However, his pragmatic move did little to allay the sense of outrage among BBC employees, and added to Mr Birt's isolation and unpopularity. 'There is fantastic anger,' said one head of department. 'This is a real own goal.'
Mr Birt said: 'The argument has been made strongly in the past few days that it is inappropriate for the director-generalship to be occupied by someone who is not an employee of the BBC. I recognise the force of that argument. And I have today told the BBC I would like to accept their offer to change my status and to become a member of the BBC's staff.'
Tony Lennon, president of BECTU (the broadcasting union) said staff were stunned by the revelation in the Independent on Sunday about Mr Birt's deal, even though it was legal. 'A public corporation have assisted one of their most senior executives in avoiding the payment of tax. If the governors approved it they are at fault. If they were not even given a chance to consider it, then someone else is at fault for concealing it.'
No previous director-general enjoyed such tax arrangements. This is because the director-general is legally responsible for the BBC's operation and not available for hire to any other employer. No other member of the board of management has such an arrangement. Mr Birt's deal is not included in the annual report and accounts.
Robert Phillis, who joins the BBC on 5 April as deputy director-general on a five-year contract, will be a staff member and part of the PAYE system.
Former senior executives and colleagues also expressed amazement at expenses claimed by Mr Birt. They pointed out that as deputy director-general and director-general he enjoyed substantial perks, such as a Range Rover and travel, dining out and entertainment expenses.
They wanted to know who received the pounds 15,000 allowance claimed for secretarial help when he had abundant BBC secretarial staff. There was surprise that the director-general, an executive, not a screen performer, was claiming pounds 3,666 allowances for his wardrobe - although his preference for Armani suits is a well- worn inhouse joke.
The deal, under which his salary of pounds 135,000 is paid into John Birt Productions Ltd has also drawn attention to the governors, and in particular to the judgement of the chairman, Marmaduke Hussey, and the deputy chairman, Lord Barnett, who went along with it. The widespread view was that they should have said no a long time ago.
There is also the further question of whether the BBC governors have agreed to pay about pounds 60,000 so that Liz Forgan, incoming managing director of BBC Radio, could be freed from Channel 4's 'golden handcuffs'.
The BBC refused last night to confirm reports that Janet Street-Porter, a senior programme executive, also has her earnings paid into a private company. Miss Street-Porter issued a statement that she had worked in television as a freelance for the past 20 years and that her contract with the BBC ran out in December. Arrangements for the new one were under discussion.
A close associate of Mr Birt's said: 'I have always thought of him as a careful man. This makes him look risible. It is going to make his job at the corporation even more difficult.'
Another department head said what really incensed staff was that all executives were under pressure from controllers of finance to force freelance programme staff on to PAYE because the BBC feared it would be investigated by the Inland Revenue. 'Then we open our papers and find that our director-general is doing the opposite thing, acting as a freelance consultant. It is amazing. There is no question about it - his leadership has been seriously damaged.'
In a statement yesterday Mr Birt said: 'I first became a freelance around 25 years ago when I worked at Granada Television, later forming my own company. There are some tax advantages - though they are modest compared with some of the speculation. And there are responsibilities - paying your own pension and other benefits normally received by employees.
'When I was invited to move from LWT (his former employer) and to become director-general of the BBC I asked - and the BBC agreed - to continue the arrangements that applied at LWT. My particular arrangements have been agreed with the Inland Revenue as are my accounts each year. I have always been entirely open about the basis on which my services are provided.'
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