MONDAY 1 JULY 2002

MS SUE STREET, MR GREG DYKE, MR JOHN SMITH AND MS ZARIN PATEL

  1. Good afternoon and welcome to the Public Accounts Committee where we are discussing the collection of the television licence fee. We are delighted to welcome Mr Greg Dyke, Director-General, and Ms Sue Street once again to our Committee. Mr Dyke, do you want to introduce your two colleagues?

  (Mr Dyke) John Smith, who is Director of Finance at the BBC and Zarin Patel, who is Head of Revenue Management.

  2. The Clerk has scheduled this Committee with great skill because today I think Capita are taking over from Consignia in terms of collecting the licence, are they not, Mr Dyke?
  (Mr Dyke) That is the case, at 9 o'clock this morning.

  3. We are very much up-to-date and no doubt colleagues may have one or two questions on that subject. I will start by referring you, Ms Street, if I may to paragraph 2.4 on page 19 of the report. I would like to get straight to the heart of what we are talking about today. If you read that, you will see that there are widely differing estimates of evasion. The revised model shows that evasion cost £199 million at March 2001 compared to £141 million estimated by the old model. Can you explain this?
  (Ms Street) Yes, certainly. The new model is now in place and in fact the final model that was introduced is slightly different from the revised model at the time the NAO reported because we made some further adjustments. I have to advise the Committee that the final figure is £218 million.

  4. So, for the purposes of today, we are going to ignore the figure of £141 million and ignore the figure of £199 million; we are up to £218 million.
  (Ms Street) The final figure for evasion, the latest figure of May, is 7.8%. The difference arises because adjustments have been made to take into account some significant areas like student halls of residence and second homes. Then the final validation has included an 0.4 percentage point uplift for hotels and lodgers and a 0.3 percentage point uplift for business premises. As the report very clearly points out, all of these are guesstimates, not measures. We are being advised by the Royal Statistical Society on maintaining the model now as near perfect as we can, but it will never be perfect. On any model, the evasion rate is falling and the 7.8% measure as at May, if you looked back to say ten years ago in May 1992, would have been 12.7%. So on any measure it is falling. Of course, as the NAO point out, the sensitivity to the estimates is high. We have used the BARB data for good reasons. None of this is cash itself not coming in to the BBC but it does illustrate the size of the challenge for collection.

  5. May I carry on asking you, Mr Dyke, on this similar theme. If you look at paragraph 1.9 on page 15, you will see there it is headed, "The cost of evasion and collection". It says there that you are intending to achieve an evasion rate of 3.5% by 2006. I would like to know how you are going to achieve this. It is quite a difficult target, is it not, because the evasion rate in March 2001 was between 5.2 and 7.6%, depending on the model used. How are you going to achieve this relatively low evasion rate?
  (Mr Dyke) The 3.5 relates to 5.2. It is because, if you look at the trend over the previous decade on that statistical model, we have reduced evasion by 50% and it is our belief that we will continue to do that. We have done so further this year. That is shown on the computer. Of course, now there is a different model, the 3.5 equates to 5% or something.

  6. So you are pretty confident that you can go on making progress, although it is going to become more and more difficult?
  (Mr Dyke) That is the view of the people who are responsible.
  (Mr Smith) Very briefly, the trend over the ten years is important because it shows an improvement year on year every year. It continues to come down, even after the year that has just ended, and we expect it to carry on doing that. Many innovations in the way in which we go about the assignment, including introducing new methods of payment for people, new payments channels, and indeed changes of contractor, work towards ensuring that the rate continues to go in the right direction. There are two final points. One is that our actual target for the end of the Charter on the new model as opposed to the old model is 4% evasion; that is what we are aiming to achieve. The final point is that this report I think validates very many things that we have been doing, and I hope we will be able to continue to do things like that in the remaining years between now and then.

  7. Mr Dyke, can I ask what you are going to do to stop your enquiry officers visiting properties that do not exist. There were 70,000 such visits in 2000-01. That is a lot of wasted time of enquiry officers. I think 600,000 properties were visited which were under construction and which obviously were not going to be paying the licence fee. What are you doing to stop this waste of your enquiry officers' time?
  (Mr Smith) We are making 3.5 million visits into homes every single year. The report talks a lot about the impact of those visits in terms of houses that do not exist, houses that have been demolished, and so on. From my point of view, the important thing about the visits is the deterrent effect it has, as well as the fact that large numbers of people do get caught. We are catching 459,000 in the year just ended from those visits. As well as the people who are caught and who then pay up, the deterrent effect is phenomenal. I have been out with television licence enquirers myself and visited housing estates. The effect it has when you turn up in an estate with people on the estate knowing that you are there to enforce the television licence collection system is quite substantial because people talk about why you are here, what you are doing, what it is all about. It is a criminal offence. There is a fine of up to £1000. Those visits, together with our marketing campaigns—posters and so on—help in the general message that is given to people that it is a bad thing not to pay and it is better to cough up, which is what we want people to do. So we would never expect every single home visit to result in a sale, of course, but we do expect that each of those home visits has some use.

  8. So it does not matter too much if they are visiting a property that is under construction or does not exist because people are seeing you walking down the street; that is what you are saying?
  (Mr Smith) I am saying that the deterrent effect is absolutely critical and, in addition, we leave paperwork behind at homes when people are not in, encouraging them to pay even when the enquiry officer has not made contact with them. We are also using the visits as a means of getting the database updated. It is the biggest database in Britain for homes, and there is no central register anywhere of whether or not homes are going to be built, demolished, whether houses have been turned into flats and so on. We use our visits as a means to get our database as accurate as we possibly can.

  9. Mr Dyke, when dealers sell you a television they are supposed to notify the authorities of what has happened obviously, but up to 40% of sales of television equipment are not being notified to the BBC at a cost of up to £7.7. million a year missed licence sales. What are you doing to strengthen the dealer notification system?
  (Mr Dyke) We take legal action against certain dealers. There is one prominent dealer due in court tomorrow. No doubt that will be reported in the press the day after. We can take action against the dealers. I think the figure is slightly exaggerated.

  (Mr Smith) The figure is correct, and I have no complaints about it. It includes second sets in single homes, and of course if the premises has already got a licence, we cannot issue another licence just because they have another television set. It also includes some types of equipment that legally do not necessarily need a television licence. We have got to get to the absolute truth in terms of how many sets are being sold. I should say that there are 17,000 dealers registered with us, sending in every single month details of how may sets they have sold. In the last year 7.5 million have come to us. We are not in any way suggesting that the NAO Report is incorrect. Already we are working with Capita when they started today looking at what we can do to make sure that the data we do get is accurate but 17,000 dealers sending in data every single month is quite a large operation. As I say, some of the sets that have been sold are second sets and they do not require an extra licence.

  10. Ms Street, are you worried about the relatively high up-front costs of direct debit and cash-easy entry schemes deterring people from joining those schemes, particularly as many will be on state benefits and these schemes are supposed to help people and they may be deterred by these large, up-front costs?
  (Ms Street) The Director General and I have discussed it and I think that we ought to have a look in particular at the cash-easy entry system. We have arranged for our teams to make some recommendations to us by the end of October about what could be done specifically in relation to cash-easy entry because that is for those people by definition who have the least ability to pay. For direct debit, I would be interested in views that I am sure will be expressed this afternoon. My approach is to look at the business case. I think what we have now is 49% of people already on direct debit, which is not bad compared to the utilities. If, for example, you are offering some sort of incentive along the lines of the gas suppliers, which would be 8%, that would be costing the BBC £100 million, so I think you have to be very sure that it is necessary to give that initial incentive, given that we are already at 49% and the BBC is hoping to get 55%. I am less certain about direct debit. I do think—and I know that the Director General agrees with me—on a cash-easy entry system, which is already used by three-quarters of a million people, so one does not want to damn it, that there may be things that we should do to make sure that they are addressing the areas of greatest need. Perhaps also worth pointing out, as the report does, is that only 0.2 of people said that they could not find an option for payment that was possible for them. The strategy is right, which is to have 17 different ways of paying and 26,000 outlets, so that it would be very difficult for people to say that they cannot find some method of payment, and indeed they are not saying that.

  11. The last couple of question I want to ask you, Ms Street, open it up a bit. You can already, I think, receive broadcasts through your personal computer. There are emerging technologies which are opening up huge possibilities that were not even considered when television was invented. I know you cannot give a very startling answer to this question: is this not a rather old-fashioned system, employing armies of people going around trying to chase up people who are not paying their television licence fee? With all these emerging technologies, should we not be looking at some way of financing the BBC that is based on grant in aid?
  (Ms Street) One can certainly look at different ways of financing, but essentially the point you make is about the different technologies and how are we going to know in future what constitutes a television set; what is a dealer; what is the sort of apparatus? That is clearly very challenging. I was listening to a talk this morning by the maker of Big Brother explaining how that was actually available on seven different bits of multimedia, so this is a huge challenge. The way we approach it, with the opportunity of the Communications Bill, is to provide there for subordinate legislation by which the Secretary of State could make orders which would define dealers in different ways and television sets in different ways. I do think we will really need that provision to keep up with the challenge ahead.

  12. Mr Dyke, do you want to make a comment on that or are you happy with that reply?
  (Mr Dyke) One of the problems with all these technologies is the distribution cost. The way we have done broadcasting historically is fundamentally by a cheap form of distribution; you pump in a signal and a lot of people can take it. What we have discovered through, say, internet radio, is that the distribution costs of internet radio are very expensive compared to traditional broadcasting. So there is a limit to how many people will ever be able to use the internet for television just because of the broadcasting cost. We worked this out a year ago, and it has come down a bit now, and the cost for radio stations was something like 23p per listener per hour if you broadcast across the internet. Therefore, you have to limit the numbers who could ever receive on the internet or it would bankrupt the Corporation. Everybody talks about emerging technologies, but actually traditional broadcasting is a cheap form of distribution.

  13. Ms Street, the last question is something that you are probably fearing that we might ask you and I cannot let you get away without giving you an opportunity once again to give us the answer as to why it is that whilst the Comptroller and Auditor General has some access to the BBC, an organisation spending £2 billion a year; why has the Comptroller and Auditor General and Parliament no power to examine how this £2 billion a year of taxpayers' money is used. We have made this point again and again in this Committee and in Parliament; Lord Sharman, as you know, an independent person, made the point that the Comptroller and Auditor General should have rights of access. Gavyn Davies, before he became Chairman of the BBC, was an advocate for us having rights of access. Can you explain to us once more why we should not have, as the guardians of taxpayers' money, a right of access to BBC accounts?
  (Ms Street) The question is not a surprise, of course, Chairman, and I do know and I have read the transcripts and I very much realise the strength of feeling in this Committee. The position is that this is a matter of policy; this is for Ministers to decide. I think it is very timely to point out that we are now consulting on the Communications Bill. In that wider context, Ministers are looking at all sorts of questions of regulation and oversight of the BBC and the Governors. The Government will want to look at all of this in the round, and they will do so, but, as you rightly say, the Committee knows that the Government has looked at recommendations recently, both in the light of the Davies and Sharman reports, and considered that there was not a case for change. Worth also bearing in mind is that the BBC is already subject to an absolute battery of audit and scrutiny. I know John Smith could give further details. Provisions in the Charter have been supplemented since February 2000 by a number of additional provisions, which I would be happy to read out for the record if you want me to do so, which include, for example, an independent review of the BBC's financial projections, an independent external auditor of their fair trading functions and so on.

  14. That is all very well but it is not mentioned in Parliament.
  (Ms Street) No, I appreciate that but it is necessary to ensure that their proceedings are transparent and validated.

  Chairman: Thank you for that. I am glad you have not come up with the usual argument we hear that Sir John is somehow going to compromise the editorial independence of Blue Peter and programmes like that. Thank you anyway for being relatively open with us and saying that the door is not completely shut in our face.

  15. Could I just ask one question about Capita? They made a very big push some years ago to win a contract for housing benefit and one authority, not a stone's throw from here, which was by far and away the best authority for running housing benefit, under Capita has been reduced to average performance, which is hopeless. Housing associations in the area now have emergency overdrafts because Capita is so poor in delivering on the big sell that they made. Could I therefore ask: who made the decision it should be Capita and did anybody before that contract was awarded check up with what Capita's poor performance was in delivery as opposed to selling itself?
  (Mr Dyke) The answer is: yes, we did. John can go into some more details. I presume you are referring to Lambeth.

  16. No, to Westminster, which was by far and away the best authority. Lambeth has always had, poor old Lambeth, applications for housing benefit stuffed in cupboards and God knows where. Capita has managed to reduce Westminster to that level of performance. That is what I am talking about, the very best in the country has now been reduced to average, which is hopeless. That is why I was asking whether you checked up on them.
  (Mr Smith) We obviously, when taking on a new contract of such significance—and 98% of all our income comes from this source—do not want it to go wrong. We have checked up on any known instances of Capita not performing well and went to visit several organisations where there had been bad press about Capita, which is what you would expect us to do. Our own feeling is that several things matter: firstly, no two contracts are alike. The situations for Westminster or Lambeth, or any of the others where they had the occasional bad press, are not the same as applies here to the BBC. Secondly, Capita were already working with the BBC. They run our call centres in Glasgow and Belfast perfectly well to a level of service with which we are very happy. Thirdly, Capita win one out of two of every bid they put in. They are a FTSE 100 company with a turnover of £3 billion. They service something like 85%, one way or another, of the top 300 companies in Britain. They are a smart, capable outfit, providing the contract that they are working under is sensible and that the contract is then well managed. I cannot see any reason why they cannot perform at least as well as anybody else. In this particular case, they put the best possible bid in for us.

  17. Do you understand how they work? They filter off the very best staff they take over and take them into the main company, so that if the authority then wants to take the contract back, it is only left with those poor souls who can hardly read or write to run the department. These are some of the reasons why authorities do not go to the press because they are rather ashamed of what they signed up to.
  (Mr Smith) I understand the concern. I am not sure it applies here, largely because a very large number of the field force working on this particular assignment transfer from one contractor to another. It is a different management that takes over, a different series of contractor incentives and targets and so on, but actually the large number of people who are doing the job on the ground continue to be the same people, so I am not sure that is right.

  18. So when we have you back in four years' time, the trend of non-payment will be above the average trend which the Permanent Secretary described today as occurring every year anyway?
  (Mr Smith) I would need to make sure I understood that question absolutely correctly.

  19. The Permanent Secretary told us that the non-payment was a falling proportion of your receipts. That is without you embracing Capita. I am asking you, when you come back in four years' time, do you expect to exceed the trend rates or do you think Capita will have failed to exceed that?
  (Mr Smith) If we could carry on the trend rate, we would be doing extraordinarily well and that is what we would like to do.