the Executive Board.These
disclosures, which are audited, are included
in Part One of the Annual Report and Accounts
and are the responsibility of the Trust.
Additionally, the Charter requires the Trustto prepare a statement of its expenditure andinclude this within Part One.
Statement of disclosure of information
to auditors
The Trustees who held office at the date of
approval of the Annual Report and Accounts
confirm that, so far as they are each aware, there is
no relevant audit information in respect of the Trustgovernance disclosures, remuneration disclosures
and Trust statement of expenditure of which theBBC’s auditors are unaware; and each Trustee hastaken all the steps that they ought to have taken asa Trustee to make themselves aware of any relevant
audit information and to establish that the BBC’s
auditors are aware of that information.
This statement was approved by the Trust on
19 June 2007.

Remuneration and Appointments Committee(see page 38)
Fair Trading Policy and Appeals Committee(see page 41)
Editorial Standards Committee (see page 43)
The members of each Committee and theirattendance during the period since the Trustcommenced are shown in the table on page 34.
As well as formal meetings of the Trust andCommittees, the Trustees have been involved ina range of activities, including meeting licence fee
payers and stakeholders as well as BBC staff.The
four Trust members with special responsibilities
for the nations also chair the Audience Councils
in that nation. Attendance at these meetings was
as follows: Alison Hastings (England) 3/3; Rotha
Johnston (Northern Ireland) 3/3; Janet Lewis-Jones(Wales) 3/3; and Jeremy Peat (Scotland) 3/3.
Finance and Strategy Committee
This Committee supervises and scrutinises issuesof finance, business strategy and risk management
including reporting and investment proposals
from the Executive. It meets monthly.
The Committee’s early activities have included
scrutinising and advising the Trust on the
Executive’s proposals for Freesat (see page 30),
assessing the budgets and financial plans for the
BBC for 2007/2008, and approving a programmeof value-for-money studies for the 2007/2008
year (see page 29).The Committee also oversees
the Trustees’ conflicts of interest and the Trust
Unit’s own financial affairs.

Part One: BBC Annual Report and Accounts 2006/2007 | 33

BBC Governance
The Trust

Trust and Committee attendance, 1 November 2006 to 31 March 2007

Trust

Number of meetings
in the year

7

Michael Grade(to 27 Nov 2006)

1/1

Audiences
Finance andandStrategy Performance
Committee Committee

4

Remuneration
Audience Public ValueandCouncils Test Steering Appointments
Committee
Group Committee

2

3

2/2

3/3

Chitra Bharucha

7/7

Diane Coyle

7/7

Dermot Gleeson

6/7

Alison Hastings

6/7

Patricia Hodgson

7/7

4/4

Rotha Johnston

6/7

3/4

3/3

Janet Lewis-Jones

7/7

4/4

3/3

David Liddiment

6/7

Mehmuda Mian
Pritchard

5/7

3

4/4

2/2
2/2

7/7

Richard Tait2

4/7

Editorial
Standards
Committee

3

3

3/3

3/3

1/1
3/3

3/3

1/1
3/3

1/2

1/3
3/3
2/3
1/1

2/2

3/3
2/3

1

Jeremy Peat

1

Fair Trading
Policy andAppeals
Committee

3/4

3/3

3/3

3/3

3/3

2/3

3/3

Agreed absence due to conflict with pre-arranged meetings of the Independent Police Complaints Commission
Agreed leave of absence from November 2006 – January 2007 (inclusive) owing to illness

1
2

Audiences and Performance Committee
This Committee assesses the performanceof the BBC’s publicly funded services in delivering
public value. It reviews how the BBC is performing
among different audience groups and identifies
challenges arising for the BBC from this work.

Purpose remits
Purpose remits explain how
the BBC should fulfil its six Public
Purposes.The remits set priorities
for the BBC in consultation withlicence fee payers, and show
how the BBC Trust will judge
performance against thosepriorities using measures basedon audience perceptions.The
purpose remits are currently indraft form and will be finalised
later in 2007.
Service licences
The Trust issues a service licencefor each BBC service which setsout how that service should help
the BBC to deliver its Public
Purposes and gives a headline
budget for the service.

The Committee has new tools to help it in its
assessment of BBC performance.These include
purpose remits and service licences which
provide the framework for the Trust to set
out the public’s expectations of the BBC andmeasure performance through a system which
is transparent and consistent.
The Committee’s early activities included
approving plans for the purpose remit
consultation (see page 11) and approving the
purpose remit and service licence consultation
documents and use of audience research.
It also met with representatives of the
Executive to discuss the performance of theBBC’s public services over the past year, making
recommendations to the Trust.The Committee
will carry out regular detailed reviews of theBBC’s public services. The first review will
cover bbc.co.uk.

34 | Part One: BBC Annual Report and Accounts 2006/2007

The Committee also monitors the performanceof the BBC World Service in line with long-term
objectives agreed with the Foreign andCommonwealth Office and the Operating
Agreement published by the Trust in June 2007.
Audience Councils Committee
This Committee oversees and reviews thework of the BBC Audience Councils establishedby the Royal Charter. The Committee shares
best practice and learning across the work of the
Audience Councils and identifies cross-nations
issues and concerns. It also approves membershipof Audience Councils on behalf of the Trust.
It meets quarterly with the Chair rotating
periodically among the National Trustees.
Trust advisory bodies
In undertaking their work the Trustees draw
on a wide range of views.This includes Audience
Councils, which are constituted in the Charter andother more informal bodies such as the Central
Religious Advisory Committee (see page 35).

Audience Councils
The Charter defines the role of the Audience
Councils as bringing the diverse perspectivesof licence fee payers to bear on the work of
the Trust through the Councils’ links with manydifferent communities within the UK.
There are Audience Councils in England, Scotland,
Northern Ireland and Wales (Audience Council
England is supported by a network of Regional
Audience Councils). Council members are
selected from licence fee payers who havean informed interest in the work of the BBC, andan understanding of the interests, concerns anddiversity of the audience in their nation. Members
are volunteers and do not have any professional
affiliation to the BBC. Each Audience Council ischaired by the Trust member for that nation.
In addition to regular meetings, the Audience
Councils carry out wide-ranging programmesof activities in order to identify ways in which the
BBC can better serve audiences. Each Audience
Council submits a report to the Trust every year
on the BBC’s performance in each nation andadvises on issues arising.The Audience Councils
also play a key role in Trust-led public consultations.
Some of their findings in 2006/2007 are set out
on page 25.
Central Religious Advisory Committee (CRAC)
The Central Religious Advisory Committee(CRAC) has advised the BBC on religious
policy and programmes since 1923. It was thefirst of the BBC’s advisory committees and it
has traditionally played a dual role – advising theBoard of Governors on broad policy issues andadvising management on programming. However
this dual role is open to question under the new
governance arrangements, which are based on theprinciple of greater separation between the Trustand the Executive.
We are therefore reviewing the arrangements
as part of our current consultation on how
we should engage with audiences (see page 24).
The issue is how and on what terms CRAC
might continue to fulfil a useful advisory rolethat is consistent with the principle of separation;and how its work should fit with the Trust’s wider
mechanisms for engaging with diverse audiences.
We hope that CRAC will itself make a submission

to the consultation. In December 2006 theGovernors agreed that CRAC should continue
in an informal capacity while the review wasunder way. CRAC is chaired by Bishop Graham
James, Bishop of Norwich.
Promoting equality and diversity
The BBC aims to provide services to all thepeople and all communities across the UK. In
doing so we believe it is important that both theway in which the BBC operates, and its output,
reflect the wide diversity in those communities.
In this respect diversity should be seen as including
ethnicity, disability, gender, age, faith, sexuality, class,political affiliation and regional differences.

The Audience
Councils bring thediverse views ofcommunities fromthroughout the UK
to the Trust’s attention

The BBC is also subject to certain equalities
legislation concerning some aspects of diversity.
The BBC is required by law to promote equality
positively. It must work to eliminate unlawful
discrimination in three areas – race, disability andgender – in respect of its public functions.Thesepublic functions include such things as TV licensing,arrangements for digital switchover, and certain
regulatory functions of the Trust. For each area
the BBC has to develop, publish and implement
an Equality Scheme.The Disability Equality
Scheme was published in December 2006, and
the Gender and Race Equality Schemes in April
and May 2007 respectively.The Trust is responsible
for overview and scrutiny of the Schemes which
run for three years and will be subject to annual
review by the Trust.
In exercising regulatory control of the BBC, theTrust has set itself a number of tasks.These include:issuing and consulting on a draft protocolon engagement with licence fee payers,
covering, for example, public meetings,
website and consultations
ensuring that all its communication andinvolvement activities are accessible
ensuring that all disabled people have fair accessto the Trust’s complaints processes, and are
consulted with and/or involved in policy
decisions that may have an impact on them.
Further details of the three Schemes can befound on the Trust website, bbc.co.uk/bbctrust.
The Trust will monitor its performance andreport on this in the Annual Report and Accounts
2007/2008.

Part One: BBC Annual Report and Accounts 2006/2007 | 35

BBC Governance
The Trust

The concept of public
value will drive manyof our decision-making
processes andour performancemonitoring activities

Public Value Test (PVT)
Some BBC activities may produce a positive
public value, but have a negative impact
elsewhere – for example, on commercial
broadcasters or media suppliers. In orderto ensure that the right balance is struck
between these competing interests, weapply a Public Value Test before we consent
to the BBC starting a new service or making
a significant change to an existing service.
The test considers the positive or negative
public value created and the positive or
negative market impact.There are two parts
to the test – a public value assessment, anda market impact assessment.
Public value assessment
The public value assessment measures thelikely public value of the proposed change
by assessing:the value licence fee payers would placeon the change as individuals
the value it would deliver to society as awhole through its support for the BBC’s
public purposes
its cost and the value for money it offers.
This assessment is overseen by the Trust,and always includes public consultation.
Market impact assessment (MIA)
The market impact assessment measuresthe likely effect of the proposed change
on other players in the market (or markets)
affected.This assessment is carried out,or commissioned, by Ofcom.The workis overseen by a joint steering group madeup of members drawn from the Trustand from Ofcom.
Applying the Public Value Test
We consider the outcomes of bothassessments and make a provisional decisionon the proposed change. We publish thisdecision and consult on it. Once we haveconsidered the results of the consultation,
we make our final decision. Before we agree
to any proposed change, we must be satisfied
that any likely adverse impact on the market
is justified by the likely public value it creates.

36 | Part One: BBC Annual Report and Accounts 2006/2007

Measuring Public Value
The term public value is a relatively new concept,
first used by an American academic, Mark Moore,in 1995 as a new way of addressing managementof public bodies. The British Cabinet Office
adopted the term as a framework for considering
public sector reform in 2002.The notion of public
value was incorporated into the new BBC Charterand Agreement. Public value will drive manyof the Trust’s decision-making processes andother activities, including the Public Value Test andperformance monitoring of the BBC’s publicly
funded services.
The BBC’s public value performance measurement
framework has a number of components:
most fundamental are the six Public Purposesof the BBC (see page 9)
the Charter and Agreement has establishedfive content characteristics – high quality,
engaging, challenging, original and innovative –for the UK public services
the BBC Trust has established four driversof public value – Reach, Quality, Impact andValue for Money – in which the content
characteristics are incorporated.
The aim of this framework is to bring as muchevidence as possible to inform the Trust’s
judgements.The Trust has already actively applied
its first Public Value Test (PVT) and believes thatthe concept of public value will help inform muchof their work in the future.The Trust will be
conducting work to further develop the conceptof public value in the coming year.
Public Value Test Steering Group
This Trust Committee oversees the process
for each PVT: examining the proposal from the
Executive, engaging with Ofcom and the Joint
Steering Group regarding the market impact
assessment, and making recommendations to
the Trust on the outcome of the PVT. It meets
monthly and as necessary.
The PVT is a further tool of governance that the
new Charter has introduced.The Trust uses thistool to assess any proposals from the Executive
to significantly change an existing service or tocreate a new service (see box).

In April the Trust, advised by this Steering Group,
approved the plans of the Executive to launch
on-demand services giving audiences new powers
to watch and listen to BBC output over theinternet (see page 7).
Trust Unit
The Trust is supported in its work by theTrust Unit, which provides independent andobjective advice, calling on outside experts whennecessary.The Trust Unit is independent of BBC
management. Its director is appointed by the Trustand the staff are outside the BBC management
chain.The Unit is made up of professional staff
with expertise across a range of disciplines who
advise Trustees on the conduct of their duties andsupport their work in key areas.The Trust Unit
had a staff of 42 at 31 March 2007.
Statement of Trust expenditure
3 months to
31 March
2007
Note
£000

Trustee remuneration
Staff costs – Trust Unit
Other operating costs

1
2
3

Direct Trust expenditure
Ofcom regulatory fees
Ofcom MIA fees

2,638
4
5

Total Ofcom fees
Total Trust expenditure

209
865
1,564

875
620
1,495

6

4,133

Notes
1 Although the Trust came into existence on 1 January 2007,
new Trustees were appointed with effect from November
2006 and their remuneration therefore reflects thisfive-month period. Remuneration of Trustees that werepreviously Governors is included from 1 January 2007
2 Staff costs include wages and salaries, social security
costs and employer pension contributions
3 Operating costs include direct expenditure on activities
such as research, legal advice and other specialist
advisory services
4 Ofcom allocates its costs of television and radio regulation
between the BBC and the commercial channels.The Trust
Unit bears the BBC’s share of that allocation
5 Ofcom MIA fees cover Ofcom’s direct and indirect costs
in undertaking the market impact assessment for the
Public Value Test undertaken in the period
6 The expenditure above represents direct external spend
by the Trust. Additionally the Trust made use of sharedservices provided by the BBC which included the useof property, finance, HR and information services

Report of KPMG LLP to the BBC Trust (‘the Trust’)
In accordance with the terms of our engagement
letter dated 1 May 2007, we have examined theexpenditure statement (‘the Trust expenditurestatement’) for the period from 1 January 2007
to 31 March 2007 which has been prepared,
further to the requirements of the BBC Charter
dated October 2006, by the Trustees of theTrust and is their sole responsibility.The Trust
expenditure statement has been prepared by
the Trustees of the Trust applying the recognition
and measurement requirements of UK Generally
Accepted Accounting Practice.

The Trust is fundedfrom the BBC’s
licence fee income.
The expenditure
shown here has been
extracted from thefull financial resultsof the BBC (set out
in Part Two)Our responsibility, in accordance with theterms of our engagement letter, is to form an
independent opinion, on the basis of the work
performed, and to report our opinion to theTrust. Our examination was less in scope thanan audit and hence provides a lower level ofassurance than an audit.
Our report has been prepared for the Trust solely
in connection with the Charter. Our report was
designed to meet the agreed requirements of theTrust and particular features of our engagement
determined by the Trust’s needs at the time.
Our report should not therefore be regarded
as suitable to be used or relied on by any party
wishing to acquire rights against us other than
the Trust for any purpose or in any context.
Any party other than the Trust who obtains accessto our report or a copy and chooses to rely
on our report (or any part of it) will do so at its
own risk.To the fullest extent permitted by law,
KPMG LLP will accept no responsibility or liability
in respect of our report to any other party.
In our opinion, the expenditure as shownin the Trust expenditure statement has been
accurately extracted from the books andrecords of the Trust on the basis set out inthe notes to the Trust expenditure statement.
Yours faithfully
KPMG LLP
Chartered Accountants
19 June 2007

Part One: BBC Annual Report and Accounts 2006/2007 | 37

BBC Governance
The TrustIn this report
we explain our
responsibilities for the
remuneration of the
Executive Board andset out the fees we
receive as Trustees

Trust Remuneration report
This report sets out the Trust’s role regarding
the remuneration policy for the Executive
Board and details the remuneration received
by the members of the Trust. Information on
the remuneration received by the Governors
prior to the Trust’s formation is provided on
pages 48–49.
The BBC is exempt from the requirements of
the Directors’ Remuneration Report Regulations
2002 and those of the Financial Services
Authority, but this report has been prepared
as if those requirements apply wherever thedisclosure provisions are relevant and applicable.
The sections on pensions and remuneration
received by the Trustees are audited.
Remuneration and Appointments Committee:
constitution and operation
From 1 January 2007, under the Royal Charter,
the Trust and Executive Board have specificresponsibilities for the remuneration of membersof the Executive Board.
The Remuneration and Appointments
Committee is a sub-committee of the Trust andadvises the Trust on the remuneration policy forthe executive directors and Director-General,
including the application of the policy in relation
to the Director-General, and also on the fees
for the non-executive directors.The Committee
is chaired by Chitra Bharucha and the othermembers are Michael Lyons, Dermot Gleeson
and Janet Lewis-Jones.
The Executive Board also has a Remuneration
Committee and its constitution and responsibilities
are set out in Part Two on page 92.
The meetings of the Trust’s Remuneration
and Appointments Committee are advised by
the Secretariat and Governance team in the
Trust Unit. As required, and at the invitationof the Committee, the Director-General(Mark Thompson), the Director, BBC People(Stephen Kelly) and the Chair of the Executive
Board’s Remuneration Committee (Marcus
Agius) attend to advise on matters relating to
the Executive Board and the wider BBC.The
Director-General is not present when his own
remuneration is considered.The Remuneration
and Appointments Committee has access to

38 | Part One: BBC Annual Report and Accounts 2006/2007

internal remuneration expertise through theBBC’s Head of Reward, who also attends themeetings as required.
Complying with the 2003 FRC Combined Codeon Corporate Governance, the Remuneration
and Appointments Committee takes specialist
advice from external professional advisers
on remuneration matters.The Trust’s Remuneration
and Appointments Committee has appointed
Towers Perrin as its advisers.
Members of the Trust: remuneration policy
The members of the Trust receive a fee
determined by the Secretary of State for Culture,
Media and Sport.They are additionally reimbursed
for expenses incurred on BBC business, and any
tax arising on those expenses is settled directlyby the BBC.The fees and taxable benefits arereported in the table on page 39.
Pensions
The Chairman is eligible to participate in a
pension scheme, however as no permanent
Chairman was in place during this period there
were no pension contributions made by the BBC.
Non-executive directors: remuneration policy
Under the new Charter and Agreement theTrust is responsible for setting the policy andlevel of fees for the non-executive directors.
It approved the appointment, including theterms of the appointment, of the five current
non-executive directors in November andDecember 2006. For convenience, the fees
received by the non-executive directors during
2006/2007 are set out in Part Two alongsideother members of the Executive Board. In linewith best practice, the Trust will review the levelof fees every other year, with the first review
due in 2008/2009.
Executive Board: remuneration policy
The current remuneration policy for the
executive directors and Director-General
was approved by the Board of Governors andadopted by the Trust under the transitionalarrangements in the BBC Charter. It is intended
to offer remuneration that attracts, motivatesand retains the key talent required to lead the
BBC and to deliver outstanding public service
broadcasting.The main elements of remuneration
are base pay, annual bonus and pension.

The base pay and bonus plans for the period
for the executive directors and Director-Generalon the Executive Board were set by the Boardof Governors in July 2006, and confirmed on

their appointment to the new Executive Board.
The remuneration policy and remuneration
received are set out in Part Two.

Remuneration received
The remuneration of the members of the Trust during the year is shown below:Fee/base pay£000

Details of remuneration
received by theGovernors for thenine month period
to 31 December 2006
is set out on page 49

Total
1 November
2006 –
Expenses/
31 March
benefits
2007
£000
£000

Trustees (appointed 1 November 2006 unless otherwise stated)
Chitra Bharucha1
Diane Coyle
Dermot Gleeson2
Alison Hastings
Patricia Hodgson
Rotha Johnston
Janet Lewis-JonesDavid Liddiment
Mehmuda Mian Pritchard
Jeremy Peat2
Richard Tait2

53
15
9
17
15
17
17
15
15
10
9

12
1
–
2
–
–
1
–
–
1
–

65
16
9
19
15
17
18
15
15
11
9

Total Trustees

192

17

209

Chitra Bharucha was Acting Chairman of the BBC Trust following Michael Grade’s resignation on 27 November 2006
and received fees at the Chairman’s level during this period
2
The Trustees’ appointments commenced on 1 November 2006. Dermot Gleeson, Jeremy Peat and Richard Tait also
continued thier duties as Governors until 31 December 2006 (the fees for the Board of Governors are reported
on page 49).They received fees as Trustees from 1 January 2007
1

There were no payments in respect of termination or compensation for loss of office paid to or
receivable by members of the Trust during the year.

Details of remuneration
received by membersof the Executive Board
is provided withinPart Two, page 94
Part One: BBC Annual Report and Accounts 2006/2007 | 39

BBC Governance
The TrustMore informationon the financial
performance of theBBC’s commercial
services is set out
in Part Two

Trust oversight of BBC commercial services
The BBC undertakes some activities on acommercial basis.The aim is to generate revenue
to reinvest in the public services to the benefitof the public.
The basis on which the BBC may undertake
commercial activity is set out in the BBC
Agreement. Clear separation is required between
its public and commercial services. Commercial
activity cannot take place directly within the
Corporation but must be carried out throughcommercial subsidiaries. The overarchingcommercial company is BBC Commercial Holdings.
BBC Worldwide is the main commercial subsidiary,
but some activity is carried out in BBC Resources
and BBC World.
The Executive Board is responsible for overseeing
the BBC’s commercial activities. BBC Worldwide(which reports to the Executive Board) is governedby a Board with an independent chair and two
further independent non-executives plus threepublic service directors from the BBC (serving as
non-executives).
BBC Worldwide’s main activities are commercial
television channels, sales of television programmes,
magazine publishing and home entertainment.
On a smaller scale it also operates a children’sbusiness and a new media business. It operates
worldwide but its priority markets for significant
growth are USA, Canada, Australia and India.
The business has grown steadily and thestrategy is to increase the rate of growth and,in particular, profitability.
Trust oversight of commercial activity
The Trust approved a five year strategy for
BBC Worldwide, including high level targets andbudgets, in March. It has also set the framework
within which new commercial services areapproved and overseen. In March the Trust
adopted and published a protocol which set theframework for the commercial services’ activities
and accountability to the Trust and the
Executive Board.

The BBC Agreement sets four criteria which theBBC’s commercial services must meet.They must:
fit with the BBC’s public purpose activities
exhibit commercial efficiency
not jeopardise the good reputation of the BBCor the value of the BBC brandcomply with BBC fair trading guidelines andin particular avoid distorting the market.
The protocol explains how these criteria
are applied in practice. While the Trust sets
the framework and requires reporting, mostoperational decisions are taken under thisframework either by the Board of BBC Worldwide(where the non-executive members play
an important role) or by the Executive Board.
In a small proportion of cases the Trust’s
approval is required for new service proposals.
Trust fair trading report
The BBC’s fair trading regime governs all the
trading activities of the BBC. It is designed toensure that the BBC’s commercial and trading
activities are conducted ‘fairly’.While the BBCis subject to European and UK competition law
and European law on state aid, the BBC has for anumber of years voluntarily embraced additional
requirements in recognition of its unique status.
1 The BBC’s fair trading arrangements
The BBC’s fair trading arrangements arein transition. Under the previous governancesystem, the BBC had adopted a Fair Trading
Commitment and operated under Fair Trading
Guidelines which translated the Commitment
into a detailed operational framework.The
Governors’ Fair Trading Compliance Committee(FTCC) exercised oversight.
On 1 January 2007, oversight of fair trading passed
to the Trust.The Charter and Agreement requires
the Trust to adopt a statement of policy on fairtrading and to hold the Executive Board to accountfor compliance with it.This statement has to be
adopted by 1 July 2007 and the Trust launcheda public consultation on 20 February 2007.
In the meantime, the Trust decided that theexisting fair trading regime should remain inforce. For the period of this report, therefore,
the BBC was subject to the obligations set out
in the Fair Trading Commitment and Guidelines.

40 | Part One: BBC Annual Report and Accounts 2006/2007

2 Trust oversight of fair trading compliance
Since 1 January 2007 responsibility for monitoring
fair trading compliance and handling fair trading
appeals has lain with the Trust’s Fair Trading Policy
and Appeals Committee (FTPAC).The Trustees
on this Committee are: Jeremy Peat (Chairman),
Diane Coyle, Rotha Johnston and Mehmuda
Mian Pritchard.
Since 1 January 2007 responsibility for day-to-day
fair trading compliance by the BBC and handlingof fair trading complaints has passed to the
Executive, which has set up a Fair Trading
Compliance Committee (see Part Two, page 77).
The FTPAC is advised by independent fair trading
auditors and advisers.The independent auditors
conduct an annual Fair Trading Audit to determine
whether the BBC has established and applieda system of internal controls which provide
reasonable assurance that it has complied with
the Fair Trading Commitment.
The auditors’ activities include:
meeting fair trading representatives and otherindividuals with significant fair trading roles
in each divisionevaluating each division’s fair trading system
of internal controls
reviewing and testing a sample ofcommercial activities
testing the adequacy of processes torecord and track fair trading issues throughto resolution/completionassessing and testing the adequacy of fair trading
training programmes within each division
reporting their findings and conclusions to
the FTPAC.
The auditors’ opinion based on their audit for
the year ended 31 March 2007 is set out below.

3 Fair trading compliance
The Trust considers that the policies in the BBC’s
Fair Trading Commitment are consistent withthe requirements of the Charter and Agreement.
Through the FTPAC, and formerly the FTCC, they
have gained reasonable assurance that the systemof controls and procedures designed to ensurethat these policies are applied throughout the
BBC have been operating effectively throughout
the year.The BBC Executive has reported in Part
Two on its own measures to ensure compliance.

The Trust considered,and upheld, one fairtrading appeal during
the year

Fair trading appeals
The Trust considered one fair trading appeal
during the year, in relation to a complaint fromthe Kent Messenger Group. While noting thatthe issues raised did not amount to a serious
breach of the BBC’s Fair Trading Guidelines interms of the scale of the activity or likely impact
on the market, breaches of procedure were
found and the Committee upheld the appeal.
Findings of all appeals are published at:bbc.co.uk/bbctrust/appeals/fair_trading_appeal_
findings.html.
Fair trading audit
The independent fair trading auditors’ report
is set out below.
Independent Fair Trading Auditors’ report to the
BBC Trust for the year ended 31 March 2007
We have audited, in our role as the BBC’s Fair
Trading Auditors, the system of internal controls
established within the BBC to provide the BBC
Trust with reasonable assurance that the BBC
has complied with its published Fair Trading
Commitment for the year ended 31 March 2007.
Our instructions for this audit, which include thescope of work to be undertaken, were agreed
with the Governors’ Fair Trading Compliance
Committee which on 1 January 2007 was
succeeded by the BBC Trust’s Fair Trading Policy
and Appeals Committee. These instructions
include agreement that our audit should be
conducted in accordance with relevant AuditingStandards, agreement on the limit of our liability
in respect of this work and agreement that our
duty of care in respect of this work is solely to
the BBC Trust. We are satisfied that the agreed
scope of our audit was sufficient to enable us
to express the opinion set out below.

Part One: BBC Annual Report and Accounts 2006/2007 | 41

BBC Governance
The Trust

We ask external
auditors to provide
an opinion onwhether the BBC
has established, andapplied, a system
of internal controls
which provide
reasonable assurance
the BBC has compliedwith its Fair Trading
Commitment

Respective responsibilities of Governors,
BBC Trust, management and auditors
Until 31 December 2006 the Governors were
responsible for ensuring that the BBC meets all
the requirements of competition law and trades
fairly.The Governors established the BBC’s Fair
Trading Commitment, determined the objectivesof the system of internal controls designed toensure compliance with this Commitment
and monitored the outcomes of those controls.
On 1 January 2007, upon creation of the
BBC Trust, the BBC Trust assumed these
responsibilities.The BBC Trust is also responsible
for preparing the BBC Trust’s Fair Trading Reportfor the year ended 31 March 2007, as includedin the BBC Trust’s Annual Report and Accounts.
The BBC’s management is charged with
operating a system of internal controls designed
to ensure compliance with the Fair Trading
Commitment, including identifying and assessing
risks that could threaten fair trading and designingand implementing responses to such risks.
As the BBC’s Fair Trading Auditor, it is our
responsibility to form an independent view,
based on our audit work, as to the extent
to which the BBC has established, and applied,a system of internal controls which provide
reasonable assurance that it has complied with
its Fair Trading Commitment during the year.
We have reviewed specific decisions reachedby the BBC on fair trading issues only in so far
as this is necessary to form an opinion on thesystem of internal controls. Our audit was notdesigned to express an opinion on the qualityof the specific decisions taken by the BBC withregards to fair trading. We have also reviewed
whether the BBC Trust’s Fair Trading Reportreflects our findings of the BBC’s compliancewith its system of internal controls, and wereport if it does not.
This opinion has been prepared for and only for
the BBC Trust. We do not, in giving this opinion,
accept or assume responsibility for any otherpurpose or to any other person to whom thisreport is shown or into whose hands it may
come save where expressly agreed by our priorconsent in writing.

42 | Part One: BBC Annual Report and Accounts 2006/2007

Basis of audit opinion
We have carried out a programme ofprocedures and tests designed to provide us
with the necessary assurance to support our
audit opinion. Our work consisted of enquiry
and assessment to enable us to form a viewas to whether an appropriate system of internal
controls was in place. We also reviewed theprocessing of a sample of material transactions
to provide us with reasonable assurance thatthe system of internal controls had been applied.
As with any system of control, however
effective, it is not practicable to ensure that noerrors or irregularities have occurred without
being detected. Our audit work was therefore
designed to give reasonable assurance, but notcertainty, as to the adequacy of the system ofinternal controls which were in place and being
applied to deliver compliance with the Fair
Trading Commitment during the year. Further,because fair trading issues require judgements
which ultimately might be tested in a court oflaw, competition authority or elsewhere, there
is always a risk of challenge even where thesystem of internal controls has been followed anddecisions have been taken with the greatest care.
OpinionIn our opinion the BBC has establishedand has applied a system of internal controls
which provide reasonable assurance that it hascomplied with its Fair Trading Commitment
for the year ended 31 March 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
19 June 2007

Upholding editorial standards
The Trust’s role in upholding editorial standards
involves oversight and approval of management’s
guidelines. We also consider complaints on
appeal after the BBC’s complaints process has
been exhausted.
Editorial Standards Committee (ESC)The Trust’s Editorial Standards Committee (ESC)
was set up on 1 January 2007. Before then, issuesof editorial standards were dealt with by theGovernors’ Programme Complaints Committee.
This report reflects the work of both bodies.
The Trust’s role regarding editorial standards
is to commission editorial guidelines from the
Executive Board, monitor compliance and ensurethat an effective editorial complaints and appeals
process is implemented. It may commission special
projects to inform itself and also may consider
topics of editorial concern.
The ESC supports the Trust in these functions
and in particular determines editorial complaints
on appeal.The Committee is chaired by Richard
Tait and the other members are Chitra Bharucha,
Diane Coyle, David Liddiment and Mehmuda
Mian Prichard.
Editorial compliance
Every six months the BBC Executive reports
to the ESC on editorial compliance issues.
The ESC considered the first of these reports
in May 2007. The Committee welcomed thelaunch of the BBC College of Journalism andits website. Creating the College was one of therecommendations of the Neil Report following
the Hutton Inquiry. Other welcome developments
included guidance for BBC staff on issues including
conflict of interest, personal blogs, and usergenerated content.The Committee also noted
new guidelines to assist viewers with hearing loss.
The Committee noted 38 breaches of editorial
compliance upheld either by BBC management
or by the ESC compared to 50 in the previous
year. Serious compliance issues relating topremium rate phone services (PRS) were raisedin editions of Blue Peter and Saturday Kitchen(see box).

Blue Peter and Saturday Kitchen
In November 2006, because of a fault
with the phone lines, a child visiting theBlue Peter studio was asked to pretend
to be a caller to a Blue Peter premium rate
phone competition, and was named thewinner.The BBC Executive accepted thiswas a serious error of judgement andmade a public apology.

“The culture of the
BBC must be suchthat any proposal tomislead audiences isinstantly dismissed aswholly inappropriate”
Sir Michael Lyons
BBC Chairman

Following a newspaper report in February
2007 it was established that viewers of the
BBC One programme Saturday Kitchen had
been misled into believing they were callinga live programme.
The BBC Executive gave the Trust aninterim report about both programmes.
The Executive made a further report inMay, including a review of the use of PRS by
all BBC output over the previous two years.
The Trust published the report. It described
the Blue Peter breaches as particularly
serious and said that the culture of the BBC
must be such that any proposal to mislead
audiences is instantly dismissed as wholly
inappropriate.The Trust also agreed with
the Director-General that he commission an
external auditor to carry out sample checks.
The Trust was pleased that management
had moved swiftly to address the problems
and get a thorough review under way
with a commitment to learn from thesebreaches. It welcomed the actions of the
BBC Executive which included an on-air
apology for the serious errors that had
occurred in Blue Peter.
The Trust announced the appointmentof Ronald Neil to carry out a longer
term policy review of how and when the
BBC uses PRS and associated programme
activity.The Trust will consider the review’s
recommendations in the autumn of 2007.

Part One: BBC Annual Report and Accounts 2006/2007 | 43

BBC Governance
The Trust

The ESC also noted that Ofcom upheld four
programme standards complaints against the
BBC and resolved five others. New systems were
put into place at Radio 1 following complaints
to Ofcom. Ofcom also upheld six fairness andprivacy cases by first-party complainants against
the BBC.
The ESC will continue to scrutinise rigorously
progress by the Executive in ensuring editorial
compliance at all levels and in all genres.Thereis a particular need to ensure that the staff
of independent companies supplying the BBC
understand and comply with BBC editorial
guidelines.The ESC will also continue to monitor
the work of the Executive’s Complaints
Management Board in analysing compliancebreaches and disseminating lessons learned.

BBC three-stage complaints process
In February 2005 the BBC establisheda three-stage complaints process foreditorial complaints.
Stage 1
Anyone can choose to complain to either
BBC Information or the programme orcontent division within 12 weeks fromthe broadcast or publication.The BBC
will aim to provide a substantive reply
to any complaint within ten working days.
(Details of some issues raised at this stage
in the last year are included in Part Two.)
Stage 2
If the complainant is dissatisfied with theStage 1 response (and the complaint isabout a specific item broadcast or publishedby the BBC and concerns a possible breachof the BBC's editorial standards) thenthey can write to the independent Editorial
Complaints Unit (ECU) within 12 weeks.

The BBC has athree-stage complaints
process for editorial
complaints. The final
stage allows appeal
to the Trust’s Editorial
Standards Committee

Stage 3
If the complainant disputes the ECU’s
ruling they may appeal within eight weeks
to the BBC Trust's Editorial Standards
Committee (ESC).

44 | Part One: BBC Annual Report and Accounts 2006/2007

Editorial complaints
Complaints received dropped from 150,000
to just under 124,000. Coverage of the conflict
between Israel and Hezbollah fighters in the
Lebanon in 2006 generated 5,300 complaints,
some of which came to the Committee on
appeal. Management responded to 90% of allcomplaints within the target of ten working
days. However, this was below the managementtarget of 93% – a cause of some disappointment
to the Committee, given the lower volume ofcomplaints.The Committee also noted a small fallin the overall satisfaction rating of complainants
contacting BBC Information and scoring theservice at least 8 out of 10 from the highest scoreof 69% in January to March 2006 to 59% in thesame period in 2007 (measured in an independent
survey by Ipsos MORI).The Committee will
monitor the new processes put in place by the
Executive to improve performance.
The independent Editorial Complaints Unit
(ECU) hears editorial complaints from people
who are not satisfied with the response from
BBC information. It received 187 complaints andupheld 31 in full or in part. If complainants are
unhappy with decisions by the ECU they canappeal to the ESC (formerly to the Governors’
Programme Complaints Committee).There were
32 such appeals in 2006/2007, of which two
were upheld, four partially upheld, and in a further
case the ESC agreed to uphold a matter alreadyupheld by the ECU.The 32 appeals represented
0.03% of complaints to the BBC in the period.
Although Trustees appreciate that a decision
not to appeal to the Trustees may not mean
the complainant is necessarily satisfied with theoutcome, the small percentage of appeals indicatesthat the majority of complaints are successfully
handled by BBC management.
The Committee is concerned at the time taken
to deal with complaints by the ECU.Turnaroundtimes have improved following a restructuringof the ECU and the Committee expects further
improvement next year.
Trust research
The Trust will be undertaking research with the
public about what they wish to see in a bestpractice complaints system, and what may inhibit
them from complaining (see page 51).

“Every day we talk about theBBC, someone will always
bring some news from theBBC, it’s always a topic ofdiscussion at work, in taxis.
I always quote from the
BBC – I really believe in them.”
Response from Tehran taken from focus group work into audience perceptions of BBC World Service,commissioned by the Audiences and Performance Committee. Male,Tehran, contributing toTrust research.

Part One: BBC Annual Report and Accounts 2006/2007 | 45

BBC Governance
The Governors

The Board of Governors was responsible for the strategic
oversight of the BBC until its replacement by the Trustat the start of 2007.
Governors’ committees
The Board of Governors routinely referred somematters to sub-committees which reported backto the full Board.These were:

Board; reviewed progress of major projects
and strategies, including property; scrutinised
management proposals to assist deliberationsof the full Board.

Fair Trading Compliance Committee –reviewed the BBC’s compliance with its Fair
Trading Commitment, the World Service Trading
Protocols, and the BBC News/BBC World
trading relationship; considered significant
external challenges to the BBC’s compliancewith its Fair Trading Commitment; tested thefair trading processes and controls through thework of the fair trading independent auditor.

Remuneration Committee – considered theperformance of individual members of the
Executive Board and recommended theirbase pay and annual bonus awards to theBoard of Governors.

Audit Committee – reviewed the BBC’s
systems of internal controls; the complianceof the BBC’s financial statements with legal andregulatory requirements; the BBC’s relationshipwith its external auditors; the work andeffectiveness of the BBC’s internal auditors;
the value-for-money reviews commissionedby the Audit Committee.
Finance and General Purposes Committee –scrutinised and made recommendations
to the Board on the annual budget; reviewed
investment cases before consideration by the

Programme Complaints Committee – ensured
that complaints were properly handled by theBBC, including hearing certain appeals.
The structure of these sub-committees reflected
the governance system in place under theCharter and Agreement that expired at the endof 2006. Under the new Charter and Agreement
some of the responsibilities of the former Boardof Governors have passed to the Executive.
This is why, for example, the Board of Governors
had an audit committee while the Trust does not,the audit responsibilities having passed to the
Executive under the new Charter.
The attendance record of Governors at Board
and Committee meetings is set out below.

Board and Committee attendance, 1 April 2006 to 31 December 2006

Number of meetings in the year

Board ofGovernors

Fair Trading
Compliance
Committee

Audit
Committee

835Finance andGeneralPurposes Remuneration
Committee Committee

10

4

9/9

4/4

6/10

4/4

Programme
Complaints
Committee

7Michael Grade (to 27 November 2006)

7/7

Anthony Salz

7/8

Deborah Bull

7/8

Sir Andrew Burns

8/8

Baroness Deech (to 22 October 2006)

5/6

Dermot Gleeson

7/8

Professor Merfyn Jones

6/8

3/3

6/7

Professor Fabian Monds

8/8

3/3

7/7

Jeremy Peat

7/8

Angela Sarkis (to 22 October 2006)

5/6

Ranjit Sondhi (to 22 October 2006)

6/6

Richard Tait1

6/8

Agreed leave of absence owing to illness

1

46 | Part One: BBC Annual Report and Accounts 2006/2007

3/3

3/4

6/7

5/5
1/2

4/4
4/5

5/5

10/10

10/10
5/5
3/7

Governance Unit
The Governors were supported in theirwork by the Governance Unit, which provided
independent and objective advice as wellas administrative backup. It was reconfigured
as the Trust Unit at the end of 2006 as part of
the transition to the governance arrangements
established by the new Charter and Agreement.
Details of the Trust Unit are on page 37.
At the end of 2006, the Governance Unit hada staff of 33.The total cost of the Unit for the
first nine months of 2006/2007 was £7.9million(£8.3million 2005/2006 – full year cost).
Members of the Board of Governors in officefrom April 2006 until 31 December 2006
Michael Grade CBE, Chairman
BBC Chairman until his resignation in November
2006. Chairman of Pinewood Shepperton andof Hemscott Group and, from September 2006,of Ocado. Former journalist and theatrical agent.
Held many senior positions in broadcasting
including Director of Programmes, LWT;Managing Director designate, BBC Television;and Chief Executive, Channel 4.
Anthony Salz,Vice-Chairman
Acting Chairman of the BBC from
November 2006 to December 2006 following
Michael Grade’s resignation.Vice-Chairman
from August 2004. Chairman of the Fair Trading
Compliance Committee; Chairman of theRemuneration Committee and member of the
Finance and General Purposes Committee.
Former joint senior partner of the law firm
Freshfields Bruckhaus Deringer.
Deborah Bull CBE
Member of the Governors’ Programme
Complaints Committee and the Remuneration
Committee. Creative Director, ROH2. Former
Principal Dancer, Royal Ballet.
Sir Andrew Burns KCMG
The BBC’s International Governor. Member ofthe Audit Committee. Non-Executive Directorof J P Morgan Chinese Investment Trust andChairman of the Council of Royal Holloway,
University of London. Former diplomat.

Baroness Deech DBE (Ruth)
Member of the Audit Committee and the Fair
Trading Compliance Committee. Independent
Adjudicator for Higher Education. Former
Principal of St Anne’s College, Oxford, andformer Chairman of the Human Fertilisationand Embryology Authority.
Professor Merfyn Jones
The BBC’s National Governor for Wales.
Member of the Fair Trading Compliance
Committee, the Governors’ Programme
Complaints Committee, and the Councils andAdvisory Bodies Committee. Historian andbroadcaster. Former Vice-Chancellor of the
University of Wales, Bangor.
Professor Fabian Monds CBE
The BBC’s National Governor for Northern
Ireland. Member of the Governors’ Programme
Complaints Committee, the Fair Trading
Compliance Committee, and the Councils andAdvisory Bodies Committee. Chairman of thetrustees of BBC Children in Need. Specialist
in communications, information systems andentrepreneurial studies.
Angela Sarkis CBE
Member of the Governors’ Programme
Complaints Committee. National Secretary
YMCA from July 2006. Former Chief Executive,
Church Urban Fund and former Vice-Presidentof the African Caribbean Evangelical Alliance.
Ranjit Sondhi CBE
BBC Governor with special responsibility for the
English Regions. Chairman of the English National
Forum and of the Councils and Advisory Bodies
Committee. Senior Lecturer at the Universityof Birmingham’s Westhill College. Former Deputy
Chairman of the Commission for Racial Equality.
Three other BBC Governors – Dermot Gleeson,
Jeremy Peat and Richard Tait – transferred to the
BBC Trust. Their biographical details are on page 13.

Part One: BBC Annual Report and Accounts 2006/2007 | 47

BBC Governance
The Governors

Board of Governors remuneration
This section of our report sets out the
remuneration policy and remuneration received
by the Board of Governors.
The BBC is exempt from the requirements of
the Directors’ Remuneration Report Regulations
2002 and those of the Financial Services
Authority, but this report has been prepared
as if those requirements apply wherever thedisclosure provisions are relevant and applicable.
The sections on pensions and remuneration
received by the Governors are audited.
Until 31 December 2006, the Governors’
Remuneration Committee, a sub-committeeof the Board of Governors, advised the Boardof Governors on the remuneration policy for
the BBC’s Executive Board and the determinationof their base pay and any bonus awards.The
Governors’ Remuneration Committee waschaired by Anthony Salz and the other members
were Deborah Bull and Michael Grade.
The meetings of the Governors’ Remuneration
Committee were also attended by the
Director-General (Mark Thompson) and the
Director, BBC People, to advise on mattersrelating to other members of the Executive
Board and the overall performance of the BBC.
Neither was present when matters concerning
their own remuneration were considered.The
Committee also had access to internal expertisethrough the BBC’s Head of Reward, who
attended the meetings.
Complying with the 2003 FRC Combined
Code on Corporate Governance, the Governors’
Remuneration Committee took specialist
advice from external professional advisers
on remuneration matters, particularly market
practice. During the year, the Governors’
Remuneration Committee received advice
from the Hay Group on comparative market
data in the determination of pay and benefits
for the Executive Board.

48 | Part One: BBC Annual Report and Accounts 2006/2007

Governors: remuneration policy
The members of the Board of Governors
received a fee determined by the Secretaryof State for Culture, Media and Sport.They wereadditionally reimbursed for expenses incurred
on BBC business, and any tax arising on those
expenses was settled directly by the BBC.The
fees and taxable benefits are reported in thetable on page 49.
Pensions
The Chairman was eligible to participate ina pension scheme, which provides for pension
benefits on a defined benefit basis with an accrual
rate of 1/60th of the final pensionable salary
per year of service. Earnings are subject to a
maximum annual limit (£108,600 per annum
for 2006/2007) for those who joined the Pension
Scheme after 31 May 1989.The Pension Scheme
provides for early retirement on medical grounds
and life assurance of four times base pay up toa prescribed limit. No other Governors were
eligible to participate in a BBC pension scheme.
Details of defined benefit entitlements comparedwith 2005/2006 are shown on page 49.

Pension entitlement
Defined benefit schemes
Annual values

Name(age at 31 March 2007)

ChairmanMichael Grade (64)2

Transfer values1

Accruedpension at
31 March 20072£000 pa

Increasein accrued
pension over
the year£000 pa

Transfer valueof accrued
pension at
31 March 20072£000

Transfer valueof accrued
pension at
31 March 2006
£000

Increase intransfer valueless members’
contributions
over the year
£000

4

1

59

50

6

The fees payable to
the Governors were
determined by the
Secretary of State
for Culture, Mediaand Sport

The transfer value of accrued pension benefits represents the estimated cost to the Pension Scheme of providing thepension benefits accrued to date.The value is affected by many factors, including age, pensionable salary, pensionable
service and investment market conditions at the date of calculation (in accordance with Actuarial Guidance NoteGN11). It is not a sum paid or due to the individual and therefore cannot be meaningfully added to remuneration.
The effect of the investment market conditions on the transfer value varies according to the member’s age – for older
members the calculation reflects the yields on index-linked gilts, while for younger members the dividend yield on the
FTSE All-Share Index is the more significant determinant
2
Michael Grade resigned on 27 November 2006.The figures at the end of the year are the total pension (before any
pension was commuted for cash) and contributions at the date of retirement. His total benefits have then been valued
as at 31 March 2007, including the value of the benefits received between 27 November 2006 and 31 March 2007
1

Remuneration received
The remuneration of the Governors during the year is shown below.

Fee/basepay£000

1 April
2006 –
Expenses/ 31 December
benefits
2006
£000
£000

Total
2006
£000

Governors (retired 31 December 2006 unless otherwise stated)
Deborah Bull
Sir Andrew Burns
Baroness Deech (retired 22 October 2006)
Dermot Gleeson (appointed Trustee)1
Michael Grade (resigned 27 November 2006)
Professor Merfyn Jones
Professor Fabian Monds
Jeremy Peat (appointed Trustee)1
Anthony Salz2
Angela Sarkis (retired 22 October 2006)
Ranjit Sondhi (retired 22 October 2006)
Richard Tait (appointed Trustee)1

12
21
9
12
55
21
21
21
26
9
16
12

2
7
5
7
21
6
2
2
3
2
1
2

14
28
14
19
76
27
23
23
29
11
17
14

23
36
23
26
110
42
29
34
35
25
32
19

Total Governors

235

60

295

434

Dermot Gleeson, Jeremy Peat and Richard Tait received fees as Governors until 31 December 2006
2
Anthony Salz was Acting Chairman of the Board of Governors following Michael Grade’s resignation on 27 November 2006
until his term ended on 31 December 2006, and received fees at the Chairman’s level during this period
1

There were no payments in respect of termination or compensation for loss of office paid to or
receivable by Governors during the year.

Part One: BBC Annual Report and Accounts 2006/2007 | 49

“It is like a candy store, you
don’t like everything in there,
but what you do like, youactually really love.”
Spontaneous definition of BBC Two. Male, age 25–44, Cardiff,contributing to Trust consultation on service licences.

The Trust’s plans for 2007/2008

The year ahead will be a busy one for the Trust as we
continue to build and operate the new BBC governancesystems and establish the Trust as the representativeof the licence fee payer.
Our duties under the new Charter fall into threemain groups:
Stewardship of the licence fee income andother resources
Upholding the public interest within the BBC,particularly the interests of licence fee payers
Effectively promoting the BBC’s Public Purposes
The key elements of our plans for 2007/2008
that address these issues are outlined below.
Stewardship of the licence fee
Reprioritisation
Following the licence fee settlement, theBBC Executive has carried out an extensive
reprioritisation exercise. We will be examining
the proposals closely in order to protect theinterests of licence fee payers and ensure that
their voice is taken into account as spending
decisions are made.
Value-for-money studies
The Charter requires us to carry out value-for­money studies into specific areas of BBC activity.
In 2007/2008 we will investigate:
BBC use of radio spectrum – to ensure thatthe BBC is making the most efficient use of thisvaluable resource
In-house commissioning – to ensure that BBC
commissioning processes drive value and reflect
our strategic priorities
Procurement – to ensure that the BBC
is getting best value from its suppliers
Preparations for digital switchover – to ensurethat the BBC is playing an effective role indigital switchover
Additionally, we will carry out a study into theBBC’s role in the talent market – to ensurethat the BBC is generating the greatest value
for audiences.

Upholding licence fee payers’ interests
Public Value Tests
We expect to conduct a number of Public Value
Tests (PVTs) during the coming year. We havealready announced a PVT on BBC plans tolaunch a high-definition television channel. Details
are on the Trust website. Following the suspensionof BBC jam we look forward to receiving fresh
proposals from the Executive, which we expect
to be subject to a Public Value Test. Other tests
may follow from the reprioritisation work.

Our full work plancan be found on
bbc.co.uk/bbctrust.
You can also finddetails of how the
public may contributeto our various
planned consultations

Audience engagement
We want to make it as easy as possible for licencefee payers to take part in our consultations.To findout licence fee payers’ own ideas on how we canbest achieve this, we are currently consulting publicly
on ways to engage with BBC audiences. Full details
and a consultation form are on our website.
Complaints framework
It is important that anyone with a complaint
about the BBC is given a clear idea of how tocomplain, and can do so with confidence thatthe complaint will be dealt with seriously andin a timely manner. We will consult publicly
on a complaints framework later in the year.
Effectively promoting the BBC’s Public Purposes
Purpose remits
We consulted publicly on our draft purpose remits
and will finalise the remits over the summer
alongside the Trust’s view on reprioritisation.
Service licences
For the first time, each BBC service has
a licence setting out clearly what is expectedof it. We published interim service licences atthe start of 2007. We will amend these later
this year in the light of our public consultation.
Service reviews
We will review each BBC service at least
once every five years. Our first review will
be of bbc.co.uk.

Part One: BBC Annual Report and Accounts 2006/2007 | 51

Contact the BBC Trust

The BBC welcomes commentsor queries on any aspect of
its operations.

Paper
This report is printed on paper
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The virgin fibres are sourced frommanaged farms which have a strict
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BBC Trust
Any comments or questions you
have about the work of the Trustshould be sent directly to:
BBC Trust Unit
Room 211
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London W1U 4AA
Telephone: BBC Informationline 0870 010 3100*
Textphone: 08700 100 212(Lines open Monday to Friday
between 9.30am and 5.30pm)
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Programme and editorial complaints
If you think a BBC programme or
website has fallen below the BBC’s
editorial standards you should contact:
BBC Complaints
PO Box 1922
Glasgow G2 3WT
Telephone: 08700 100 222
Textphone: 08700 100 212
Website: bbc.co.uk/complaints
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Comments or queries about theBBC’s operations are best dealt withby the relevant BBC department.
Contact:
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Telephone: 08700 100 222*
(24 hours a day, seven days a week)
Textphone: 08700 100 212
Fax: 0141 307 5770
Website: bbc.co.uk/info*Calls to this number may be monitoredor recorded for training purposes

52 | Part One: BBC Annual Report and Accounts 2006/2007

BBC Audience Councils
The Audience Councils in England,
Northern Ireland, Scotland and Wales
help the BBC Trust to understandthe needs, interests and concernsof audiences throughout the UK, andto identify ways in which the BBC
can better serve its audiences. If you
want to contact the Audience Councils
you can write to them at theaddresses below:

Other information
This BBC Annual Report and Accounts
is available in public libraries
throughout the UK and on the BBC
Trustees’ website at bbctrust.co.uk.
It is also available in Welsh, in an
audio version and in Braille. Annual
Reviews for BBC Scotland, BBC Wales,
BBC Northern Ireland, BBC English
Regions and the BBC World Service
are also published.

Head of Governance andAccountability Scotland
BBC Audience Council Scotland
Zone G.11
40 Pacific Quay
Glasgow G512 1DA

The following photographs havebeen reproduced courtesy of:

Head of Governance andAccountability Wales
BBC Audience Council Wales
Room E5108
BBC Broadcasting House
Llandaff
Cardiff CF5 2YQHead of Governance andAccountability Northern Ireland
BBC Audience Council Northern
Ireland
BBC Broadcasting House
Ormeau Avenue
Belfast BT2 8HQHead of Governance andAccountability England
BBC Audience Council England
BBC Birmingham
The Mailbox
Birmingham B1 1RF

Matt Squire
Front cover (Manchester Passion)
Andrew Catterall
Page 2 (Sir Michael Lyons)Page 12 (BBC Trustees)
Designed and produced by
Sheppard Day Corporate(part of the 35 Group)Contents

2 Chairman’s introduction
5 Overview
The BBC Trust
9 What it is and what it does
12 The Trustees
BBC performance
15 Services
28 Finance and business
BBC Governance
32 The Trust
46 The Governors
51 The Trust’s plans for 2007/2008
52 Contact the BBC Trust

British Broadcasting Corporation
Broadcasting House
London W1A 1AA
bbc.co.uk© BBC 2007

PART ONE: BBC Annual Report and Accounts 2006/2007

PART ONE:The BBC is required under the terms of its Charter toproduce an Annual Report and Accounts in two parts.
The BBC Trust prepares the first part, the BBC Executive
prepares the second and each reflects the different roles
and responsibilities of the two bodies.Together the twoparts make up the BBC’s review and assessment of its year.

Annual Report andAccounts 2006/2007
The BBC Trust’s review and assessment