Leading Article: No private matter

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JOHN BIRT'S tax arrangements call into question his own judgement and that of the BBC's board of governors. Yesterday's Independent on Sunday revealed that the corporation's new Director-General is being paid as a freelance consultant who has turned himself into a company, even though he is a full- time employee of the BBC. Instead of paying tax on his full BBC salary, thought to be about pounds 150,000, he has been taxed only on what he chooses to pay himself from his company: in 1991, when he was Deputy Director- General, that was pounds 59,000, plus pounds 14,000 for his wife. He was able to offset againstturnover substantial expenses such as secretarial assistance, lighting and heating, as well as charges for clothes, insurance and cleaning. What would Lord Reith, the BBC's puritan founder, have made of a Director-General who sets his Armani suits against tax?

Such contractual arrangements are customary in the free-wheeling, high-living world of independent television in which Mr Birt previously worked as director of programmes at London Weekend Television. They benefit the employer as well as the employee, by cutting out National Insurance contributions. The normal criteria applied by the Inland Revenue, often with extreme rigour, when deciding whether freelances with a single main source of income should be subject to PAYE are not invoked, since there is no question of a fee paid to a company being taxed at source. That may be unfair, especially when the Inland Revenue is forcing intermittently employed actors to pay as they earn. But in this case the Inland Revenue cannot be accused of inconsistency.

The blame lies squarely with Mr Birt - and the BBC's governors, who should have known about the deal and stopped it. It is shocking that the chief executive of a public sector corporation should think it right to be paid in a way that is so much more favourable than the salaried basis of other employees. No doubt Mr Birt wanted to maintain an arrangement that had stood him in good stead at LWT. Perhaps he hoped it would not become known. Now that it has emerged, he should rapidly put himself on the same footing as everyone else.

Much damage has been done, however, and not just to any goodwill Mr Birt may enjoy within the BBC. The new Director-General has portrayed himself as the stern guardian of a refreshed public service ethos, telling the world that in an increasingly commercialised society, public service values are safe with him at the helm; and that the BBC will be straightforward and accountable in its approach to the public. But what sort of example does he now seem to be setting? Mr Birt is in charge of a large institution that faces difficult times justifying its licence fee as the renewal of its charter nears, and of slimming itself down while sustaining its high standards. It needs leadership of a high order to meet those challenges. Putting oneself at an advantage vis-a-vis the Inland Revenue is not a good way to inspire the troops.