John Birt's Taxes: Director-General's letter

The following is the text of a letter from the BBC Director-General to the 'Times' today explaining his financial arrangements.

SIR: Last week, I joined the staff of the BBC, regretting the distress I had caused by my contractual arrangement as deputy director- general. May I now offer some perspective on the reports and comments of this past week that followed my announcement?

Six years ago I was approached to join the BBC as deputy director-general. I was offered a five- year term and given a specific brief. It was conceivable that I might return to the commercial sector thereafter, so it seemed sensible at the time to continue the contractual arrangements that applied at London Weekend Television, where I was then working - namely, to supply my services to the BBC through my own company. This was accepted by the BBC.

Such arrangements are not uncommon in broadcasting. I had been a freelance or had offered my services through a company since I had worked as a young producer at Granada in the late Sixties. The benefits over a period of time were a close involvement in determining the nature of the work I should do; and the flexibility and mobility of having my own company pension scheme. There were also tax advantages but - despite some of the speculation of these past days - these have been modest.

In order to demonstrate this, my solicitors invited Ernst & Young the chartered accountants to undertake an independent scrutiny of my and my company's accounts and to establish the tax advantage of my arrangements for the year ended 31 August 1991, the period which has received most attention in the press. Ernst & Young had not previously been involved in my affairs.

Ernst & Young report that:

if I had been directly employed as a member of BBC staff, I would have been liable in the period for pounds 45,551 for income tax and National Insurance contributions;

in the event, the total tax and NI liabilities of the company, my wife and myself were pounds 41,616;

accordingly, the saving was pounds 3,935. This benefit was reduced by the company's accountancy and administration costs. The net benefit for the Birt household was pounds 810 for the year.

There has been widespread misunderstanding of the benefit of such arrangements because, first, the normal day-to-day expenses incurred on BBC business were paid by my company and charged on to the BBC. This inflated the turnover and the apparent level of expenses of the company. Second, any personal benefits received from the company by my wife and myself are benefits in kind and liable for tax.

I accept that it is inappropriate for the director-general - the person with ultimate management responsibility - not to be an employee of the BBC. In the late autumn of last year, when the first discussions about the terms of my contract as director-general began, the BBC's stated preference was that I should become a member of staff.

When Sir Michael Checkland decided to leave at Christmas - before the end of his term - the handover was accelerated. And because of the intense pressure of business, these contractual discussions had not been concluded.

My long familiarity with contractual arrangements of this sort did not prepare me for the dismay and unease that news of them generated. I moved quickly to join the BBC's staff because I did not want anyone - least of all those working within the corporation - to think that my commitment and dedication to the BBC were less than total, which they are.

JOHN BIRT