This is the full text of Mark Thompson's speech about the need for a higher licence fee:

Delivering Public Value: The BBC and public sector reform
The Smith Institute Media Lecture, given at Westminster, London
Wednesday 11 October 2006

A few months ago I was at an international broadcasting conference. When it was over I discovered that one of the other attendees – one of those seasoned campaigners who knows the ways of the world – had spent the entire conference asking my BBC colleagues one question about me: whose man is he? Is he Blair's? Or Brown's? Or is he Cameron's?

Well, what an interesting question. Rather more interesting, I'm afraid, than the answer they got: which is that things don't work quite like that over here. In many, perhaps most European countries, the DG of the public broadcaster changes when the Government changes. Politics suffuses everything – funding, governance, editorial choices.

We're so familiar with our system that it's easy to forget how unusual it is. The BBC recently had a Chairman and a DG who had both been strong and public supporters of the ruling party. In post they did everything in their power – and ultimately lost their jobs – in an effort to demonstrate their and the BBC's absolute independence from it. And the Government's reaction to the debacle? In many countries that would have been predictable: place people, an attack on funding, bullying, revenge. Here? If anything a sense of rallying - around, not just from the Government but from all the political parties. No phone calls, no arm-twisting.

And as for the BBC – well I know that some people worried that in the aftermath of Hutton we'd lose our nerve and our spirit of journalistic independence. But I don't see how you can look at our coverage of Iraq, Afghanistan, the loans for peerages investigation or politics in general and argue that we're pulling our punches. No, we live in a country where the main public service broadcaster begins the final furlong in the licence-fee stakes with – as luck would have it – a Panorama investigation into the husband of the Secretary of State.

This is the system working. But what makes it work? Independent governance and management. Strong institutional values. Strong public consensus. A hypothecated and independent source of funding which the public understand and support. And the result? Well, many results – not least quite a few good programmes and services. But the main result is public trust.

The BBC has its faults, goodness knows. It is still wrestling with many of the same issues as the rest of the public sector. How to modernise. How to reform. How to use the market. How to drive efficiencies and improve quality of service at the same time. How to put the priorities of its users first. But it's still a success story in terms of delivery, public confidence and the ability to change and re-invent itself.

That's why a number of people have asked recently whether some aspects of the BBC model could be usefully applied to other parts of the public sector.

I thought then that it might be useful to share with you a view of the model from the inside. To explore how independence and autonomy influences the way we approach the delivery of our mission. The way we think about internal reform and value for money. I'll also examine some of the issues at stake in the setting of the next licence-fee.

The idea of public value

But I want to begin with what has become the central idea in the BBC model – which is the concept of public value. For us, public value is the sum of the civic, social and cultural benefits the BBC delivers when it meets its public purposes.

An economist might describe it in terms of merit goods and positive externalities. Perhaps a more compelling way to put it is like this: the broadcasting space, the digital media space, is public space – a part of the public realm just as much as our city and town squares.

This space could just be filled with private media, commercial content seeking individual private consumers. But through the BBC and the other public service broadcasters, this country has decided to make room, alongside a flourishing commercial sector, for content which goes beyond private supply and demand and which is directed at wider societal goals. Supporting democratic engagement, culture, education, understanding between communities and between Britain and the world.

Fine words. But do they really take us any further than the traditional justifications for the BBC and the licence fee?

Well, I want to argue that the idea of public value has proven more liberating – and, in terms of developing strategy and running the BBC, more practically useful – than anything that's gone before.

First because we realised it required a much more precise set of public purposes. We proposed an initial draft in our manifesto Building Public Value. After nearly two years of public debate, the Government settled on a final formula in its White Paper. The BBC Trust, the Government and ultimately the public should judge the BBC on its performance in delivering these public purposes.

But how do you track and measure progress against those purposes? We've developed a new approach to performance management supported by a range of objective evidence as well as subjective judgement. It is based around four parameters: reach, quality, impact and value. RQIV.

Reach means looking at usage of services across the population rather than being a slave to audience share.

With quality, we've transformed the level of direct feedback from audiences. We have a fifteen thousand strong internet panel called The Pulse. Every day over five thousand of them answer a battery of questions about BBC output – not just overall scores for quality, useful though those are for delivering headline metrics, but detailed diagnostics.

In the case of impact, we're trying to go beyond immediate audience data to gauge the wider effects of our output – in terms of public response and participation, educational outcomes, critical reactions.

To judge value, we're using benchmarking and measures of perceived value to take the debate from one solely about cost inputs to one which examines the worth of content from the perspective of end-users.

After years of struggling with monstrous 'balanced score-cards' and KPIs, we now set a small number of objectives, around five per division, focused on the idea of public value, directed at delivery of the public purposes for licence payers, and supported by the RQIV framework. When the NAO examined it recently, they said it was ahead of anything adopted by any other public broadcaster.

Public value is also proving useful in addressing another issue: the balance between the public benefits which a new BBC service might bring and the potential disbenefits resulting from any adverse market impact. Again the approach which the new BBC Trust will take will be evidence-based, working with Ofcom's support, to arrive at a judgement of the net public value.

But, although public value is becoming something real inside the BBC, there is a still a missing civic piece. Representative democracy gets periodic opportunities to scrutinise and strategise about the BBC. Charter Review once a decade, licence fee settlements more frequently than that. The CMS Select Committee, the NAO, the PAC. Last Autumn alone there were 12 separate Parliamentary Select Committee sessions looking at aspects of the BBC.

But there is also a case for more proactive and dynamic deliberative engagement by the public themselves. At the BBC we routinely rely on audience and market research – as well as several million calls, emails and letters from the public every year – to inform decision-making. But the new BBC Trust should look beyond that to new ways of stimulating a deliberative dialogue with the public ahead of time to help it form its view both of public value and of future BBC strategy.

The BBC delivers

The BBC's adoption of the idea of public value has piqued the interest of many other public bodies. But it's not the principle reason why people argue that elements of the BBC model may be more widely applicable.

That reason is the fact that, benchmarked against most of the rest of the public sector, the BBC has demonstrated one of the strongest and most consistent records of delivery, even as it becomes a smaller part of an expanding, and increasingly competitive media market.

One of the questions that I'm sometimes asked in the context of our current licence fee bid is: what did you do with the last increase you got? Why can't you use some of that money to pay for digital switchover and the other new proposals? Let's take a moment to look back over the past few years.

At the start of this licence fee settlement in the year 2000, the Secretary of State Chris Smith wrote to the BBC with four new priorities:

first, the improvement of existing services, notably BBC ONE;

second, investment in the nations and especially in coverage of the new devolved institutions;

third, investment in educational content, in particular expanding our provision through the digital curriculum;

and fourth and most importantly, the first stage in the build-out of digital.

The funding for these priorities was to come from two sources: the first and larger was efficiency savings and other self-help measures, accounting for more than 75% of the total; the second was an increase in the licence fee of 1.5% per annum over and above inflation. Over the last six years we have generated those savings and spent that increase on delivering against those priorities.

BBC ONE today has far fewer repeats than it did in the year 2000 – though still more than either we or our audiences would like – and there's been a creative renaissance on the channel. A new confidence in drama – Robin Hood, Jane Eyre, The Street. The return of specialist factual output – and Panorama – to primetime.

This Charter debate has been remarkable for the lack of criticism of the BBC's editorial direction. Governance, scope, market impact, funding: these have been the topics. Not the success of the BBC in serving its customers and shareholders, the UK's licence fee payers.

That in itself is unusual in a public sector body. I think it's a result not just of the BBC's creative ethos, but of its ability – with its Governors, soon to be Trustees, taking the lead – to self-correct as it goes along. The lack of hands-on political oversight doesn't result in systematic poor performance or strategic misdirection. On the contrary, the BBC tends to confront issues and problems promptly.

The nations were the next priority – and again we've seen progress. Comprehensive coverage of the new politics of Scotland, Wales and Northern Ireland, but also better national services across the board. Within a few years network production from the nations will have risen by 50%, to 17% of all network production – in line with their share of UK population. Our next priority is substantially to increase BBC investment in the rest of England, especially in the North.

The third priority was education. I've already mentioned the massive investment we've made in specialist factual output – programmes like Planet Earth and Ancient Rome on TV alongside extensive commitments on both radio and the web. But the centrepiece is undoubtedly the Digital Curriculum, or BBC Jam as it is now called.

After a difficult and contentious birth, I believe this is shaping up to be one of the most important services the BBC has ever launched. Over the past seven years, the BBC's exam revision service Bitesize has grown to the point where it is used by nearly three-quarters of all students taking GCSEs.

In time Jam may enjoy a similar reach. Not just because of its imagination and flair, but because it has been designed wholly around children and can be used just as easily by students and parents at home as in the classroom.

Jam has already had other benefits too. Professor Stephen Heppell from Bournemouth University is a world class expert in online learning who has been working as an independent advisor to the BBC. This is what he has to say of the creative and technical process that has led to the launch of the service: "what Jam now offers is a uniquely agile, really quite organic, large scale development model that is without equal anywhere in the world. My belief is that we will need to document and share this agility – apart from the Jam partners, the UK software industry lacks it and can learn so much from it. This is an unexpected contribution."

The last of Chris Smith's priorities was digital. Over the past seven years, the BBC has launched new TV and radio digital channels, invested heavily in its web and interactive services and has driven take-up of several critical digital platforms. Taken together the BBC's activities in these areas have had a bigger impact on the UK's adoption of digital media than any other player.

The BBC rescued the digital terrestrial platform with Freeview. This autumn we expect DTT to overtake satellite to become the UK's most popular digital television platform. It is Freeview that has taken digital TV penetration to 70% - without it, digital switchover would be impossible.

The BBC's digital TV channels have also helped drive take-up. They've also made their own creative contribution: Little Britain and The Mighty Boosh on BBC THREE, The Thick of It and Fantabulosa on BBC FOUR. CBeebies and CBBC were a hit with children and parents from day one.

In the same way in radio, a combination of strong new digital channels and a total commitment to the platform have taken DAB to a tipping-point: eight weeks ago Dixons announced that they will no longer be retailing analogue sets through their online site as sales of DAB radios were 30 times higher.

But perhaps the biggest strides have been made on the web. At the start of the year 2000, the BBC site had a total of half a million pages and received around 150 million page-views per month. Today the site consists of more than six million pages and gets more than three billion page-impressions each month, a more than twenty-fold increase. It is by some margin the biggest content-driven site in Europe and one of the most highly regarded sites in the world. Again though, one of its most important effects has been beyond the BBC, driving take-up first of the internet, then broadband, then high-speed broadband.

In 2000, the Government asked the BBC to invest in high quality services to pave the way for a fully digital Britain. We've done exactly that.

But while most sceptics acknowledge that the BBC has performed well, some claim that the price for our success has been damage to the commercial sector through the twin scourges of market distortion and crowding out.

But where are the examples? When a couple of our most prominent critics were asked in public at the Edinburgh TV Festival to offer actual names and numbers, what followed was a long and unaccustomed silence.

Even the causes celebres have proven a grave disappointment to our critics. Oneword was said to be at risk from BBC 7's book readings. But Oneword was bought by Channel 4 and is doing fine. RM, the educational software company thought that even the vague threat of the Digital Curriculum would blight it completely. RM is, I believe, in as healthy a financial position today as it has ever been.

Yes, the BBC represents a colossal public intervention in the market. Yes, it is vital that the BBC Trust, working with Ofcom, scrutinises management proposals for potential distortion when new services are considered. The fact remains that, having spent around 30 billion pounds of the public's money in the present charter period, and despite the Barwise, Gardam and Graf reports, despite Ofcom's work – not to mention the public and private claims of numerous commercial lobbyists – no one has come up with a single evidenced example of any BBC service having seriously damaged competition in the relevant market. Not one.

And of course back in the real world, nobody even claims it. In all the tens of thousands of words written about ITV, no one even pretends that that network's creative and managerial tribulations are somehow the fault of the BBC.

Productivity and reform

But the BBC's services are only one half of the story. Over the past seven years, the organisation has had to face up to another agenda – one which is shared by virtually every other part of the public sector. This is the agenda of modernisation and reform; of the opening up of public sector requirements to private sector solutions; of continuous productivity improvements and value for money.

I don't believe we have always been as consistent in this field over the past seven years as we have been with our strategy and our services. But we have been a lot more successful than we've been given credit for – and here too there may be some learnings from our experience for other public bodies.

The BBC I rejoined as Director-General in June 2004 was already embarked on a value for money programme – one based on the self-help targets set by the Government as part of that 2000 settlement. But the need to free up resources to invest in our – and the country's – digital future led us to look at the scope for increasing productivity and efficiency across the BBC. Very simply, I thought there was more we could do.

With the passage of time, it is easy to forget the scale of the change which has followed from that review two years ago. By March 2008, gains in efficiency and productivity will have enabled the BBC's public service headcount to reduce by 3,800 people or 19% of the total. 2,500 more left when we sold divisions like BBC Technology and Broadcast which we thought would thrive better – and deliver more savings – in the open market.

One effect of this, and of the BBC's increased commissioning of independent production for TV, radio and the web, is that 45% of the licence fee is now passed straight out of the BBC in contracts to major suppliers. The BBC is partnering the market wherever it makes sense in terms of creativity, effectiveness or value. We've moved further and faster on this route than almost any other part of the public sector.

As a result of these changes, we're on track to deliver more than £350m of annual savings by the end of the current three year value for money programme. That's over £3bn during the next Charter period.

This is a stretching and difficult programme of reform. And we believe it is taking the BBC to the frontier of productivity in broadcasting.

Over the past year we've been engaged with other broadcasters in a benchmarking study looking at our and their TV programme prices. The study was undertaken on the basis of strict confidentiality and I can't talk about the other participants or about their programmes. What I can tell you is that the study suggests that over 80% of the BBC's television programmes were around or below the industry average. Of those that weren't, some were in what you could call the Planet Earth category where we're clearly going for something of exceptional ambition. The rest we'll look at closely.

But the critical point is that the comparisons were made before the present three-year value-for-money plan which is removing an additional 15% from programme prices.

Our critics often claim our prices are out of line with the market. This study suggests that this is simply not the case.

Nor is the BBC's approach to pay inflationary. This year's award was half a percent below the run-rate of inflation and it's been tight for the past few years. The executive pay-bill has been coming down as the number of directors reduces. And despite the headlines, individual executive pay is typically much lower than the market: I get about a third as much as the chief executive of ITV, for instance. Pay for stars – again the source of much alleged outrage – is included in those programme prices I quoted a moment ago: prices that compare very well with the market.

I believe we can demonstrate that – especially after the abrupt correction of the past few years – we are firmly back on track in terms of productivity and cost reduction. But as we take cost out, audiences tell us they believe the quality of our services is going up not down.

The BBC's mission in the next Charter

So we're not in bad shape. And, if all that was wanted was a steady-state BBC with the same line-up of services and the same level of quality, we could deliver that well within our current resources.

But that is not the prospectus before us. Instead of steady-state, the Government has laid down four ambitious strategic goals for the new Charter period:

first, a step-change improvement in existing services;

second, a further substantial shift of investment and creative commitment to the nations and regions;

third, the development of on-demand, mobile and other new digital services;

and fourth, massive BBC engagement in the Government's broader digital agenda – in particular, analogue to digital TV switchover.

Let's take each in turn. The Government has been very clear in the quality improvement it wants to see. Fewer repeats. An elimination of low-cost, derivative factual programmes. Every programme to meet stringent public service criteria.

This isn't just the Government's priority. It's the public's. The DCMS recently commissioned an independent report from the Work Foundation into the public's willingness to pay a higher licence fee for more and better BBC services. Seven thousand people took part. A big majority said that they were prepared to pay a bigger licence fee. Indeed the average amount they said they'd pay when the heard about the BBC's plans was £162 in today's money, well above the BBC's own bid. Investment in more quality content was one of the most popular proposals in the study.

That's relevant because, perhaps to state the obvious, the kind of output the public normally associate with quality – original drama and comedy, specialist factual programmes, investigative journalism – cost a lot more on average than those they don't. To replace one hour of low-cost programming with one hour of something like Planet Earth on one channel each week would cost £150m or more over the next Charter.

We plan to meet the Government's second priority – the nations and regions – by better local and regional services and by a redistribution of network spend and creative commitment. Both potentially have wider economic and social benefits. One of the reasons that our plans for Salford have been greeted so enthusiastically in the North is that our partners see the BBC's potential move as a catalyst for much broader development of the creative industries, not just in Greater Manchester but in the whole region.

The third heading is new digital services. Not new channels this time, but new ways for the public to find and enjoy the content they've already paid for. At home and on the move. When and where it suits them. So: investment in our on-demand application, the BBC i-player, in digital infrastructure, in search and navigation.

Some people say of course: why can't you make up your minds? Why don't you either stick to your existing services, or, if you're so keen to embrace the future, why not cut some existing services and use that money to pay for these new departures?

But it's an inevitable and demonstrable fact that different groups of the population are moving at different speeds in this digital revolution.

While millions have already adopted broadband, millions of others still rely wholly on current analogue services. To deliver value to all licence-payers, the BBC has no choice during this transition but to ride both horses at the same time. This is why the Government has chosen both to support the BBC's plans to develop on-demand, mobile and other new applications while also taking care to insist that we maintain every single existing service. But doing both has obvious cost implications.

The fourth and final Government priority for the BBC is also the most expensive one. This is building digital Britain, the centrepiece of which is the colossal task of switchover from analogue to digital television. Paying for our own costs. Paying some of the rest of the broadcasting industry's costs. Paying for the so-called targeted help scheme of subsidy to vulnerable groups to help them migrate to digital.

Few people outside the industry have registered the scale of the task – or the scale of money required. We've just signed a contract for one of the essential elements in TV switchover – the procurement of the build-out of DTT or Freeview transmitters to extend digital terrestrial coverage to the whole of the UK. This one contract is for £1.8bn and it covers just some of the BBC's own transmitter requirements.

Digital switchover is an enormous upgrade of national infrastructure. I believe it's the right policy – most developed countries are on a similar track as the UK and for similar reasons. Switchover supports the BBC's goal of universal access to its services. That's why, to us at least, using the licence fee to fund so much of it is legitimate.

But be under no illusion. This is a project of great scale and intricacy. The risks are formidable.

If it is under-resourced, it will fail. It's as simple as that – and the failure will impact on many millions of households.

Of course some of those who have been lobbying in private and public against our licence fee proposals do not wish the Government's plans for digital switchover well. Sky, for instance, is implacably opposed to them. They believe that the build-out of digital terrestrial is quite unnecessary and that those people who can't currently get Freeview or cable should simply be told to use Sky if they wish to convert to digital.

The licence fee is the main funding mechanism for switchover. If you want switchover to be abandoned or to fail, what better place to start than to try to use your influence – that influence which Rupert Murdoch boasts about so freely in this week's New Yorker – to put a squeeze right now on the licence fee?

The current bid

Digital switchover, investment in quality, nations and regions, new digital applications. That is the context in which the current debate about the future level of the licence fee should be seen.

Should the BBC submit to the same disciplines as the rest of the public sector? Yes. Should it deliver like-for-like services with year-on-year cash- releasing savings? Yes of course it should.

If all that was wanted was a steady-state BBC, RPI-minus – a licence fee falling in real terms – would be the right settlement.

But, as I've emphasised in the past few minutes, that is not the mission we have been set.

Broadcasting is an area of public policy, like health and education, where the Government has wanted to do a lot more than the status quo. Under Chris Smith and under his successor Tessa Jowell, a vision has developed of a digitally enabled Britain, in which the benefits of the new technology – not just more choice in entertainment, but more opportunities for engagement, education, community involvement – are available to everyone.

And it's working. Tangibly, demonstably working – though, as the White Paper makes clear, we're only half way there.

But inevitably this is a vision which requires net investment. And because the Government believes that the BBC should play such a central creative and financial role in delivering the vision, the BBC too needs net investment.

It was for this reason that the Government decided to give the BBC an above RPI settlement in the year 2000. It is for this reason they need to do the same today.

Of course the BBC should be set testing efficiency and productivity targets. More than 70% of the money we need to deliver the White Paper and Agreement can be found through self-help. But it can't all be found.

An updated bid

It is one year to the day since we set out our licence fee bid in public – the first time the BBC had ever done that. We did it so that there could be an open and transparent debate about the BBC's funding. We also did it so that the cost of the Green Paper proposals could be considered alongside the proposals themselves.

After all, it's generally not a good idea to order a three-course meal at a restaurant before checking you've got the money to pay for it.

In practice sign-off of the proposals has moved faster than detailed engagement on their financial implications. This is about more than simply the quantum of the licence fee. Any settlement must factor in the large and lumpy capital costs of digital switchover. These either require a licence fee which increases sharply in the years when the outlay is greatest or a different approach to the BBC's ability to borrow – or some combination of the two.

Then there is the length of the settlement. Historically the most powerful argument for a relatively long settlement has been as a guarantor of the BBC's independence. Around the world, PSBs who have to go cap in hand to governments every few years inevitably find that direct political interference increases. But this time there is a powerful second reason. Digital switchover will take place over the next seven years. The financial commitments, the infrastructure build out, the targeted help scheme, all have a seven year horizon. The BBC's mission over the next seven years is crystal clear in the White Paper. There is a powerful case for settling the BBC's funding for the same period.

At the time we announced the bid we said it was inevitable that the figures would move. Since then some – like our estimates on our pension costs – have gone up. Others – like the proposed move to Salford – have come down. Over the past year BBC Governors have kept up the pressure on us to refine and, where possible, reduce the costs of our proposals.

Although some costs, particularly some of those associated with switchover are still uncertain, the net impact of that work has been to bring our bid down.

If Ofcom decides that it would not be appropriate to levy Spectrum Tax over the settlement period, then our bid – which a year ago today stood at RPI plus 2.3% – will be locked off this autumn at around RPI plus 1.8%. Targeted help remains outside these numbers, as it has all along.

So: a bid for a for a licence fee that grows in real terms. But a licence fee which the Government's own research suggests that the public are prepared to pay.

Difficult choices

But what happens, I'm sometimes asked, if you don't get the money you're asking for? What will drop off the end of the list then?

Again, I believe the answer should begin with public value. The BBC – and in particular the new BBC Trust – is charged with delivering the maximum possible public value with the resources available to it. If those resources are insufficient, then it should use the BBC's public purposes and the framework of reach, quality, impact and value to prioritise. The preferences of the public themselves should weigh heavily with the Trust. It's also possible that some proposed new services will fail their Public Value Tests and therefore will not require funding.

So a definitive answer to the question will only be possible when the new Trust and Executive Board have got down to work and started to prioritise and operate the new approvals process.

And yet some things are clear. The proposals in the bid for investment in quality content, for better local services – in particular the idea of local TV – and for on-demand and other new digital applications all score very highly in the Government's willingness to pay research. Nearly 60%, for instance, supported the idea of local TV.

Now clearly, local TV is not something the BBC has to do: after all, we and the public have survived without it for the past 80 years. Nevertheless, in addition to strong public support, it also now has the backing of many politicians and community leaders who have seen it in action in our West Midlands pilot. They recognise that it goes straight to the public purpose the BBC has been set to help citizens and communities engage with each other and with the big issues that affect them. It's a powerful and cost-effective new way of building public value.

Again, one could scale back on the plans to invest in quality content. Replace fewer repeats. Cancel the proposed investment in children's content.

It's worth asking though: who would benefit? Some commercial broadcasters certainly believe that they would. But not the independent sector. Not the freelance or craft sectors. Not the wider creative industries. Because when commercial revenues are volatile, the investment in Creative Britain which the licence fee represents becomes more not less important - £1bn a year flowing through the BBC into the wider creative industries. ITV investment in British children's programmes is in full retreat. Is this really the right time to prevent the BBC from investing a little more?

In fact I believe it is more likely that, in the event of a low settlement, the Trust will focus on those proposals which – though very important – are lower on the public's list of priorities.

As I think almost everyone knows, I am very committed to the vision we have for a new broadcast centre in Salford. I believe it is right for the BBC. Right for the UK's creative industries. Right for the North – indeed for the whole country.

It's an idea which began three years ago as a classic BBC grand projet – with an estimated price to match. We've transformed the proposal since then, worked with the private sector and local and regional stakeholders and come up with what we believe is a transformational plan for creativity and jobs in the North.

But from the start, the BBC's Governors have made it abundantly clear that they would only approve the case for Salford if it could demonstrate robust value for money, and the licence fee settlement made it affordable.

I am sure that the Trust is likely to take the same view. Indeed, in the event of a low settlement, I would not even be able to recommend it to them. We would have to find other, more modest, ways of increasing our investment in the North.

Finally, there is the question of digital infrastructure and the enormous investment that requires. We believe passionately in our digital mission and in the universality of service which switchover promises. We're prepared to work very hard at releasing cash from our existing licence fee to make it possible.

But the licence fee is not an endlessly stretchable rubber-band. We are at or very close to the efficiency frontier. The targets we have signed up to in our bid will themselves be difficult to achieve.

We can't do everything. We can't rob existing core services to pay for switchover. In the event of a low settlement, the Trust will face some difficult choices about delivering the mission set out in the White Paper.

Conclusion

It's now more than two years since Michael Grade and I arrived at the BBC. During that time, the roles of Chairman and Director-General have become more distinct and separate. Scrutiny and challenge of BBC management is more systematic and rigorous – behaviourial changes that will become structural and irreversible when the new Trust is formed.

Nonetheless, it's also true to say that Michael and I both returned to the BBC with similar priorities in mind. Reform and modernisation of a great but sometimes complacent institution. A spirit of openness and accountability, not just to stakeholders and policy-makers but to audiences and licence-payers. A focus on what the BBC really stands for – above all the excellence of its services – and on the unique ways in which it can build public value. A determination finally to guide this sometimes cussed, sometimes eccentric, but also precious and utterly irreplaceable Ark through the waters of change.

The work is just begun. But it's well begun. We have as clear and bold a strategy for the future as any media organisation I know. We've shown that we won't shirk from difficult or unpopular decisions if they are in the interests of audiences and our long-term future. We're building new bridges to the rest of the creative industries.

I have no doubt that Michael and the new Trust will pursue the path of reform and engagement vigorously during the new Charter. So too will I and the BBC's management.

But reform needs support. And an important part of that support is realistic funding. The public has shown not just that it trusts the BBC model and that it understands the concept of public value. It has shown it's prepared to pay for it. That's a message which I hope the Government will now heed. Thank you.