The turmoil at the BBC caused by the Hutton inquiry deepened yesterday when the corporation bowed to pressure from the Government for a full apology and Greg Dyke resigned as director general.
The board of governors voted by a margin of two to one to dismiss Mr Dyke, forcing him to stand down.
Many BBC staff were angry and demoralised that Lord Hutton's investigation into the death of David Kelly had claimed a second scalp, following Wednesday's resignation of the chairman, Gavyn Davies.
After an emotional departure by Mr Dyke, there were spontaneous demonstrations by hundreds of staff who walked out at Broadcasting House and Television Centre in London. Staff also stopped work at 11 BBC regional offices around the UK.
After Downing Street raised the stakes by demanding a fuller apology from the BBC, Lord Ryder of Wensum, the acting chairman, said the corporation apologised unreservedly for the allegation by its reporter Andrew Gilligan that Downing Street "sexed up" a dossier on Iraqi weapons. Later, Tony Blair and the BBC tried to lower the temperature by promising to "draw a line" under the dispute. But ministers scented blood, with some saying privately that Richard Sambrook, the BBC director of news, should resign or be moved for failing to brief the board of governors properly about Mr Gilligan's report, which Lord Hutton described as "unfounded".
At the Cabinet's weekly meeting, ministers congratulated Mr Blair on his vindication by Lord Hutton.
Although Downing Street insisted there was "no gloating", Mr Blair's spokesman said the Cabinet's message was that serious issues, such as Iraqi weapons, should be discussed without impugning politicians' integrity.
Some MPs expressed concern that the Government would use its victory to undermine the BBC's editorial independence and put pressure on the rest of the media. Worried by the backlash among BBC staff, ministers promised they would do nothing to put the BBC's independence at risk.
Mr Dyke who is succeeded by his deputy, Mark Byford, as acting director general fell on his sword reluctantly. He told staff who walked out to support him: "I don't want to go. But if, in the end, you screw up, you have to go."
He said he was not "a political animal" but hoped the resignations of the two senior figures at the BBC meant "a line can be drawn under this whole episode".
Lord Ryder, a former Tory minister, who said he did not want the chairman's job permanently, said: "The BBC must move forward in the wake of Lord Hutton's report, which highlighted serious defects in the corporation's processes and procedures. On behalf of the BBC, I have no hesitation in apologising unreservedly for our errors and to the individuals whose reputations were affected by them."
Mr Blair welcomed the BBC's statement. "This, for me, has always been a simple matter of an accusation that was very serious. It has now been withdrawn, that is all I ever wanted," he said. "I want to make it absolutely clear I fully respect the independence of the BBC. I have no doubt the BBC will continue, as it should do, to probe and question the Government in every proper way. What this does is allow us to draw a line and move on."
Downing Street denied the Government had demanded the head of Mr Davies and Mr Dyke, both Labour supporters. It said: "They decided to resign and the Prime Minister believes two decent and honourable men have done the decent and honourable thing."
Alastair Campbell, the former communications director at No 10, signalled an end to his personal battle with the BBC. He told Sky News last night: "I'm content with the fact that finally, after all that everybody's had to go through, these allegations have been withdrawn. It's for the BBC to decide whether having somebody like Andrew Gilligan on their payroll is a way to restore their integrity and reputation."
The National Union of Journalists, Mr Gilligan's union, said that he wanted to remain at the corporation.
There was continuing surprise that Lord Hutton had come down so heavily on the BBC while acquitting the Government of almost every charge. Sir Christopher Bland, a former BBC chairman, said there was a "curious imbalance" in a report that exonerated the Government but "tarred and feathered the BBC". He said: "It is legitimate to question whether Hutton was even-handed in the way he treated, on the one hand, politicians, civil servants and the security services and, on the other hand, the standards of conduct he applied to journalists and broadcasters."
Lord Rees-Mogg, a former BBC vice-chairman, said: "I don't have any confidence in Hutton ... I have already come to the conclusion his evidence does not support his conclusions and that it is, put quite simply, a bad bit of work."
In a separate development, Nicholas Gardiner, the Oxfordshire coroner, said he was ready to examine statements from witnesses who withheld their evidence from the Hutton inquiry and would ask Thames Valley Police to hand over the missing material. He will then consider Lord Hutton's report and decide within the next month whether to hold a full inquest into Dr Kelly's death.
A poll found yesterday that a majority of people thought Lord Hutton's report was wrong to lay all the blame at the BBC's door. The poll, by NOP, showed 56 per cent thought the peer was wrong to blame only the BBC; 49 per cent said the report was a whitewash, with 40 per cent disagreeing.
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