Q41 Mr Williams: Do you mean that the market saw you as a bad bet?
Mr Peat: No, I mean the bond markets have changed substantially and we did not have the credit rating which was necessary to access bond finance. By the time we came to the re-financing, we were able to take advantage of very favourable bond markets and achieve a bond rating which made access to appropriate sources of funds achievable. That has now been achieved and I think the cost of the re-financing is very much to be admired.
Mr Thompson: We should also just briefly say that this Report by the NAO is a very useful Report. We shall try to learn from its conclusions and ensure that they are built in at the start of new projects. I have to say that this Report is a good example of the current arrangements working rather well.
Q42 Chairman: Surely it shows that the huge rearguard action of the BBC in resisting the right of Parliament to oversee your accounts and the way you carry out commercial exercises such as this was totally misconceived, that you had to be dragged kicking and screaming to Parliament to justify yourselves. You actually have nothing to fear. Mr Peat said this was a good contract. That we may have differences of opinion does not matter. Surely, as you yourself have made clear Mr Thompson, what we have already heard, even in the first half an hour of this hearing, vindicates the right of the Committee of Public Accounts to have full rights of access to you on behalf of the licence-fee payer, who frankly has no choice in what is really compulsory taxation. It does vindicate what we have been saying all along. You have nothing to fear from this process, have you Mr Thompson?
Mr Thompson: My job as Chief Executive and as the leader of the management of the BBC is to operate under whatever systems of accountability are set by our governors, by Government and Parliament. There was an extensive debate the last time I was present as a witness in front of the PAC airing the broader issues. I would want really to restrict my remarks to saying what I have just said, which is that this has been a very useful Report, we will learn from it. I think it demonstrates the current system seems to be working; the experimental system, as you termed it, is working rather well.
Mr Peat: All I would say as Chairman of the Audit Committee is that we have found the two Reports which NAO have undertaken for us extremely valuable. We look forward to three more pieces of work, one of which has started, two of which are about to begin. We are very happy to discuss with the Comptroller and Auditor General other aspects as the programme unwinds. We have a series of studies which have been undertaken by others as part of the value for money programme, two of which have been submitted to you for this hearing. We benefit hugely from those studies and we really do appreciate and have taken a number of lessons out of this Report and the other Reports to the benefit of value for money across the BBC.
Chairman: Thank you very much and we appreciate having you in front of us too.
Q43 Greg Clark: May I start with the declaration that I was an employee of the BBC from 1997 to 2001? I worked with John Smith and Mark Thompson, but not, to the best of my recollection, on any matters that we have before us today. Having said that, may I start with the updated note we have had from the BBC since the Report, which gives a revised vision of the property portfolio. I see from that that two buildings have disappeared from the map: one is Woodlands and the other is Millbank. Can you confirm that Millbank is to be closed down and Woodlands is to be disposed of? Would that be correct?
Mr Smith: Woodlands will definitely be disposed of; we have no plans to get rid of Millbank. It is possibly because it is just outside the geographic scope of the West One Village area that it does not appear on the map.
Q44 Greg Clark: So there is no significance to be read into its omission.
Mr Smith: No, but Woodlands definitely, absolutely, is to be disposed of.
Q45 Greg Clark: Woodlands, as I recall it, is the home of BBC Worldwide Limited, the commercial subsidiary.
Mr Smith: Yes.
Q46 Greg Clark: Where is it planned that the employees there will be going?
Mr Smith: Somewhere on the W12 site. Somewhere around the buildings which are the subject of this NAO Report. The actual location has to be decided.
Mr Thompson: As you would expect with an organisation like the BBC, it is a jigsaw and not all of the pieces of the jigsaw are clear yet. For example, the proposed move to Manchester has yet to be decided upon. As has been alluded to already, Manchester would have a significant impact on our need for property in London. Once it is clear what is going to happen with Manchester, then the precise movement of the remaining pieces in the W12 jigsaw will become clear. The expectation is that the BBC will consolidate the media village and television centre on the site west of Wood Lane and dispose of its properties to the right, to the eastern side of Wood Lane.
Q47 Greg Clark: So Woodlands would go and people would go into either Television Centre or White City.
Mr Smith: Yes.
Q48 Greg Clark: When they go there, it is very important, you will agree, that as a commercial subsidiary they pay the appropriate market rates for that. Would they pay the market rent if they were to go into White City, or the cost of accommodating them? In other words, the cost that the BBC pays for that space or the cost that would be available on an open market?
Mr Smith: It is pretty essential that the commercial subsidiaries are not given any kind of subsidy by the licence-fee payer, so, as a minimum, they have to be charged the cost to the BBC and where the market rate is higher, they would get charged that.
Q49 Greg Clark: We know that in the case of the broadcast centre, the BBC pays £42.92 per square foot according to the C&AG whereas BBC Broadcast pays £25, that being a benchmarked market rate which is rather less than the BBC pays. We know that in the media centre the market rate is £22.50 and the BBC pays £38.80. Can you reiterate, Mr Smith, that BBC Worldwide will pay what you have just told me is what the BBC pays for that?
Mr Smith: Yes, I certainly can and I might just turn, if you do not mind, to Mr Chris Kane to add some texture to that. The figures quoted in the Report for BBC Broadcast Limited were as at the time of the Report and it is not an exact apples and apples comparison as Mr Kane will tell you. By the time we sold that company, as you know we have now sold it, the deal with them was put onto exactly the same footing as I am describing would be the one for BBC Worldwide as well.
Mr Kane: As John was saying, the comparison in rental valuations is not precisely apples for apples. The rental valuation provided to the National Audit Office by Lambert Smith Hampton was based on a 10-year lease with five-yearly upward-only rent reviews, whereas the broadcast arrangement was in line with our unitary charge under a 30-year period for the outsourcing. So in terms of pure apples for apples on a pure rental basis, there is a difference. Holistically, the BBC has collected all the money it has expended under the unitary charge payments to Land Securities from all its commercial affiliates. We have achieved full recovery both under the old unitary charge basis, which was in existence up until the spring of this year, and we are currently recovering a full amount from broadcasting as we speak today.
Q50 Greg Clark: But you have had to change the basis on which this was done and Mr Thompson in his earlier remarks commented on the specialist fit-out of the new White City centre. If what you are doing is moving a commercial subsidiary, many of which do not require studio space and specialist equipment, into a property which is especially kitted out for that purpose, why is that an appropriate building for these people?
Mr Thompson: We will ensure that the office space into which we move Worldwide is appropriate for their needs. Across the W12 properties as a whole, we have a very wide range of different kinds of spec, including the totality of television centre. We are confident we can find a good match between the needs of different parts of Worldwide and the range of property we have available.
Mr Kane: If you look at the two buildings, the broadcast centre, as you may recall, was particularly designed as a play-out centre, whereas the media centre was designed primarily as an office purpose with the flexibility to adjust for broadcasting and indeed no less than a year in, we are already planning to put programme makers into that building thus justifying the investment we made at the outset.